Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

A “ rollover contribution ” is a contribution that comes into a retirement plan account by means of a direct rollover (see “C”) or indirect or 60-day rollover (see “D”). A contribution that is not a rollover contribution is called a “regular contribution” (see ¶ 5.3.02 ). C. Direct rollovers. A direct rollover is one particular kind of trustee-to-trustee transfer. It is the transfer of assets directly from the participant’s account in a qualified retirement plan (QRP), 403(b) plan, or governmental 457(b) plan (“nonIRA plan”) to an account for the benefit of such person in a traditional or Roth IRA or in another eligible nonIRA plan. A direct rollover may be carried out for the benefit of the participant (upon retirement, for example) or for the benefit of the Designated Beneficiary (if the participant is deceased). A direct rollover of nonIRA plan benefits of a nonspouse Designated Beneficiary can be made only to an IRA or Roth IRA, not any other type of plan; see ¶ 4.2.04 . The Code calls this a direct trustee-to-trustee transfer . § 401(a)(31)(A)(ii) . The IRS (and this book) call it a direct rollover . See, e.g. , Reg. § 1.401(a)(31)-1 . Generally, when a plan is about to make an “eligible rollover distribution” to the participant, surviving spouse ( ¶ 3.2.02 ), or Designated Beneficiary (see ¶ 4.2.04 (H)), the plan MUST offer the recipient the option of having the distribution sent, via direct rollover, to any eligible retirement plan (which includes a Roth IRA) and MUST comply with the employee’s request for such a direct rollover. § 401(a)(31) ; Notice 2008-30, 2008-12 IRB 638, A-4. (There are exceptions for certain small distributions and multiple distributions.) A direct rollover is considered to be a distribution followed by a rollover, which may mean spousal consent is required (see ¶ 3.4.02 ). Reg. § 1.401(a)(31)-1 , A-15. The plan may allow the recipient to have direct rollover of the distributions into multiple “destination” IRAs ( e.g. , a traditional and a Roth); however, the plan is not required to offer that option. All that the plan is required to offer with respect to any one distribution is a menu of three choices: 1. Outright distribution of the entire amount; 2. Direct rollover of the entire amount to a single IRA; or 3. Partial outright distribution to the recipient with the balance directly rolled over to a single IRA. Reg. § 1.401(a)(31)-1 , A-10. Since distribution of an eligible rollover distribution to the recipient will trigger mandatory withholding ( ¶ 2.3.02 (C)), the plan could be “forced” to write up to three checks (one to an eligible plan as a direct rollover, one to the distributee, and one to the IRS). D. Definition of “60-day” (indirect) rollover. The IRS calls a distribution from a plan or IRA to the participant (or his surviving spouse), followed by the participant’s (or spouse’s) redepositing the distributed amount into the same or another plan or IRA a 60-day rollover (because of the deadline normally applicable for completing the rollover; see ¶ 2.6.06 ); Reg. § 1.402A-1 , A-5(a); or indirect rollover (see, e.g. , Reg. § 1.402A-1 , A-4(b)). E. Trustee-to-trustee transfer. In a trustee-to-trustee transfer, assets are moved directly from one tax-favored retirement plan into another such plan, without the intervening step of being distributed “to” the participant or beneficiary. The distribution check is payable to the receiving plan, not to the participant or beneficiary; the funds spend no time in a taxable account. This book deals with only certain types of trustee-to-trustee transfers: Transfers from one IRA directly into another IRA in the name of the same participant or beneficiary (see ¶ 2.6.08 , ¶ 4.2.02 (B)) (usually called, in this book, IRA-to-IRA transfers ); Roth conversions ( ¶ 5.4.07 , #2); recharacterizations ( ¶ 5.6.03 ,#1); and direct rollovers (see “C”