L1: Allowable transactionClient fractured account after SEPP was established, but has not received any notification that the SEPP is busted. During fracturing, the bulk of the account was moved TTTT to another IRA which has grown substantially above the initial SEPP calculation amount. Since the account balance is significantly higher than the original SEPP calculation amount, can the client TTTT the “profit,” on the account to another IRA, still leaving the original amount of the SEPP calculation balance?2009-09-01 14:22, By: Planner1, IP: [22.214.171.124]
L2: Allowable transactionYour client busted the plan and owes penalties and taxes on any amount distributed from the SEPP since the inception date.
A SEPP plan is between the owner and the IRS – seldom will your client receive notice that the plan was busted – just a letter from the IRS with news of a possible audit.
Since the plan is busted, there is no current SEPP.
Hope this answers your questions.2009-09-01 14:35, By: Gfw, IP: [126.96.36.199]
L2: Allowable transactionPlease define what you mean by “fracturing” the account. If the “another IRA” had a prior balance, the SEPP is busted. But if this was a newly created IRA account, the partial trustee transfer in itself does not bust the SEPP.What action actually do youreference as the SEPP buster here?2009-09-01 23:02, By: Alan S., IP: [188.8.131.52]
L3: Allowable transactionAlan… good question.
I guess I was thinking that fractured meant busted.
If fractured means simply that the plan was divided, thatwould not necessarily bust the plan as you outlined in your post.2009-09-02 11:34, By: Gfw, IP: [184.108.40.206]
L2: Allowable transactionAlan, thank you for your reply. The SEPP account was the original account for the receipt of100% ofrollover assets. About 80% of the assets in that account were used for the SEPP calculation and the distributions commenced. After the 1st distribution, a TTTT transfer occured for approximately 40% of the assets to a new IRA with no prior balance. That said, is her SEPP “busted?”2009-09-02 14:07, By: Planner1, IP: [220.127.116.11]
L3: Allowable transactionThe plan would not be busted because of the transfer.
However, if all the assets were in one IRA at the date of the 1st distribution, then all the assets belong to the SEPP and must remain as part of the SEPP.
>>About 80% of the assets in that account were used for the SEPP
calculationAll the assets of IRA needed to be included in the initial SEPP calculation.
For the initial calculation, the balance used should have been 100% of the IRA, the attained age in the year of the first distribution and the appropriate interest rate for the date of the 1st distribution.
As I mentioned above, the plan would not be busted because of the transfer. However, you need to review all the initial documentation to see if using the proper assumptions gives you the amount of the annual distribution that was taken – if not, you will have a busted plan.
2009-09-02 14:37, By: Gfw, IP: [18.104.22.168]
L4: Allowable transactionThanks GFW. Using the calculator, client entered 100% of account balance in the first box and then amount allocated to to SEPP at 80% using the maximum 120% Fed Term rate. Since the 80% was used rather than the 100%, wouldn’t it still be a valid SEPP just utiliziling a lower percentage on the Fed mid-term than the 120%?2009-09-02 14:54, By: Planner1, IP: [22.214.171.124]
L5: Allowable transactionNo. 100% should have been entered into both boxes since it was all in one IRA. If only 80% of the IRA was to be used, then the other 20% would have to have been segregated into a new IRA before any distributions. There have been PLRs on the subject of only using a portion of the account.
If you run into an audit- your client must be able to justify all the assumptions used including balance, age and interest rate.
2009-09-02 15:03, By: Gfw, IP: [126.96.36.199]
L6: Allowable transactionGfw,
This post makes me wonder if the “Amount Allocated to the SEPP” in the calculator is leading some people to think they can base their SEPP on only part of the account.
Would it be better to footnotethe calculator or add to the Help notesthat using less than 100% must only be used to helpdetermine the amount ofan IRA to be separated by transfer prior to starting the plan?
Or perhaps itcan be deleted altogethersince the site now has a reverse calculator?2009-09-03 00:26, By: Alan S., IP: [188.8.131.52]
L7: Allowable transactionI can re-word, but no matter what we put out in terms of descriptions, many people won’t readit.
The calculators have been out for many years and this is the first time that it has come up. And, I think you will agree that there is a lot more to a SEPP plan than generating numbers in a calculator.
If they don’t understand it, they should really seek professional help as stated at http://www.72t.net/FinalThoughts …
The best advice is to use this site to do estimates and become knowledgeable on the subject, then “Hire a Pro” to do the work.
2009-09-03 01:08, By: Gfw, IP: [184.108.40.206]