Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

certain RMDs under transition rules when the final minimum distribution regulations were coming into effect. 2.6.04 60-day rollover: Must roll over same property received A rollover cannot be used to “swap” property out of a retirement plan. If property is distributed to a participant or surviving spouse from a QRP, and the recipient wants the distribution to be treated as a tax-free rollover to another plan or IRA (or as a valid conversion to a Roth IRA), the same property that was received from the first plan must be contributed to the recipient plan, IRA, or Roth IRA. § 402(c)(1)(C) . The participant (or surviving spouse) cannot simply substitute some other asset of equal value; if he still owns the property that was distributed from the first plan, that is what must be contributed to the same or another plan to have a tax-free rollover (or valid Roth conversion as the case may be). Rev. Rul. 87-77, 1987-2 C.B. 115. The only exception is that if the participant (or surviving spouse) sells the property after receiving it from the first plan, the sales proceeds are rolled over rather than the property itself; no income is reportable as a result of the sale (because it is treated as if it had occurred inside a retirement plan). § 402(c)(6) . The Code does not authorize selling distributed property and rolling over the sale proceeds in connection with rollovers of IRA distributions; it blesses only rollovers of the “amount received (including money or other property).” § 408(d)(3)(A) . 2.6.05 60-day rollovers: Only one IRA-to-IRA rollover in 12 months A participant or surviving spouse may not roll over an IRA distribution to the same or another IRA “if at any time during the 1-year period ending on the day of…[the receipt of the distribution] such individual received any other amount...from an individual retirement account...which was not includible in his gross income because” it was a tax-free rollover to an IRA. § 408(d)(3)(B) . A. How rule applies to multiple IRAs . The statute forbids the tax-free rollover, into the same or another IRA, of any IRA distribution that is received less than 12 months after a prior IRA distribution that was rolled over to an IRA – regardless of which IRA(s) the later distributions(s) came from. However, for rollovers prior to 2015 the IRS did not apply the rule so strictly. Rather, the IRS applied the rule on an account-by-account basis: Once an IRA owner had rolled over a distribution from one IRA into the same or another IRA, he could not, within 12 months after the date of the earlier distribution, do an IRA-to-IRA rollover of any other distribution from an IRA that was involved in the first rollover . See IRS Publication 590 (2013), p. 25, and Prop. Reg. § 1.408-4(b)(4)(ii). Under the IRS’s interpretation, the participant could roll over, to an IRA, a later distribution received within 12 months if it came from an IRA that was not involved in the prior rollover. The Tax Court threw out the IRS’s easy-going interpretation of the once-per-12- months rule in Bobrow v. Comm’r , TC Memo 2014-21 (1/28/14). It held that there could be no IRA-to-IRA rollover of a second IRA distribution received within 12 months after an earlier IRA distribution that was rolled into an IRA, regardless of whether the distributions came from the same or different accounts.

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