Advanced Underwriting Consultants

Ask the Experts – January 13

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client, who’s younger than 59 ½ with multiple IRA accounts, wants to begin receiving a series of substantially equal periodic payments for life (SEPL) from one or more of his accounts to avoid the 10-percent penalty under Section 72(t). Can he base the SEPL payments on multiple accounts while actually distributing the required distributions from only one of the accounts?

Answer: Yes.

When calculating SEPL payments, the taxpayer may, but does not have to aggregate each of his retirement accounts. He can pick and choose which accounts to include into calculating his SEPL payments. If he chooses to aggregate multiple accounts to calculate his SEPL payments, he is permitted to withdraw the required distributions solely from one account, or from a combination of any account.

Let’s say your client has two IRAs of equal value and wants to withdraw $1,000 per month. However, he found that his SEPL payments would require him to withdraw $2,000 per month if he aggregates the accounts. He could take early withdrawals of only one account, resulting in his goal of $1,000 per month in distributions.

On the other hand, let’s say he prefers to aggregate his accounts to maximize his SEPL payments for the full $2,000. He could satisfy the required $2,000 monthly SEPL payment by distributing funds solely from one account, or any combination of the two.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.