“Premature”-coded distributions from SES

L1: “Premature”-coded distributions from SESOne of our advisors feels that his clients can take unscheduled distributions from the IRA where SES payments are being made, and as long as those unscheduled ones are coded as PREMATURE on a separate 1099R it’s alright to do so. My understanding is that the SES account is designated for only SES distributions. That’s why most of the time we open two IRAs for the client, calling the second one the “emergency” IRA where nonscheduled, premature distributions are allowed. Can you please confirm this so I have something concrete to give to the advisor?
-kt2005-06-10 10:13, By: kt, IP: [68.15.26.87]

L2: “Premature”-coded distributions from SESHello kt:
There is no question in my mind that an extra distribution from a SEPP IRA constitutes a SEPP plan modification; thus invoking IRC 72(t)(4); therefore the 10% surtax plus interest on all distributions.
There is an open question / debate about the treatment when the extra distribution is for some other qualified reason; e.g. excess medical expenses or 1st home purchase.
TheBadger
wjstecker@wispertel.net
2005-06-10 12:29, By: TheBadger, IP: [66.250.23.21]

L2: “Premature”-coded distributions from SESJust to re-emphasize what ‘the Badger’ stated, here is teh code – it’s seems pretty clear to me.
72(t)(4) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS. — 72(t)(4)(A) IN GENERAL. –If — 72(t)(4)(A)(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and 72(t)(4)(A)(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability) — 72(t)(4)(A)(ii)(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 591/2 , or 72(t)(4)(A)(ii)(II) before the employee attains age 591/2, the taxpayer’s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period2005-06-10 12:35, By: Gfw, IP: [172.16.1.71]

L2: “Premature”-coded distributions from SESGood morning KT:
I agree with you to use one IRA for SEEP distributions and another IRA for emergency / unscheduled distributions. If you and your advisors will read TheBadger’s post about IRS Pub 590 with the 10 or so replies you will get the idea of how complicated and unsettled is this issue.
My advise to you and your advisors is to defer all questions on this subject to a qualified CPA or tax attorney.I’m an advisor and not a CPA or attorney. The problem we have is that our E&O coverage does not extend to giving tax advise, and this question is clearly a tax question and not an investment advisory question. I don’t believe we are covered as a “Registered Rep” or as an “Investment Advisory Rep of a Registered Investment Advisor” when it comes to this line of questions. So unless your advisor is separately covered as a CPA or tax attorney, then you probably would have a problem if extra distributions were taken from the SEPP IRA and then later is denied by The Service.
Hope this helps. It took a while for TheBadger to beat this concept into my head but I agree with him completely.
Jim2005-06-13 08:21, By: Jim, IP: [70.184.1.35]