SEPP from and IRA Annuity Contract OK?

[Guest danmar]

Is an SEPP distribution from and IRA Variable Annuity any different from an SEPP from an IRA invested in mutual funds? Can it be done by setting up a payment stream of systematic surrenders without annuitizing the contract? The owner is 53 now and once he reaches 59 1/2 he'd like to stop distributions and let the annuity IRA continue to accumulate.

[Guest Jim Brennan]

This can be done. Issue was addressed in a 1998 PLR - I can dig up the PLR number if you need it.

[Guest danmar]

A PLR # would be excellent. The client's CPA is confusing qualified and non-qualified annuities. Thanks!

[Guest John L. Olsen, CLU, ChFC]

Annuities which are SEP qualified follow the rules for SEPs. The usual "annuity rules" of IRC 72 (e.g.: "exclusion ratio", treatment of "gain") don't apply.

If it's a SEP or an IRA, it's a SEP or an IRA, no matter HOW it's funded.

John Olsen

[Guest danmar]

Sorry, I should have been more clear. I was referring to Substantially Equal Periodic Payments, not Simplified Employee Pension.

Another way to state the question would be: Can the owner of a variable annuity IRA draw SEPPs without annuitizing the contract?

[Guest John L. Olsen, CLU, ChFC]

Yes, the owner of an IRA annuity can do S.E.P.Payments without annuitizing. Again, the IRA annuity is an IRA, subject to the 408 and 401(a((9) rules.

John Olsen