SEPP PLAN TERMINATION
L1: SEPP PLAN TERMINATIONHey guys, quick question: Would a SEPP plan be considered “busted” with the 10% penalty assessed if the plan terminates prematurely due to the SEPP IRA owner’s death? Would the IRA beneficiary have to continue Sepp distributions until the later of 5 years or AGE 59 1/2?2010-09-08 15:39, By: Bill, IP: [184.108.40.206]
L2: SEPP PLAN TERMINATIONDEATH or DISABILITY of the IRA OWNERare exceptions to the 10% penalty for early distributions.
There are numerous sets of rules involving IRAs at DEATH. Spouses have one set, non-spouses have another set. Also, there are different rules based upon the age of the IRA owner who died, and whether or not he had reached 70 1/2 (technically known as the REQUIRED BEGINNING DATERBD), and whether or not he had started taking distributions. INHERITED IRAs are a complex area that usually requires a tax professional to be handled properly.2010-09-08 17:10, By: dlzallestaxes, IP: [220.127.116.11]
L3: SEPP PLAN TERMINATIONMore than just an exception, the SEPP owner’s death ENDS the plan on the date of death so the beneficiary is totally off the hook. Distributions prior to the date of death are subject to the plan requirements, but if less than the annual total, it is not a problem. There is a separate 1099R form for distributions prior to death and any thereafter due to coding requirements.
On the final or joint tax return, a 5329 will still be needed if one of the 1099R forms shows an early distribution code.
2010-09-08 18:53, By: Alan S., IP: [18.104.22.168]
L4: SEPP PLAN TERMINATIONThebeneficiary of a deceased IRA owner who was taking 72(t) distributions has choices. If the beneficiary has not reached age 59 1/2 then you would probably set up a “Beneficiary IRA” or “Inherited IRA,” both are the same. Distributions could be in any amount to include 100% of the corpus, and not suffer an “Early Distribution Penalty” but would, of course, be subject to “Ordinary Income Taxes.” This would apply for both “spousal” and “non-spousal” beneficiaries. If a non-spouse beneficiary was older than 59 1/2 and wanted to extend the life of the IRA then set up the “Beneficiary IRA” and take distributions based on their life expectancy, assuming only one beneficiary. If they just want to “cash it out” and take 100% of the corpus, then make the one-time distribution. If multiple beneficiaries then it’s more complicated. A spousal beneficiary over age 59 1/2 would probably take the IRA “as their own” which means transfer it into their existing or new IRA account. But it could become a “Beneficiary IRA” also.
It just depends on the situation at the time.
Jim2010-09-20 21:28, By: Jim, IP: [22.214.171.124]