IRA 72(t) SEPP distribution Question

[Baggi]

Thanks to everyone for the help on this yesterday, I have a follow up question.

I plan to start taking an annual distribution under the SEPP rules so that the exception to the 10% penalty applies.

I read under the rules that once you start doing this, you cannot take any other distributions. I wanted to start this distribution this month or next month as an annual distribution, however, I took a distribution earlier this year, I think in February of 2023.

Does that mean I have to wait until next year to start this? Is it possible to start my annual distribution under SEPP exception even though I've already taken a distribution this year?

The distribution I took was for approximately $2000. The amount I'm allowed to take annually to stay within the SEPP rules is close to $18,000 and I'm only planning on taking $13,000. So I'll still be under the total amount I'm allowed to take, but will I ruin anything by taking a second distribution and starting my SEPP this year?

Thanks for your time!

[dmertz]

The limitation on modifications begins on the date that you receive the first distribution under the SEPP.  However, a SEPP distribution and an earlier distribution in the same year will both be reported combined on a single Form 1099-R, so it make it a little more difficult to substantiate that the rule against modification was not violated.  You could avoid this complication by trustee-to-trustee transferring to a new IRA the amount that will be used to establish the SEPP plan.  You mentioned that you would effectively be basing your SEPP distributions on an interest rate that is only about 3/4 of the rate permitted, so it would give you more flexibility to transfer 3/4 of the existing IRA to a new IRA and establish the SEPP plan on the new IRA using the maximum interest rate permitted.  This would leave you with 1/4 in the original IRA that you could access without busting the SEPP plan, although such distributions would be subject to the 10% early-distribution penalty unless you have another exception that applies.

[Baggi]

Does it have to be reported on the same 1099?

One of the 1099's should have box 7 checked with code 2 for the exception, while the other 1099 wouldn't?

And thank you very much for the quick response!