Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

the first SOSEPP). The IRS permitted this; the ruling stated more than once that the taxpayer’s IRAs were not aggregated. In PLRs 9747045, 2001-22048, and 2009-43044, the participant’s IRS- approved SOSEPP was taken from one of the participant’s multiple IRAs; the accounts were not aggregated. The account or accounts included in the initial design of the SOSEPP must be the sole source of payments in the series. Once the SOSEPP begins, funds must not be transferred out of the IRAs that are being used to support the series (except to make the SOSEPP payments), or into any IRA that is part of the support for the series. See ¶ 9.3.09 regarding tax-free rollovers involving IRAs supporting a SOSEPP. A participant receiving a SOSEPP from one or more IRAs may initiate a second series of equal payments from a different IRA or set of IRAs. See, e.g. , PLR 9812038, discussed at ¶ 9.2.12 . PLR 9747039 also permitted starting a second SOSEPP from a different IRA. See PLR 2003- 09028 for a good model of exactly how to do this. However, the participant may not start a second SOSEPP from the same IRA (or plan) that is already supporting the first SOSEPP; such a second series would constitute an impermissible “modification” of the first series. ¶ 9.3.01 . There is no specific format for electing one of the three methods. There is no requirement that any of the elections or choices be in writing, or that notice of any choices be delivered to anyone in particular. The usual procedure is for the participant and his advisor to prepare a memorandum or worksheets showing the design of the series and how the distributions are calculated. This normal approach is recommended as the best safeguard for ensuring that the series qualifies for the SOSEPP exception and that such qualification can later be proved to the IRS should that become necessary. 9.3 Modifying the SOSEPP Procedural and reporting requirements If the participant “modifies” his SOSEPP before a certain period of time has elapsed, he is severely punished. His qualification for the SOSEPP exception ( ¶ 9.2 ) is retroactively revoked, and he owes the penalty for all series payments he took prior to age 59½, with interest. Once the participant has modified his series, he cannot start a new SOSEPP from the same plan until the following calendar year, according to PLR 2000-33048. The beginning date of the no-modification period is the date of the first payment in the series. The ending date is the fifth anniversary of the date of the first payment in the series, or, if later , the date on which the participant attains age 59½. § 72(t)(4)(A) . Once this ending date is passed, payments may be freely taken from the plan without penalty (or the series may be suspended— i.e., the participant can STOP taking payments). When the no-modification period begins and ends Starting a second series to run concurrently Effects of a forbidden modification of series