L1: SEPP UniverseWhilereading this web site, I came across the conceptof a “SEPP universe”. Is this concept accepted by the IRS? My understanding is that a “SEPP universe” means setting up a SEPP that includes IRAs from multiple financial institutionsand one would add them together and treat them as one SEPP “account balance”for calculating the payment amount using one of the three payment methods. Furthermore, one can withdrawl money from one or more of the accounts as long as it totals the calculated payment. My question is where is the authority for this interpretation in the IRS rules and regulations?
Given the concept of a “SEPP universe”, I would assume one can do asset transfers betweenIRA accounts in those financial institutionswithout “busting” the SEPP plan. On the other hand,Revenue Ruling2002-62 specficially says that the SEPP will be “modified” if there is “any nontaxable transfer of a portion of the account balance to another retirement plan”.Thisbothers me in light ofruling PLR2007-20023. Where do the SEPP rules refer to the definition of “account balance” and the concept of a “SEPP universe”?
I will be setting up a SEPP next year and I am trying to plan for it. I ask the questions above because most of my IRA assets are with one financial institution (all it “A”). However, I have some IRA assets in a couple of credit unions earning above average market interest rates. I would like to include all my IRA assets in oneSEPP plan but make my withdrawls out of financial instituion “A”. Given the rulingof PLR2007-20023, is it still advisable to create a “SEPP universe” that includesIRA assets inmulitple financial institutions into one SEPP plan?2008-03-10 16:49, By: Sandy, IP: [18.104.22.168]
L2: SEPP UniverseIf you are in the fortunate position of not needing all of your IRA accounts to support the distribution you want/need, then you have the ideal arrangement. Set up your SEPP 72-T only with the large IRA account. Keep the smaller ones with the credit unions for emergencies without “busting” the SEPP 72-T.
I haven”t heard the term “SEPP UNIVERSE”, but I don”t think it”s any different than the IRA UNIVERSE concept concerning calculating the RMD (Required Minimum Distribution) for all TRADITIONAL IRA accounts, but make withdrawls from only one. HOWEVER, I would not get into the process of transferring betweeen SEPP 72-T accounts based upon concern for the recent interpretations and announcements by IRS on partial transfers. Also, there are rules limiting the number ofrollovers in a year from any single IRA(but trusrtee-to-trustee transfers can be unlimited). However, but I would try to make all of the distributions from a single SEPP 72-T account to minimize or avoid screw-ups.2008-03-10 18:02, By: dlzallestaxes, IP: [22.214.171.124]
L2: SEPP UniverseThank you for the reply. In the past I have benefited from doing asset transfers between my “main” custodian and my credit unions when they offered the better interest rates. It”s too bad I can”t continue to do that (after I”ve setup the SEPP) due to the concerns about PLR 2007-20023. To maximize my annual payment, can Iinclude all IRAs from multiple custodians in the SEPP calculation but only make the annual withdraw from the “main” custodian? Of course, given PLR 2007-2003, I wouldn”t do any actual transfers between IRAs.2008-03-10 18:50, By: Sandy, IP: [126.96.36.199]
L2: SEPP UniverseYes2008-03-10 21:47, By: dlzallestaxes, IP: [188.8.131.52]
L2: SEPP UniverseIunderstand you concern regarding the evolution of certain SEPP principles that are not clearly defined in the tax code. With respect to “SEPP universe”, this is an unofficial term used to describe the collection of accounts from which your initial SEPP calculation is made. This concept, as well as many others has mostly involved through a series of IRS letter rulings such as the following from elsewhere on this site:
Q. Do All IRA Accounts have to be combined to determine the amount of the distribution? A. Individual retirement plans do not have to aggregated for purposes of calculating these payments. If a taxpayer owns more than one IRA, any combination of the taxpayer’s IRAs may be taken into account in determining the distributions by aggregating the account balances of those IRAs. PLR 9050030. Also review PLR 9525062. It also deals with using multiple accounts to fund a single SEPP.
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Note that this concept has remained acceptable to the IRS formany years.
With respect to transfers to “other retirement” plans busting a SEPP, by other retirement plans, it means other TYPES of plan. Transfers between IRAs is OK, but if you have a SEPP from your 401k and another from your IRA, you cannot commingle those plans by transfer since they are different types of plans.
Regarding PLR 2007 20023, this has indeed thrown some doubt into IRA transfers, particularly partial transfers. However, there has been no evidence of follow up by the IRS regarding the thousands of taxpayers who have done these and continue to do them. Therefore, this is a risk-reward tradeoff such that if you have been doing them all along, AND the practice has been profitable for you, you might as well not stop now. But with respect to setting up a SEPP universe and just taking your distributions from one account without making a transfer, there is no risk in that at all, since the PLR does not affect that practice whatsoever. The main risk of busting a SEPP continues to be executory errors or being forced to take out more than the plan allows.2008-03-10 22:51, By: Alan S., IP: [184.108.40.206]
L2: SEPP UniverseGood morning Sandy:
I believeI am the author of the term “SEPP Universe.”
Alan”s Q&A in his response describes how you may combine multiple IRA accounts for calculating your 72(t) SEPP distribution plan. One day, after spending many keystrokes describing how someone is allowed to add up all of their IRA account values and then proceed to make thecalculations for their distribution amount, the term “SEPP Universe” just came to me and I started using it. Then the other posters picked up on it and it seems to have stuck.
If you can have a “universe of stars,” a “universe of planets,” a “universe of professional golfers at Augusta National to play The Masters”(which occurs in early April), then why not a “universe of IRA accounts” used inSEPP Plan construction. Hence the term, “SEPP Universe.”
Maybe one day we”ll see the term “SEPP Universe” in the 72(t) section of IRS Pub 590.
Jim2008-03-11 08:44, By: Jim, IP: [220.127.116.11]
L2: SEPP UniverseI appreciate the background information and explanations. Thank you very much.
2008-03-11 09:37, By: Sandy, IP: [18.104.22.168]