Life and Death Planning for Retirement Benefits

Chapter 9: Distributions Before Age 59 ½

435

SOSEPP). The participant may use “any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with section 1274(d) for either of the two months immediately preceding the month in which the distribution begins).” Rev. Rul. 2002-62, § 2.02(c). You can find the monthly federal mid-term rates at the IRS web site www.irs.gov/tax_regs/fedrates.html , or at www.tigertables.com/ or www.leimbergservices.com/ . Whichever method the participant is using, he must apply a certain factor to an account balance. The account balance “must be determined in a reasonable manner based on the facts and circumstances.” Rev. Rul. 2002-62, § 2.02(d). Under all three methods, the participant must select a valuation date for the first year’s payment. The IRS provides an example the gist of which is that any date from the last prior year end to the day before the distribution would be fine. There is no specific prohibition against using a date earlier than the last prior year-end, but it would seem that the prior year-end (or any subsequent valuation date, up to the date of the first distribution) would be a safe harbor. Under the amortization and annuitization methods, the account balance is determined only once, at the beginning of the series. Since the payments do not fluctuate, there is no need to look at the account balance again after the first year (unless annual recalculation is part of the series design; see ¶ 9.2.06 ). Under the RMD method the account balance is always redetermined annually. Generally, all of an individual’s IRAs are aggregated (treated as one account) for purposes of determining how much of any distribution is included in gross income . See ¶ 2.2.08 (F). However, no provision requires IRAs to be aggregated for purposes of the penalty under § 72(t) , or the SOSEPP exception. For purposes of structuring a SOSEPP, the participant has several choices: The series can be based on all of his IRAs, aggregated; or on some of the IRAs aggregated, with others excluded; or on one IRA to the exclusion of others. As the IRS said in PLR 9747039, “If a taxpayer owns more than one IRA, any combination of his or her IRAs may be taken into account in determining the distributions by aggregating the account balances of those IRAs. The specific IRAs taken into account are part of the method of determining the substantially equal periodic payments....” Emphasis added. All IRAs aggregated: In each of PLRs 9830042, 9824047, and 9545018, all of the participant’s IRAs were aggregated for purposes of computing the series payments. Some IRAs aggregated, others excluded: In PLRs 9816028, 9801050, and 2000-31059, the participant had several IRAs, some of which were aggregated to form the basis of his proposed SOSEPP and the rest of which were not to be counted. The IRS ruled favorably in all cases, requiring only that the series payments be made from the aggregated IRAs and not from the other accounts. Take series from one IRA, not aggregated with others: In PLR 9818055 the participant was taking a SOSEPP from one of her two IRAs. In PLR 9812038 the participant was taking a SOSEPP from one of his three IRAs and wanted to start a second SOSEPP from a new, fourth, IRA, to be created by transfer of funds from one of the other IRAs (not the IRA that was already supporting What account balance is used Applying the SOSEPP exception to multiple IRAs