Life and Death Planning for Retirement Benefits

Chapter 5: Roth Retirement Plans

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(regardless, in the case of the trust, of whether they are treated as “income” or “principal” for trust accounting purposes). B. Aggregation of Roth IRAs for income tax purposes. See ¶ 2.2.08 for the rule (in § 408(d)(2) ) that all of an individual’s IRAs are generally aggregated (treated as one account) for purposes of determining how much of any particular distribution constitutes a return of the participant’s after-tax contributions. § 408A(d)(4)(A) provides that “ § 408(d)(2) shall be applied separately with respect to Roth IRAs and other individual retirement plans.” This means that the taxation of distributions from traditional IRAs is computed without regard to the existence of, or distributions from, Roth IRAs in the same year; and that all of the participant’s Roth IRAs are treated as one single account for purposes of applying the Ordering Rules ( ¶ 5.2.07 ). Note, however, that:  Beneficiaries: A Roth IRA that an individual holds as beneficiary of a deceased person is NOT aggregated with the individual’s own Roth IRA(s); it is aggregated only with other inherited Roth IRAs the individual holds as beneficiary of the same decedent. Reg. § 1.408A-6 , A-11.  Spouses: The Roth IRAs of a husband and wife are not aggregated with each other; each spouse’s Roth IRAs are aggregated only with other Roth IRAs of that spouse. Aggregation applies to Roth IRAs of the “individual.” Reg. § 1.408A-6 , A-9.  Returned, recharacterized, contributions: The aggregation rule does not apply for purposes of computing net income attributable to a returned or recharacterized IRA contribution. See ¶ 5.6.02 . That computation is done with respect only to the particular account that received the contribution that is being returned or recharacterized. Reg. § 1.408-11(c)(3) , § 1.408A-5 , A-2(c)(4). C. Actual vs. deemed distributions. Generally, funds in a Roth IRA are treated as distributions only when actually distributed from the account. See ¶ 2.1.01 . For events that may cause a “deemed” distribution from an IRA (including a Roth IRA) without an actual distribution, see ¶ 2.1.04 . “Qualified distributions” are distributions that occur after a five-year waiting period has elapsed and a “triggering event” has occurred. For how to compute the five-year waiting period, see ¶ 5.2.05 . The most common “triggering events” are attaining age 59½ and death. For most people, therefore, getting tax-free qualified distributions from their Roth IRA will be a matter of waiting five years and being over age 59½. More precisely, a qualified distribution is one that is made after the Five-Year Period ( ¶ 5.2.05 ) has elapsed; and which in addition ( § 408A(d)(2)(A) ): Qualified distributions: Definition

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Is made on or after the date the participant attains age 59½; or

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Is made after the participant’s death; or