Life and Death Planning for Retirement Benefits

Chapter 2: Income Tax Issues

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 The participant can do an IRA-to-IRA transfer in a year in which an RMD is required even before taking the RMD; the transferring IRA is not required to either pay out or hold back the RMD for the year, according to the Preamble to IRS final minimum distribution regulations, T.D. 8987, 67 FR 18987, 4/17/02 (“Other Rules for IRAs”)  An IRA-to-IRA transfer is not considered a rollover for purposes of the limit of one IRA- to-IRA rollover per 12 months ( ¶ 2.6.05 ). Rev. Rul. 78-406, 1978-2 C.B. 157.  Since, in an IRA-to-IRA transfer, money is never distributed out of the IRA environment there is no 60-day deadline ( ¶ 2.6.06 ) to contend with, even if the check does not reach the recipient IRA within 60 days after being sent out from the transmitting IRA. See ¶ 2.1.03 (A).  Funds can be transferred via IRA-to-IRA transfer from one inherited IRA to another, even though distributions from an inherited IRA cannot be “rolled over.” See ¶ 4.2.02 (A), (B). Note that a transfer from a traditional IRA to a Roth IRA must meet some requirements of a “rollover,” even if it is carried out by means of an trustee-to-trustee transfer, according to Reg. § 1.408A-4 , A-1—including the rules prohibiting the rollover of an RMD (see ¶ 5.2.02 (E)) or of a distribution from an inherited IRA ( ¶ 4.2.05 (A)). 2.7 Retiree Road Map This road map is primarily for use when you are advising the individual who has money in a QRP, 403(b) plan, or IRA and who is planning to retire, or whose employment with the plan sponsor is ending for any reason. It also covers income tax issues continually faced by all IRA or plan participants, both during employment and after retirement, as well as tips for a successful rollover. 2.7.01 Plan-related issues to discuss with your client Does your client have any of the following special situations involved in his/her employer’s retirement plan? Plan loan outstanding? See ¶ 2.1.07 . Appreciated employer stock owned in the plan, or that could be purchased in the employee’s plan account? See ¶ 2.5. Anyone advising an employee (or the beneficiaries of a deceased employee) whose QRP account holds (or could purchase) employer stock MUST impress on the client the importance of considering the favorable NUA deal before the client does any of the following: sells the stock inside the plan; retires; takes a distribution from the plan; or rolls over anything from the plan to another plan or IRA. Was your client born before January 2, 1936? See ¶ 2.4.06 . Anyone advising a QRP participant (or the beneficiaries of a deceased QRP participant) who was born before January 2, 1936, should impress on the client the importance of considering the favorable special averaging deal before the client takes a distribution from the plan or (in the case of the participant or surviving spouse) rolls over anything from the plan to another plan or IRA. Did your client make a TEFRA 242(b) election in 1984? See ¶ 1.4.08 .