The Rules That Regulate Your SOSEPP

If you don’t know what a SOSEPP is, that’s okay ; chances are if you don’t know what it is, you don’t have one.  SOSEPP stands for Series Of Substantially Equal Periodic Payments, and it’s a method that you can use that allows you to take a series of distributions from your IRA prior to age 59½ without being subject to the 10% early withdrawal penalty.

The Rules You Must Follow

The SOSEPP is a very complicated avenue to travel, and there are some specific restrictions that you need to follow.  One of the restrictions is that you absolutely must maintain the “equality” of payments you’re taking from the IRA. If you increase or decrease the payments, you have “broken” the SOSEPP.

There is no specific provision in the Internal Revenue Code for relief from the penalty if you have broken your SOSEPP.  On the other hand, the IRS has in some cases granted relief in several private letter rulings by determining that a change in the series of payments did not materially modify the series for purposes of the rules.

What if You Break the Rules?

If the series is broken due to an error by an advisor (for example), some prior PLRs have been issued in favor of the taxpayer.  PLR 201051025 and PLR 200503036 each address the situation of an advisor making an error and the distributions were allowed to be made up in the subsequent year.  Bear in mind that PLRs are not valid for any other circumstances other than the specific one in the ruling, and cannot be used to establish precedence for subsequent cases.

But in reality, the likelihood of your getting a favorable PLR for your case of a broken SOSEPP is small – unfortunately, breaking the series usually results in application of the penalty for previous payments received, and the SOSEPP is eliminated.  If you wish to restart the series you can do so, but you are starting with a new five-year calendar (the series must exist for at least five years, or until you reach age 59½, whichever is later).

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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