Q.  What should I do with the remaining few hundred dollars in my IRA account now that additional equal payments cannot be made as part of a SEPP plan?

I’ve been receiving Substantially Equal Periodic Payments (SEPP) from an IRA for over a decade. Due to the bear market from late 2007 to 2009, the IRA depleted much quicker than expected. Additional equal payments cannot be made at this point. However, there is still a few hundred dollars left in the account. Should I take a final payment for less than all of the prior ones, or leave the amount in the account? The original plan projected that the SEPP would last for another six years.  


A.  Sorry to read that the bear market depleted your funds so quickly. I hope you have other resources to cover your expenses.

I’d recommend taking the remaining balance out of your IRA as a partial SEPP payment.  IRS regulations state that if an IRA runs out of money and cannot take a full SEPP, you will not be subject to a penalty.  If some funds were left in the IRA with a SEPP, the IRS may assess you a penalty on that portion of the SEPP that you did not withdraw.

Here is a direct quote from the IRS SEPP FAQ page:

What is the effect of an account being completely depleted?

If you have no assets remaining in your individual account plan or IRA, you will not be subject to the Code §72(t) tax as a result of not receiving substantially equal periodic payments. In addition, the recapture tax will not apply.

Also, keeping a separate IRA with such a small balance is a hassle.  Go ahead and take the remaining balance from the account – penalty free – and be done with it!

Good luck and contact me if you have any other questions.


John is a CPA and personal finance coach.  Email your questions to john@60minutefinance.com.

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