Life and Death Planning for Retirement Benefits

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418 Life and Death Planning for Retirement Benefits
without altering the amount or timing of his SOSEPP payments. (Needless to say, the IRA
into which the SOSEPP-supporting IRA is being transferred cannot have in it any other
funds.) In this case, the “IRAs supporting the SOSEPP” would be the old IRA and the new
IRA, with no commingling of funds from any other IRA or plan.
Unfortunately, the IRS has never clearly stated this corollary principle, and there are letter
rulings supporting both the principle and its opposite.
There are now four PLRs supporting the conclusion that a SOSEPP-paying IRA may be
transferred tax-free to a new, otherwise-empty, IRA account with a different custodian, without
causing a modification of the SOSEPP:
PLR 2006-16046 dealt primarily with an inadvertent commingling of the SOSEPP IRA
with other IRA funds (due to a financial institution error). In providing the factual background for
its ruling regarding the institutional error, the IRS noted without comment that, during the SOSEPP
(and prior to and unrelated to the occurrence of this financial institution error), the taxpayer had
rolled the entire SOSEPP-paying IRA (“IRA M”) into a different IRA (“IRA P”), from which he
continued taking the SOSEPP payments. The fact that the IRS ruled that he still had a valid
SOSEPP after this rollover supports the conclusion that merely transferring the SOSEPP IRA to a
different custodian does not violate the no-transfers rule.
There are three other similar PLRs where the IRS was ruling that a financial institution
error did not constitute a modification of the series, and in which it is stated as part of the factual
background that the IRAs in question had been transferred (prior to and unrelated to the financial
institution error incidents) from one custodian to another for investment reasons. If such prior
transfers were “modifications,” then the subsequent financial institution errors would have been
irrelevant because the series would already have been ended via “modification.” Since in each of
these case the IRS ruled the series had not been modified, this must mean that the prior tax-free
transfers were NOT modifications. See PLRs 2006-31025, 2009-29021, and 2009-30053.
And yet ...in two other PLRs, the IRS has indicated that the transfer of a SOSEPP-paying
IRA to a different account for investment reasons DOES (or might) constitute a modification!
The IRS ruled in PLR 2009-25044 that a participant’s trustee-to-trustee transfer of her
SOSEPP-supporting IRAs from one financial institution to another, solely for the purpose of
changing the investments in the account, was a modification of the series. In this ruling, the
SOSEPP-supporting IRA (IRA X) was commingled with funds from another IRA (IRA Y), not
involved in the SOSEPP, when both were transferred into a new combined IRA, IRA Z, at the new
financial institution. The ruling stated that the problem could not be corrected by unmingling the
IRA Y funds and sending them back to IRA Y. Unfortunately, the ruling does not state that it was
only the commingling that caused the IRS to rule this a modification; rather, they base the ruling
on the provision in Rev. Rul. 2002-62 prohibiting any nontaxable transfers in or out of the
SOSEPP-supporting IRA.
In PLR 2010-03033, discussed at E), the participant’s SOSEPP-supporting IRA
was moved to a different financial institution when her advisor changed firms, but the IRS did not
rule on whether the SOSEPP qualified as a SOSEPP or was modified.
9.4 Other Exceptions to the Penalty