Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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(Year 2). Reg. § 1.401(a)(9)-7 , A-2, last sentence. If this rule did not exist, people could cheat by moving money around from account to account at the end of the year, so as to avoid having the funds count as part of the year-end account balance of either plan. Reg. § 1.408-2(b)(6)(v) , which states the opposite (outstanding rollovers added back to the distributing plan) was rendered obsolete by the final RMD regulations and so does not apply for 2003 and later years. See Reg. § 1.408-8 , A-1. B. Other rollover effects on balance. Reg. § 1.401(a)(9)-7 contains other rules regarding the effect of rollovers and plan-to-plan transfers on the calculation of RMDs, but (except as noted in “A”) a rollover or transfer into a plan or IRA has no effect on RMDs from that plan or IRA until the year after the rollover or transfer is received. Reg. § 1.401(a)(9)-7 , A-2. The rollover or transfer has the effect of increasing the plan balance of the receiving plan, which increases the RMD for the year following the rollover. C. Effect of rollover on Required Beginning Date (RBD). Generally, if a rollover contribution ( ¶ 2.6.01 (B)) or IRA-to-IRA transfer ( ¶ 2.6.07 ) is made into a new IRA (an account which contained nothing at the time it received the rollover contribution), there is no distribution required from such new IRA for the year in which the contribution comes into the account, because the prior year-end account balance was zero (for exceptions see “A” and ¶ 1.2.07 ). The RBD for the new account will be the later of (1) April 1 of the year after the year the participant reaches age 70½ or (2) December 31 of the year after the year of the rollover. Compare ¶ 1.6.03 (B) (spousal election to treat inherited IRA as spouse’s own IRA). D. Rollover can change applicable RMD rules. RMDs are determined under the rules applicable to the plan that holds the benefits . It does not matter that the benefits may have previously been held in some other type of plan prior to a rollover. See Reg. § 1.401(a)(9)- 7 , A-2. The regulation has no rule or procedure for “looking back” to the plan of origin when determining RMDs with respect to rollover contributions. This means that a rollover can change the RMD rules applicable to the rolled over assets. There are three situations in which an individual can use a rollover to stop (or head off) the flow of required distributions. Of course he must withdraw the RMD for the year of the rollover (if any) before doing the rollover; see ¶ 2.6.03 .  A participant who is over age 70½, and therefore is forced to take RMDs from his traditional IRAs (and from any QRPs maintained by any employer as to which the participant is a 5-percent owner), can staunch the flow of RMDs if he is still working for (i.e. not “retired” with respect to) an employer as to which he is not a 5-percent owner and which maintains a QRP that accepts rollovers, by rolling over the benefits to this employer’s QRP. See ¶ 1.4.04 and PLR 2004-53015.

 A participant can stop or prevent RMDs from traditional plans and IRAs, and DRACs, by rolling them to a Roth IRA. See ¶ 5.2.02 (A), ¶ 5.7.08 (B).