Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

E. 60-day (“indirect”) rollover. If the participant actually receives the distribution ( i.e., he did not arrange for a direct rollover), he generally has 60 days to roll all or part of that distribution into another DRAC; see ¶ 2.6.01 (D), ¶ 2.7 , for details on this deadline. Here are additional rules regarding such indirect DRAC-to-DRAC rollovers 1. The participant can roll the earnings (pretax) portion of the distribution to another DRAC, but the nontaxable portion of a DRAC distribution (the basis) may NOT be rolled to another DRAC by means of a 60-day rollover. This treatment is consistent with the rules that, in case of a partial indirect rollover, the portion rolled is deemed to come first out of the part of the distribution that would be taxable if not rolled over and that after-tax money cannot be rolled into a QRP except by direct rollover. § 402(c)(2) ; Reg. § 1.402A-1 , A-5(a), second sentence. See ¶ 2.2.05 (C). 2. With a 60-day rollover, the transferee DRAC does NOT tack on the participant’s holding period from the prior DRAC. Compare “D” above. The participant’s Five- Year Period for the DRAC that receives the rollover is based on the first year he made a contribution to that particular DRAC (whether that first contribution was the rollover contribution or some other contribution). Reg. § 1.402A-1 , A-5(c). 3. Finally, since a 60-day rollover involves the distribution of an eligible rollover distribution to the participant, it is subject to mandatory 20 percent withholding of federal income tax from the taxable portion of the distribution. § 3405(c) . To roll over the withheld amount, the participant must use substituted funds. ¶ 2.6.02 . A DRAC-to-Roth-IRA rollover may be accomplished by either direct rollover ( ¶ 2.6.01 (C)) or 60-day (indirect) rollover ( ¶ 2.6.01 (D)). Reg. § 1.402A-1 , A-5(a). For the effect of such a rollover on computation of the Five-Year Period, see ¶ 5.7.09 . For effect of a partial indirect rollover on basis, see ¶ 2.2.05 (C). Here are additional rules and considerations that apply to DRAC-to-Roth-IRA rollovers: A. Who is eligible. A rollover from a DRAC to a Roth IRA is permitted even if the participant is not otherwise eligible to contribute to a Roth IRA ( ¶ 5.3.04 ). Reg. § 1.408A-10 , A-2. He can establish a Roth IRA purely for the purpose of receiving a rollover from his DRAC. Both a qualified and a nonqualified DRAC distribution can be rolled to a Roth IRA— provided, of course, that it’s an eligible rollover distribution; see ¶ 2.6.02 . B. Minimum distribution effects. Rolling over from a DRAC to a Roth IRA will end the requirement of lifetime RMDs with respect to the rolled funds. ¶ 5.2.02 (A). For a rollover in a year when a distribution is required, see ¶ 2.6.03 . Also, if the rollover occurs after the participant’s Required Beginning Date (RBD; ¶ 1.4 ), the rollover changes the method of computing the Applicable Distribution Period (ADP; ¶ 1.2.03 ) that will apply to the participant’s beneficiaries from the “death post-RBD rules” to the “death pre-RBD rules”; see ¶ 1.5.02 . DRAC-to-Roth-IRA rollovers: In general For the general rules applicable to all rollovers of DRAC distributions, see ¶ 5.7.06 .