Tax Court Case - Substantially Equal Periodic Payments (SEPP)

Posted by Alan on May 12, 2009, 11:39 am

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In a case of first impression, the Tax Court has ruled that a
taxpayer who is taking SEPP from an IRA and who is within the
statutory period (five years or still under age 59 1/2) for the
recapture tax, is not subject to the recapture tax if they take
distributions and use the funds for qualified higher education
expense. The court said the statutory exception from the 10%
early withdrawal penalty for qualified higher education expense
is not considered a violation of the rule prohibiting a
modification to SEPP.

The analysis used by the court should hold up for any other
statutory exception to the 10% early withdrawal penalty. E.g.,
first time home buyer, medical expense in excess of 7.5% of AGI, etc.
http://www.ustaxcourt.gov/InOpHistoric/Benz2.TC.WPD.pdf

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