Life and Death Planning for Retirement Benefits

Table of Contents

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Exceptions and special rules................................................................................................138 Mutually voluntary withholding..........................................................................................138 How withheld income taxes are applied .............................................................................138 2.4 L UMP S UM D ISTRIBUTIONS ......................................................................................................138 Introduction to lump sum distributions...............................................................................139 First hurdle: Type of plan ....................................................................................................139 Second hurdle: “Reason” for distribution ...........................................................................139 Third hurdle: Distribution all in one taxable year ..............................................................141 Exceptions to the all-in-one-year rule.................................................................................143 Special averaging: Participant born before 1936 ...............................................................143 2.5 N ET U NREALIZED A PPRECIATION OF E MPLOYER S TOCK .......................................................143 NUA: Tax deferral and long-term capital gain ..................................................................143 Reporting NUA distributions; finding plan’s basis............................................................144 Distributions after the employee’s death ............................................................................145 Basis of stock distributed in life, held until death ..............................................................145 Election to include NUA in income ....................................................................................145 Should employee keep the LSD or roll it over? .................................................................146 NUA and partial rollovers ...................................................................................................147 2.6 R OLLOVERS AND P LAN - TO -P LAN T RANSFERS ........................................................................149 Definitions: rollovers, trustee-to-trustee transfers, etc.......................................................149 A. Background: Rollover vs. trustee-to-trustee transfer.............................................149 B. Definition of “rollover” and “rollover contribution.”............................................149 C. Direct rollovers ........................................................................................................150 D. Definition of “60-day” (indirect) rollover ..............................................................150 E. Trustee-to-trustee transfer .......................................................................................150 Distributions that can (or can’t) be rolled over ..................................................................151 A. Inherited plans..........................................................................................................151 C. Series payments .......................................................................................................151 D. Corrective and deemed distributions ......................................................................151 E. Hardship distributions .............................................................................................151 F. 12-month limitation on IRA rollovers ....................................................................151 G. Plan loans .................................................................................................................152 H. After-tax money .......................................................................................................152 Rollovers in an RMD year: RMD cannot be rolled over! .................................................152 A. Everybody: First distribution of the year is the RMD ...........................................152 B. Everybody: Missed RMDs from prior years ..........................................................153 C. Participant only: Plan can assume there is no DB .................................................153 D. Participant only: Rollovers in the age-70½ year....................................................153 E. Beneficiaries only: Rollover and the 5-year rule ...................................................153 F. Exceptions to the no-rollover-of RMDs rule .........................................................154 Must roll over (only) same property received ....................................................................154 Limit of one IRA-to-IRA rollover in 12 months................................................................154 Earliest date a rollover can be made ...................................................................................157