Cite for final stub year options?
L1: Cite for final stub year options?When posting the flexible final stub year options prior to the modification datefor those who have already taken 60 months of payments, many are asking for a cite thatdocuments the availability of all the choices. The choices often include all 3 – taking nothing, taking the entire annual or taking the pro rated amount per month as valid SEPP payment options. Did this come from a letter ruling, tax court, or other source? Many people want to take nothing to preserve their IRA balance, but in the final year do not want to take any chances that could end up costing them.2009-12-11 18:41, By: Alan S., IP: [220.127.116.11]
L2: Cite for final stub year options?First I’m thinking that your question is addressing someone who has more than met their 5-Year requirement and is only concerned with the age 59.5 rule.
Start by looking at the exception of 72(t)(2)(A)(i) which exempts from the 10% penalty any payments made on or after the date on which the employee attains age 59 1/2.
Now consider the basic nature of how a SEPP is dealt with in Rev. Rul. 2002-62 – distributions are annual. Periodic distributions can be made, but are not required.
With this in mind the individual could take the full annual payment before age 59.5 (as part of the plan) or the full amount after age 59.5 since the plan has ended – either way there is no penalty. They could also take nothing since the SEPP plan ends at death, disability or age 59.5. There is no requirement in either the code, 2002-62 or even 89-25 that says whenduring the year a distribution must occur or that it must occur after the plan has ended.
Monthly or other periodic distributions have been allowed by several previous PLRs. Again, the plan stops at age 59.5 – I could take monthly distributions for the months prior to age 59.5 and then stop since the plan ends at age 59.5
I’m sure that Bill or someone else could explain in more detail, but I don’t think that you have to look much beyond 72(t)(2)(A)(i). 2009-12-12 18:27, By: Gfw, IP: [18.104.22.168]
L3: Cite for final stub year options?Thanks, Gordon. I sort of expected that the answerwould be composed ofsome logical reasoning based on limited code specifics and supported by several years of IRS tacit acceptance of those conclusions. Those who are looking for a list of acceptable stub year treatments in the IRS Regs are just not going to find them.Actually, the question posted on another site was from a planner about a client that HAD reached 59.5, but had not reached their modification date.Specifics:First distribution in 12/05 for full annual 2005 amountTurned 59.5 in 2008Took 5th full annual distribution this monthModification date is in 12/2010.Wants to preserve IRA assets in 2010 and prefers NOT to take a 2010 distribution prior to mod date. I indicated this was acceptable based on having taken out 60 months worth already. But they wanted specific cites, worrying that the IRS would be looking for a 1099R for 2010. They face huge penalties if they bust, even though the post 59.5 distributions would be exempt from the penalty.2009-12-13 19:01, By: Alan S., IP: [22.214.171.124]