Modifying SOSEPP Payments in a Rocky Equities Market

One exception to the early withdrawal penalty for IRAs applies when the funds are taken out via a series of substantially equal periodic payments, or “SOSEPP”. The SOSEPP payments are generally permanent – any modification risks triggering the 10% penalty. The recent market downturn has resulted in declining IRA balances, so that existing SOSEPP payments now become a much larger portion of those IRAs. That could result in the individual depleting their balance much sooner than expected. The IRS does permit a one-time change from the annuity or amortization methods to the RMD method of calculating the SOSEPP. Because the RMD method typically results in a smaller payment, that option may be attractive for individuals who are now worried about their declining IRA balances. Individuals making the change should understand that the change is permanent through to the end of the original SOSEPP period. Any other modification would trigger the 10% early withdrawal penalty. For more information on the SOSEPP option, visit Tax Facts Online. Read More: Link to Q3713.07.