Unfortunately, the IRA is "locked" for five years because of the requirement that the substantially equal periodic payment (SEPP) must continue for five years or until you reach age 59.5, whichever is longer. Should you withdraw more than the SEPP amount, the SEPP programs will be considered voided, and you will owe the IRS an excise tax of 10% of the amount withdrawn unless another exception applies.

For a complete list of exceptions, please see IRS Publication 590.

If it has been no more than 60 days since you withdrew the amount for the SEPP, you may consider the following:

  • Roll over the SEPP amount that you withdrew. This would make it non-taxable, assuming this is the only rollover involving the IRA for the past twelve months.
  • Set up a separate (second) IRA.
  • Assuming the entire balance is not needed to satisfy the income you require, run a calculation to determine how much you need to keep in the IRA to provide the amounts you need under the SEPP. (The reverse calculator at www.72t.net can be used for this purpose.)
  • Transfer any amount in excess of the balance you need under the SEPP to the second IRA.
  • Start a new SEPP under the first IRA.

You may then withdraw any additional amount you need from the second IRA without affecting the SEPP.

Under this option, if your IRA custodian issues a 1099-R showing an exception to the excise taxfor the amount you withdrew under the first SEPP program (and rolled over), your tax preparer will need to issue a corrected 1099-R for the amount. A corrected 1099-R would also be required in any case where the SEPP is voided and the 1099-R shows the amount as being exempted from the excise tax. (For more on this, see Retirement Plan Tax Forms You May Need to File - Part 1.)

If it has been more than 60 days since you withdrew the SEPP amount, however, the amount is no longer rollover eligible. If you have no other choice but to withdraw the additional amounts from the SEPP IRA, you will be required to pay the excise tax on the distribution amount you intended to treat as an SEPP. You may restart a new SEPP, but before you do, consider that you will be locked in for five years. Also bear in mind that you can transfer a portion to a separate IRA and run the SEPP from that IRA, which would allow you to take additional distributions from the other IRA without breaking the SEPP.

This question was answered by Denise Appleby
(Contact Denise)

  1. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  2. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  3. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  4. Can a 401(k) be used for a house down payment?

    A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>
  5. How old do I have to be to make catch-up contributions?

    Most retirement plans such as 401(k), 403(b), individual retirement accounts (IRAs) and Roth IRAs allow for catch-up contributions ... Read Full Answer >>
  6. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>
Related Articles
  1. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  2. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  3. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  4. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  5. Retirement

    Is Caterpillar Stock Suitable for Your IRA or Roth IRA?

    Learn about Caterpillar's suitability for a retirement portfolio. Does CAT have long-term viability? Find out if CAT is better for a traditional IRA or Roth IRA.
  6. Financial Advisors

    How to Help Plan Sponsors Meet Fiduciary Duties

    Advising 401(k) plan sponsors is a great business model for financial advisors. Here's how advisors can help plan sponsors meet fiduciary obligations.
  7. Retirement

    4 Ways to Boost the Amount You Save for Retirement

    Retirement can easily last more than twenty years, which means you have to save a lot. Thankfully, there are ways to enhance the amount you put away.
  8. Savings

    How To Set Up A Trust Fund If You're Not Rich

    You don't need to be worth millions to create your own trust fund. Learn how your money can be handled in the event of your death.
  9. Retirement

    What Happens to a 401(k) After You Leave Your Job?

    Find out what happens to your 401(k) after you leave your job. Learn about your five primary options, including cashing out and rolling over to a new plan.
  10. Retirement

    How 401(k) Matching Works

    Find out how employer matching of your 401(k) contributions works, including how employer contributions are calculated and annual contribution limits.
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...

You May Also Like

Trading Center