Life and Death Planning for Retirement Benefits

Table of Contents

15

5.4.04 Tax treatment of converting nonIRA plan to Roth IRA ................................................. 243 5.4.05 Income spreading for conversions in 1998 or 2010........................................................ 244 5.4.06 Failed conversions .......................................................................................................... 245 5.4.07 Mechanics of traditional IRA-to-Roth IRA conversions ................................................ 246 5.4.08 Mechanics of conversion from other traditional plans ................................................... 246 5.5 R OTH P LANS AND THE 10% P ENALTY F OR P RE -A GE 59½ D ISTRIBUTIONS ................... 247 5.5.01 Penalty applies to certain Roth plan distributions........................................................... 247 A. Qualified distribution .......................................................................................... 247 B. Nonqualified distribution from Roth IRA........................................................... 247 C. Nonqualified distribution from DRAC ............................................................... 247 D. Conversion followed by distribution within five years....................................... 248 5.5.02 Roth conversion prior to reaching age 59½ .................................................................... 248 A. Penalty does not apply to a Roth conversion ...................................................... 248 B. Penalty applies to certain distributions within five years after a conversion...... 248 C. Penalty applies to failed conversion ................................................................... 249 5.5.03 Conversion while receiving “series of equal payments” ................................................ 249 5.6 R ECHARACTERIZING AN IRA OR R OTH IRA C ONTRIBUTION ........................................ 250 5.6.01 Which IRA contributions may be recharacterized.......................................................... 250 5.6.02 Income attributable to the contribution........................................................................... 251 5.6.03 How to recharacterize certain IRA/Roth IRA contributions........................................... 252 5.6.04 Partial recharacterizations ............................................................................................... 253 5.6.05 Deadline for Roth IRA contributions and conversions................................................... 254 5.6.06 Recharacterization deadline: Due date “including extensions” ...................................... 255 5.6.07 Same-year and immediate reconversions banned ........................................................... 257 5.7 D ESIGNATED R OTH A CCOUNTS ........................................................................................ 257 5.7.01 Meet the DRAC: Roth 401(k)s, 403(b)s, 457(b)s........................................................... 257 5.7.02 DRAC contributions: Who, how much, how, etc. .......................................................... 258 A. Who may contribute............................................................................................ 258 B. How much may be contributed ........................................................................... 259 C. Election is irrevocable......................................................................................... 259 D. What may be contributed to a DRAC................................................................. 259 5.7.03 RMDs and other contrasts with Roth IRAs .................................................................... 260 5.7.04 DRACs: Definition of “qualified distribution”............................................................... 260 A. Qualified distribution triggering events .............................................................. 260 B. How the Five-Year Period is computed for a DRAC ......................................... 261 C. List of never-qualified distributions.................................................................... 261 D. QDROs and payments to beneficiaries ............................................................... 262 5.7.05 Nonqualified DRAC distributions .................................................................................. 262 5.7.06 Rollovers of DRAC distributions: General rules ............................................................ 263 5.7.07 DRAC-to-DRAC rollovers ............................................................................................. 264 A. May roll to any other DRAC .............................................................................. 264 B. Direct rollover ..................................................................................................... 264 C. Total direct rollover preserves basis in excess of value...................................... 264

Made with