Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

1.2.06 How rollovers and RMDs interact This ¶ 1.2.06 explains how rollovers and plan-to-plan transfers affect application of the minimum distribution rules. See also ¶ 1.2.07 regarding recharacterization of Roth IRA conversions. A. Adjustment required for outstanding rollovers. You must increase the prior year-end balance ( ¶ 1.2.05 ) by any amount that was added to the account in the Distribution Year (“Year 2”) and that represented a rollover from another plan or IRA, if the amount in question was distributed from such other plan or IRA in the prior calendar year (“Year 1”). The IRS calls such rollovers that are in transit from one account or plan to another on the last day of the year “ outstanding rollovers .” For purposes of computing RMDs for the receiving plan, the rollover amount is deemed to have been received in the prior calendar year ( i.e., Year 1) and not the year it was actually received (Year 2). Reg. § 1.401(a)(9)-7 , A-2, last sentence. If this rule did not exist, people could cheat by moving money around from account to account at the end of the year, so as to avoid having the funds count as part of the year-end account balance of either plan. Reg. § 1.408-2(b)(6)(v) , which states the opposite (outstanding rollovers added back to the distributing plan) was rendered obsolete by the final RMD regulations. See Reg. § 1.408-8 , A-1. B. Other rollover effects on balance . Reg. § 1.401(a)(9)-7 contains other rules regarding the effect of rollovers and plan-to-plan transfers on the calculation of RMDs, but (except as noted in “A”) a rollover or transfer into a plan or IRA has no effect on RMDs from that plan or IRA until the year after the rollover or transfer is received. Reg. § 1.401(a)(9)-7 , A-2. The rollover or transfer has the effect of increasing the plan balance of the receiving plan, which increases the RMD for the year following the rollover. C. Effect of rollover on Required Beginning Date (RBD). Generally, if a rollover contribution ( ¶ 2.6.01 (B)) or IRA-to-IRA transfer ( ¶ 2.6.08 ) is made into a new IRA (an account which contained nothing at the time it received the rollover contribution), there is no distribution required from such new IRA for the year in which the contribution comes into the account, because the prior year-end account balance was zero (for exceptions see “A,” ¶ 1.2.07 , and ¶ 1.6.03 (B)). The RBD for the new account will be the later of (1) April 1 of the year after the year the participant reaches age 70½ or (2) December 31 of the year after the year of the rollover. See PLRs 1999-31049, 2001-23070. D. Rollover can change applicable RMD rules. RMDs are determined under the rules applicable to the plan that holds the benefits . It does not matter that the benefits may have previously been held in some other type of plan prior to a rollover. See Reg. § 1.401(a)(9)- 7 . This means that a rollover can change the RMD rules applicable to the rolled over assets. There are three situations in which an individual can use a rollover to stop (or head off) the

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