Life and Death Planning for Retirement Benefits

10

Life and Death Planning for Retirement Benefits

2.3.04 Mutually voluntary withholding ..................................................................................... 124 2.3.05 How withheld income taxes are applied ......................................................................... 124 2.4 L UMP S UM D ISTRIBUTIONS ............................................................................................... 124 2.4.01 Introduction to lump sum distributions........................................................................... 124 2.4.02 First hurdle: Type of plan ............................................................................................... 125 2.4.03 Second hurdle: “Reason” for distribution ....................................................................... 125 2.4.04 Third hurdle: Distribution all in one taxable year........................................................... 126 2.4.05 Exceptions to the all-in-one-year rule............................................................................. 128 2.4.06 Special averaging: Participant born before 1936 ............................................................ 129 2.5 N ET U NREALIZED A PPRECIATION OF E MPLOYER S TOCK ............................................... 129 2.5.01 NUA: Tax deferral and long-term capital gain ............................................................... 129 2.5.02 Reporting NUA distributions .......................................................................................... 130 2.5.03 Distributions after the employee’s death ........................................................................ 130 2.5.04 Basis of stock distributed in life, held until death........................................................... 131 2.5.05 Election to include NUA in income................................................................................ 132 2.5.06 Should employee keep the LSD or roll it over?.............................................................. 132 2.5.07 NUA and partial rollovers............................................................................................... 133 2.6 R OLLOVERS AND P LAN - TO -P LAN T RANSFERS ................................................................. 134 2.6.01 Definitions: rollovers, trustee-to-trustee transfers, etc.................................................... 135 A. Background: Rollover vs. trustee-to-trustee transfer. ......................................... 135 B. Definition of “rollover” and “rollover contribution.” ......................................... 135 C. Direct rollovers ................................................................................................... 136 D. Definition of “60-day” (indirect) rollover........................................................... 136 E. Trustee-to-trustee transfer ................................................................................... 136 2.6.02 Distributions that can (or can’t) be rolled over ............................................................... 137 A. Inherited plans..................................................................................................... 137 C. Series payments .................................................................................................. 137 D. Corrective and deemed distributions .................................................................. 137 E. Hardship distributions ......................................................................................... 137 F. 12-month limitation on IRA rollovers ................................................................ 137 G. Plan loans ............................................................................................................ 137 H. After-tax money .................................................................................................. 137 2.6.03 Rollover in a year in which a distribution is required..................................................... 138 A. Everybody: First distribution of the year is the RMD ........................................ 138 B. Everybody: Missed RMDs from prior years....................................................... 138 C. Participant only: Plan can assume there is no DB .............................................. 139 D. Participant only: Rollovers in the age-70½ year................................................. 139 E. Beneficiaries only: Rollover and the 5-year rule ................................................ 139 F. Exceptions to the no-rollover-of RMDs rule ...................................................... 139 2.6.04 60-day rollover: Must roll over same property received ................................................ 140 2.6.05 60-day rollovers: Only one IRA-to-IRA rollover in 12 months ..................................... 140 2.6.06 60-day rollover deadline; exceptions and blanket waivers ............................................. 142 2.6.07 Hardship waiver of 60-day rollover deadline ................................................................. 143