Early withdrawal in one IRA busting the SEPP in a 2nd IRA?
L1: Early withdrawal in one IRA busting the SEPP in a 2nd IRA?I have two separate IRAs. One has a SEPP plan in place (call it IRA A) and the other one doesn’t (IRA B). From other threads, it appears that I can make penalty-free withdrawals from IRA B for non-SEPP exceptions, like higher education or medical expenses, without busting the SEPP plan in IRA A. If I withdraw all of the money from IRA B and pay the 10% penalty and appropriate taxes, does that bust the SEPP plan in IRA A? I know for some purposes the IRS considers all IRA accounts to be a single IRA, like for RMD’s at 70 1/2. Is this one of them?
Thanks in advance.2010-12-06 09:23, By: MikeP, IP: [184.108.40.206]
L2: Early withdrawal in one IRA busting the SEPP in a 2nd IRA?The two IRA accounts would be considered as separate accounts. Withdrawals from IRA ‘B’ would not impact theSEPP plan in IRA ‘A’.2010-12-06 11:45, By: Gfw, IP: [220.127.116.11]
L3: Early withdrawal in one IRA busting the SEPP in a 2nd IRA?This was a good intuitive question because you were correct that many of the tax rules consider mandatory combining of all IRAs, but as Gordon indicated, this does not apply to IRA accounts that can be included or excluded from the original SEPP plan.
But the tax rules that apply to basis application DO apply to SEPP plans, ie when you report a penalty free SEPP distribution, Form 8606 will be included that will calculate how much basis is assigned to the distribution. And if you take a SEPP distribution and also a distribution from a non SEPP IRA in the same year, the 8606 will apply collectively to both distributions. Then you would owe the penalty on the taxable amount included in the non SEPP IRA distribution unless you qualified for another exception as in your original post.
In the latter example, the 5329 instructions are rather strange. They indicate that you should use code 12 due to multiple exceptions, but never ask for a breakdown between the actual exception amounts, eg the amount that 02 applies to for the SEPP and the higher education code of 08. It would probably be wise to include that breakdown on an explanatory statement and also relate it to the respective IRA account numbers, then as I like to say just hope the IRS understands your explanation.
2010-12-07 00:43, By: Alan S., IP: [18.104.22.168]
L4: Early withdrawal in one IRA busting the SEPP in a 2nd IRA?Alan & Gordon :
Do you see any problem if someone took the simpler and more specific approach of issuing a separate 5329 for each exception and the related amount ?2010-12-07 00:55, By: dlzallestaxes, IP: [22.214.171.124]
L5: Early withdrawal in one IRA busting the SEPP in a 2nd IRA?Only to the extent that there is probably a better chance to get the tax return kicked out of the computer and into a person’s hands – don’t reallly know if their computer system is designed to handle multiple 5329 forms on the same return.2010-12-07 18:21, By: Gfw, IP: [126.96.36.199]