SEPPs and Rollovers

L1: SEPPs and RolloversI have three IRAs with SEPPs already set up for each. Is there any restriction in rolling these IRA over (not the distributions), as long as I keep them whole and do not co-mingle them? Can I take IRA1 and use the funds (less the 20% withholding), roll the full amount (i.e. add the 20% back) into another IRA before 60 days are up? Then do the same with IRA2 afterwards, then with IRA3 after that?2004-06-09 14:28, By: JSO, IP: [68.17.132.182]
L2: SEPPs and RolloversYour scenario is a little confusing, but I think I understand your question. I think your are asking about changing IRA custodians which can be done while a SEPP is working.
If you have IRAs and not Qualified plans, like a 401(k), then your don’t have to worry about the 20% withholding. The 20% W/H only applies when you take ‘constructive receipt’ (a congressionally created term) of the money from your Qualified plan. If you then complete a ’60-day rollover’ to an IRA or another Q-plan, you have to make-up the 20% withheld from other funds so you do not suffer a tax consequence for the transfer. You get back the money that was withheld when you file your taxes for the year of the move.Because of this problem, most people use the ‘trustee-to-trustee transfer’ method to do a Q-plan ‘rollover’ to their IRA.
If you do in fact have three IRAs and you are asking about changing custodians, then have your new custodian do the ‘trustee-to-trustee transfer’ for you.
I’m sure Bill or Gary will add some other items of importance to this answer.
Good luck.
Jim2004-06-09 14:43, By: Jim, IP: [68.225.115.136]

L2: SEPPs and Rolloversjim, it sounds like this query is more about having outside use of the dollars for the 60day window available each year for IRA dollars and then replacing it before the 60 day expiration than about direct asset transfers from one custodian to another. sounds like he wants to alternate accts drawing the dollars in use?
if so, i know i wouldn’t touch that with a 10′ pole
some investors forgethow dramatically and unexpectedly ANY negative news can impact their best laid plans and not give them the time(60 days) to recover.i can’t understand how it could be worth the POSSIBILITY of breaking a SEPP to have access to some dollars for 60 days.
theguys on this site do such a great job of conveying to the inquisitive public how to make SEPP work, not how to try to exploit even furtherthis legal trapdoor
(didnt think i would see this again this quickly after 2000!)
maybe he’s going to atlantic city or buying KKD on margin2004-06-09 17:16, By: ralphccbi, IP: [12.107.192.130]

L2: SEPPs and RolloversGood morning, Ralph:You are probably right that use of the money is more of an issue than simply changing custodians. And if that’s the case and the writer wants to play that game then more power to him. But I am convinced that he doesn’t know enough about the rules (citing a 20% withholding for changing an IRA custodian which is wrong), and should get some really sound advice which The Badger or another, highly qualified person could provide. And you are right about great plans going astray and missing the 60-day window.Jim2004-06-10 08:22, By: Jim, IP: [68.225.115.136]

L2: SEPPs and RolloversI will go out on a limb and say that I can’t think of any good reason to ever do a rollover; particularly when a SEPP plan is also in place with respect to the underlying assets. My reasoning is twofold:
1. As pointed out, 20% of the amount distributed must be withheld for federal taxes and that 20% must be made-up from other resources within 60 days.
2. A taxpayer may have what they think as a bonafide “gap financing” need; e.g. I need $100,000 as a down payment on a new home today and that $100k will be replaced within 45 days from the closing of one’s old home. At 1st galnce, this appears to be a bonfide need; however, I would still rather borrow the funds (easily done) than do a rollover as the closing of any “gap financing” transaction have a habit of getting delayed.
Unless I am not thinking of something, the implicit assumption of a rollover is that one fully intends to replace the funds within 60 days & is therefore acting as one’s own banker — I would just as soon not do it & find the money needed elsewhere.
TheBadger
wjstecker@wispertel.net
2004-06-10 08:50, By: TheBadger, IP: [66.250.23.21]

L2: SEPPs and RolloversGood morning Bill:
Thanks for your comments and I agree that playing the ‘free float loan’ game is really dangerous and I do not recommend it either.
However, I want todisagreewithyour point #1 … that is until you show me where I am wrong, which has occurred before and I am sure will occur again sometime. If someone does a transfer from one IRA custodianto another IRA custodian whether it is a ‘trustee-to-trustee’ move, or the IRA owner takes possession of the funds and completes the move within the allowable 60-days, there is no requirement to have 20% withheld. In fact the IRA owner can and should have no tax withheld, and the distribution formsclearlyrequire a tax withholdingelection.
The 20% withholding rule applies when someone takes a distribution from their Qualified Planupon retirement or separation, and then create a ‘Rollover IRA’ account. In this case they have to make up the 20% from other funds or pay tax and possibly penalties.
Like I said in my original post, the scenario wasn’t really clear what JSO was actually doing.
Jim2004-06-10 09:08, By: Jim, IP: [68.225.115.136]

L2: SEPPs and RolloversOne more rule about moving IRA’s that should be mentioned. If a person takes possession of the funds from an IRA and does a “60-day Rollover” (which is correctly called a “Transfer”), then the money must stay in that new IRA for 12 months before doing another “60-day Rollover” whereby you take possession of the funds again. However, there are no IRSlimits that I am aware of for doing “trustee-to-trustee” transfers of the same IRA.
Jim2004-06-10 09:16, By: Jim, IP: [68.225.115.136]

L2: SEPPs and RolloversHello Jim:
Sorry, I picked up this discussion mid-thread & thought we were discussing rollovers out of a qualified plan. You are correct; if the distribution / rollover originates from an IRA there is no mandatory withholding; only from a qualified plan.
Upon further examination of the original post; there is a long standing strategy of opening 7 IRA accounts & performing 7 rollovers per year; one every 50-55 days or so. This does create a permanent tax free withdrawal equal to 1/7th of the total.
However, I have always had a bit of a problem with this strategy for two reasons:
1. Just one slip & the plan is screwed with taxes & penalties due on the withdrawal (plus the potential for SEPP penalties as well) remembering that 7 rollovers must be done every year.
2. What bonafide transaction could there be to warrant such a transaction stream? I think generally, none; however, I can think of a few which are most often coupled with a major need to create some income shifting between tax years.
TheBadger
wjstecker@wispertel.net
2004-06-10 09:26, By: TheBadger, IP: [66.250.23.21]