A:

The most recent guidance issued by the IRS and the Treasury Department is Revenue Ruling 2002-62. There is some disagreement in the field about the definition of account as it relates to "changes to account balance" in this ruling and both sides make convincing arguments.

Argument A:
One side of the argument is that you can transfer a part of your account balance to another account, provided the amount transferred is not added to an IRA that already has assets. According to this argument, this type of transfer is acceptable, provided the following requirements are met:

1. You continue your substantially equal periodic payments (SEPP) according to the schedule. The SEPP payments can be made from either of the two IRAs or both.
2. Should you need to refigure your amount each year, as is required under the required minimum distribution (RMD) method, you include the balance of both IRAs.

An individual need not limit his or her SEPP calculation to one IRA. In fact, many individuals include the balances of more than one IRA in an SEPP calculation. Although the individual may be able to identify the assets by different account numbers, many feel that this is defined as one account, particularly if they are all established under one IRA adoption agreement.

Argument B:
The other side of the argument holds to the traditional definition of an account, which states that if you have an account number from which you are receiving SEPPs, you can't transfer a portion of the balance of that account number to another retirement account with a different identifying number. This seems to meet the definition as provided in Revenue Ruling 2002-62, but the question then becomes whether the Treasury and the IRS place such limitations on an individual's ability to diversify his or her investments.

Both sides of the argument make sense. However, while Argument B seems to take on the literal meaning of Revenue Ruling 2002-62, splitting the IRA should not be considered a modification, provided the SEPP IRA assets are not commingled with other IRA assets. To be sure, you may want to consider getting a private letter ruling (PLR) from the IRS if the assets are of significant value. Or you may want to go along with any recommendation from your own tax professional.

You are, however, allowed to transfer the full IRA balance, provided the assets are transferred to an IRA that holds no other assets and you continue the SEPP from the new IRA.

For further reading, see Moving Plan Assets: How To Avoid Mistakes, Moving Your Plan Assets? and Rules Regarding Substantially Equal Periodic Payments (SEPP).

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Will I incur a tax penalty when making withdrawls from my IRA in excess of my SEPP?

    Unfortunately, the IRA is "locked" for five years because of the requirement that the substantially equal periodic payment ... Read Answer >>
  2. What are the "certain requirements" that must be met for substantially equal periodic ...

    For substantially equal periodic payments (SEPPs), the distributions would occur from your IRA after you rollover the assets. ... Read Answer >>
  3. Do I have to continue SEPPs for an inherited IRA?

    You may discontinue the payments. Once the person who is taking the substantially equal periodic payment (SEPP) dies or becomes ... Read Answer >>
Related Articles
  1. Retirement

    5 Secrets You Didn't Know About Traditional IRAs

    A traditional IRA gives you a current-year tax benefit and future years of tax savings – minus the income restrictions that limit who can have a Roth IRA.
  2. Retirement

    4 Basic Facts To Know About IRAs

    Money in an IRA can work harder for you. Here's what you need to know first.
  3. Retirement

    Tax-Saving Advice for IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  4. Retirement

    How an IRA Works After Retirement

    You've read a lot about saving for your future retirement with IRAs. But what happens to the account when the future is here, and you actually retire?
  5. Taxes

    Unexpected 1099-R Form: What To Do

    Did your IRA custodian report distributions you thought were non-reportable? Find out what went wrong.
  6. Retirement

    Tips For Finding The Right IRA

    There are many IRA options available that vary depending on what you want to do with your retirement savings.
  7. Retirement

    Top 10 Mistakes To Avoid On Your IRA

    IRA rules are complicated. It's easy to make mistakes – and they can cost you big time.
  8. Retirement

    Tips On How To Use IRAs To Boost Retirement Savings

    According to the Trustees of the Social Security Fund, the fund will be depleted by 2037. Are you ready?
  9. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
RELATED TERMS
  1. IRA Transfer

    The transfer of funds from an Individual Retirement Account (IRA) ...
  2. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
  3. Rule 72(t)

    An Internal Revenue Service (IRS) rule that allows for penalty-free ...
  4. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  5. Roth IRA

    A Roth IRA is an individual retirement plan that bears many similarities ...
  6. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
Hot Definitions
  1. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  2. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  3. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  4. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  5. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  6. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
Trading Center