Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

determining how much of any later distribution from any one of his IRAs constitutes after - tax money. See ¶ 2.2.08 .

Similarly, if the participant requests that his entire distribution be sent, via direct rollover, to multiple Roth IRAs, but does not request any outright distribution or direct rollover to a traditional IRA as part of the transaction, the allocation of his after-tax money among the multiple Roth IRAs into which the money is transferred does not matter. All his Roth IRAs will be aggregated (treated as a single account) for purposes of determining the income tax treatment of any later distribution from any one of his Roth IRAs. See ¶ 5.2.03 (B). A designated beneficiary is entitled to request a direct rollover of inherited QRP benefits into a traditional or Roth IRA. See ¶ 4.2.04 for explanation of the requirements of such “beneficiary rollovers,” including the definition of “designated beneficiary.” A designated beneficiary has the same options as a living participant to request partial outright distribution combined with partial direct rollover to traditional IRA (see “B”), or to request partial direct rollover to a Roth IRA combined with partial direct rollover to a traditional IRA (see “C”). However, a designated beneficiary who is not the surviving spouse does not have the option to use a distribution followed by rollover(s) (see “D”); nonspouse beneficiaries are not permitted to do “60-day rollovers.” ¶ 4.2.02 (A). F. How these options apply to QRP beneficiaries.

G.

Effective date and retroactivity of Notice 2014-54.

The transition rules of Notice 2014-54 are generous to people who totally ignored Notice 2009-68, but offer no relief to people who “obeyed” it.

According to its “Proposed Regulation and Transition Rules,” Notice 2014-54 applies to distributions made on or after January 1, 2015. However, for distributions prior to that date any “reasonable interpretation” of the allocation rules of § 402(c)(2) will be accepted, and “reasonable interpretations” would include either the old “separate distribution” rule of Notice 2009-68 or the new allocation rules blessed in Notice 2014-54.

(Note: For how the partial distribution/rollover rules apply to distributions fromDesignated Roth Accounts; see ¶ 5.7.06 ).

A person who, between 9/28/09 and 10/6/14, took a retirement plan distribution that included after-tax money will therefore have very different results depending on whether his plan administrator and tax preparer were sticklers for the rules or defiant free spirits.

Participant’s basis in a traditional IRA

Here is a list of the ways that after-tax money can get IN to an IRA. A participant who acquires all (or part) of his ex-spouse’s IRA in a divorce pursuant to § 408(d)(6) will thereby also acquire all (or part) of the ex-spouse’s basis. For a beneficiary’s basis in an inherited IRA, see ¶ 2.2.07 . For how the after-tax money (basis) comes OUT of the IRA, see ¶ 2.2.08 – ¶ 2.2.10 .