Divorce and my SEPP program

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L1: Divorce and my SEPP programSorry if this is redundant, I have searched previous posts and not been able to improve my understanding of the issues here, some of the advice seems clear but other pieces don’t quite fit, and some seems fairly old. I have been taking $14,000 (approximately) SEPP payments from an IRA for 6 years, am 49 years old, current value of IRA is about $260,000 (about the same as when the payment amounts were determined). I am getting divorced, my wife would need $100,000 transferred from my IRA to keep our retirement assets in balance. I would have over 10 years to wait until I could end the SEPP at 59 1/2, she is not in a position to wait out the program, receive 40% of my withdrawal until that time and then split the IRA. Divorce decree has not yet been finalized, we can change some of how this is defined or structured if it is beneficial. Questions, then:1) Does splitting my IRA bust the plan? Is there a way to structure the settlement so this does not happen, but provides my wife with division of assets called for?2) If the plan is busted is the penalty equal to 10% of all prior withdrawals, plus interest? The amounts withdrawn were all included in our taxable income as they were received, so I would guess that the income tax returns would be ok other than the penalties – is that correct?2) If the IRA SEPP is not busted and can be split split should she keep the transfered amount in a new separate IRA, and would she have to start distributions equal to 40% of what had been called for until now?3) Am I required to continue making withdrawals from the IRA balance I’m left with? Can this simply be proportional to the share of the IRA I’m left with (60% of value equating to 60% of previous payment?)3) Can I recalculate the distribution based on a reduced IRA value and the current factors determining the appropriate payout?Again, sorry to bring this back for additional commentary, I would appreciate any guidance or the chance to be pointed at a resource that can help me. Thanks in advance for any help you can offer.2009-12-29 21:13, By: Andy C, IP: [207.190.115.171]
L2: Divorce and my SEPP programHello Andy:What a sticky wicket!!! You are in the grey area of tax law. On the one hand, separating/segregating the corpus of the IRA from which you are taking SEPP distributions is a modification of the plan (according to Revenue Ruling 2002-62) and is therefore subject to the 10% surtax, plus interest on all distributions taken from inception of your plan. On the other hand, the IRS has ruled lieniently on divorce situations actually permitting a division of the IRA without penalty – almost as if they are speaking with forked-tongue.My suggestion is to look for alternative solutions that avoid actual division of the IRA such as continuing your current distributions and paying support to your ex-spouse for the next 10 years,[email protected] 01:44, By: TheBadger, IP: [72.42.86.152]

L2: Divorce and my SEPP programStill working on this, it would appear that dividing the IRA and changing the distributions is going to be required and probably simplifies a lot of other decisions, so it may be a reasonable decision to just pay the penalty and move on.Distributions were $7605 in 2004 (2 quarterly withdrawals), $15,210 per year since, we have already taken a 1st quarter withdrawal in 2010. Is there a resource that can be used to calculate the penalty that will result? I expect it is$760.50 effective 4/15/05, plus interest,$1,521 from 4/15/06 plus interest, etc.The gross withdrawals were recognized as taxable income in each of their respective years.If those withdrawals had been penalized with a tax of 10% in those years (same amounttaken from the IRA, but not as a SEPP)would our taxable income have been lower (in other words, is the penalty deducted from net income?) justifying amending those returns?One last look at an alternative – in the situations where an IRA has been allowed to be divided without a busted plan penalty (as noted in the original reply) is the assumption that both portions of the IRA so divided are required to continue to take proportional SEPP withdrawals, or have the parties been allowed to treat the “new” IRAs as new entities and make new elections to receive (or not) the periodic withdrawals? In that scenario my wife could take 40% and keep it intact, I could take 60% and withdraw 60% of the historical amount. Not sure how this has been viewed by the IRS, and I do recognize that this is on its face a broken plan.Finally, is there a beneficial or recommended way to get this on the table with the IRS so that the situation can be dealt with forthrightly (as opposed to splitting the IRA, ceasing the distributions, and waiting for one of those certified letters to tell us that they finally noticed…) Given that the total penalty due to just break the plan and move on is likely to be around $10,000 (looks like the penalty amounts would total a little over $8200, plus interest) it won’t make sense to pay much in fees or special counsel to get this addressed.Thanks again for insights that can be provided!2010-01-28 12:52, By: Andy, IP: [207.190.115.171]