New SEPP – Don’t want to bust it at the start
L1: New SEPP – Don’t want to bust it at the startHi,
I’m starting a new SEPP plan this September. I understand once the plan starts that I’m not allowed to make extra contributions to the IRA’s I’m drawing from while the plan is active. No problem there. I’m withdrawing from an old SEP IRA I had from a prior business and I haven’t made contributions to it in 20 years. I also understand that I cannot take extra withdrawals during the 5 years my SEPP will be active (possible problem). My question concerns a foreign stock that I hold in the SEPP IRA and the dividends coming from that stock. The home country where the company is based imposes withholding on the dividends (even when held in US IRA’s since they don’t recognize them). I see a reduced dividend amount in my SEP IRA and my IRA Custodian shows a DIVIDENDtransaction and a WITHHOLDING transaction on my statements. The basic question is: could the IRS somehow decide that the WITHHOLDING transaction is an extra withdrawal and bust the SEPP? I don’t go after a refund of the WITHHOLDING but if I did I’m sure that would be an extra withdrawal that WOULD bust the SEPP.
The way I look at it the WITHHOLDING just reduces a normally occurring dividend (Ie: The SEP IRA receives a dividend of $80 instead of $100). It’s not a distribution. I’m just not sure the IRS would look at it that way.2015-09-08 00:31, By: CashInNow, IP: [18.104.22.168]
L2: New SEPP – Don’t want to bust it at the startI would avoid all complexities by selling the foreign stock.2015-09-08 02:43, By: dlzallestaxes, IP: [22.214.171.124]
L3: New SEPP – Don’t want to bust it at the startThe foreign tax withholding is all within the IRA and is not a distribution that will be reported on Form 1099R and therefore should not affect your SEPP. All the IRS cares about is the 1099R gross distribution.
Irrespective of the SEPP, when foreign securities are held in a tax deferred account the foreign tax credit is forfeited because it cannot be claimed as it could be on the same securities in a taxable account. This usually equates to a slight disadvantage in net income, but usually not enough to matter or to forfeit proper diversification.2015-09-08 20:36, By: Alan S, IP: [126.96.36.199]