Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

( i.e., the contribution plus or minus earnings or losses thereon) (NOT the actual year-end value of the amount that was recharacterized) is treated as part of the Year- end Account Balance of the IRA that receives the recharacterization contribution (even though the amount is not received until AFTER the end of the year). Simon Example: On 11/30/15, Simon made a regular contribution of $3,000 to a Roth IRA for the year 2015. Without recharacterization, that contribution and its earnings would not affect his 12/31/15 traditional IRA account balance because that money is in a Roth IRA, not in a traditional IRA. After the end of 2015, but within the deadline for recharacterization ( ¶ 5.6.06 ), Simon recharacterizes that contribution as a contribution to a traditional IRA. That recharacterization is taken into account, meaning that the $3,000 Roth IRA contribution (plus or minus net income attributable thereto; see ¶ 5.6.02 ) IS included in the 12/31/15 Year-end Account Balance of Simon’s traditional IRA for purposes of applying the cream-in-the-coffee rule (as well as for RMD purposes; see ¶ 5.2.02 (D)). D. Total Nondeductible Contributions. This is the participant’s basis (“investment in the contract”) in all of his traditional IRAs as of December 31 of the year preceding the distribution year, plus the amount of any nondeductible “regular” contribution ( ¶ 5.3.02 ) made to any of his traditional IRAs for the year of the distribution (even if made after the end of the year); see Instructions for IRS Form 8606 (2016), line 2 (p. 7). This number will be the numerator of The Fraction. E. Outstanding Rollovers. A rollover from one traditional IRA to another that is distributed from the first IRA before the end of the distribution year and is received by the recipient IRA AFTER year-end must be included in the denominator of The Fraction. The IRS calls this an outstanding rollover . Notice 87-16, Part III. This is similar to the rule for required minimum distributions, where the Year-end Account Balance is increased by rollovers that are “in transit” from one plan to another on December 31 ( ¶ 1.2.05 ). F. The aggregation rule: Which IRAs must be aggregated. § 408(d)(2) provides that: “For purposes of applying section 72 to any [IRA distribution]...(A) all individual retirement plans shall be treated as 1 contract, [and] (B) all distributions during any taxable year shall be treated as 1 distribution....” Here are the IRAs which must be (or must not be) aggregated with each other for purposes of determining the B–E amounts above. “Individual retirement plans” to be aggregated include the participant’s traditional IRAs, individual retirement annuities, and SEP and SIMPLE IRAs – including “annuitized” IRAs that are NOT included in the year-end FMV for purposes of determining the RMD ( ¶ 1.1.05 ). See § 7701(a)(37) ; § 408(k)(1) , (p)(1) ; Notice 87-16, Part III; and Instructions for IRS Form 8606 (2016), Line 6, p. 7. All such accounts the participant owns are considered one giant IRA; then, each distribution from any such account is counted as part of the Distribution Amount. § 72(e)(2)(B) , (5)(A) , (5)(D)(iii) , and (8)(B) . However:  Inherited IRAs held as beneficiary are aggregated only with other inherited IRAs held as beneficiary of the same decedent; they are not aggregated with the individual’s own IRAs; see ¶ 2.2.07 .

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Roth IRAs are not aggregated with traditional IRAs . § 408A(d)(4)(A) .