Life and Death Planning for Retirement Benefits

Chapter 2: Income Tax Issues

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from one IRA directly into another IRA in the name of the same participant or beneficiary (see ¶ 2.6.07 , ¶ 4.2.02 (B)) (usually called, in this book, IRA-to-IRA transfers ); Roth conversions ( ¶ 5.4.07 , #2); recharacterizations ( ¶ 5.6.03 ,#1); direct payments from a traditional IRA to a non-IRA plan (see ¶ 2.2.10 (A)); and direct rollovers (see “C” above). Transfers directly from one nonIRA plan to another nonIRA plan are beyond the scope of this book. Any distribution from a QRP, IRA, or 403(b) plan may be rolled over except those listed in A–H below. If income taxes have been withheld (¶ 2.3) from an eligible rollover distribution the participant or surviving spouse can nevertheless roll over the withheld amount by substituting other funds. Reg. § 1.402(c)-2 , A-11, third sentence; see, e.g. , PLR 2003-44024. Before 2002, money could be rolled from a traditional IRA to a QRP or 403(b) plan only if the traditional IRA contained no contributions other than one or more distributions rolled from the same or another QRP or 403(b) plan, so-called “conduit IRAs.” See § 408(d)(3)(A)(ii) – (iii) , prior to repeal by EGTRRA, and Reg. § 1.408-4(b)(2) , which is now obsolete. Now, pretax (but not after-tax) money can be rolled from any IRA “upstream” to a QRP. See ¶ 2.2.10 for requirements, tax effects, and advantages of such an “upstream” rollover. A. Inherited plans. A distribution from an inherited retirement plan may not be rolled over to the beneficiary’s own plan by any beneficiary other than the participant’s surviving spouse. For more on that rule, and the ability of a nonspouse Designated Beneficiary to transfer inherited nonIRA plan benefits via direct rollover to an “inherited” IRA, see ¶ 4.2.04 . For the ability of the surviving spouse to roll over benefits paid to her, see ¶ 3.2. B. RMD. A required minimum distribution (RMD; Chapter 1 ) cannot be rolled over. This rule creates certain complications for any participant seeking to do a rollover in his age 70 ½ (or later) year. See ¶ 2.6.03 . C. Series payments. “[A]ny distribution which is one of a series of substantially equal periodic payments” made annually or more often (1) over the life or life expectancy of the participant, (2) over the joint life or life expectancy of the participant and a designated beneficiary, or (3) over a “specified period of 10 years or more” may not be rolled over. § 402(c)(4)(A) . Reg. § 1.402(c)-2 , A-5, explains how to determine whether a distribution is part of a series of substantially equal payments. Here is a list of the distributions that may NOT be rolled over: Distributions that can (or can’t) be rolled over

D. Corrective and deemed distributions. Certain corrective or “deemed” distributions cannot be rolled over. See Reg. § 1.402(c)-2 , A-4, for list.

E. Hardship distributions. Hardship distributions cannot be rolled over. § 402(c)(4)(C) .

F. 12-month limitation on IRA rollovers. See ¶ 2.6.05 for a limit on the number of IRA distributions that may be rolled to another IRA within 12 months.