Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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flow of required distributions. Of course he must withdraw the RMD for the year of the rollover (if any) before doing the rollover; see ¶ 2.6.03 .

 A participant who is over age 70½, and therefore is forced to take RMDs from his traditional IRAs (and from any QRPs maintained by any employer as to which the participant is a 5-percent owner), can staunch the flow of RMDs if he is still working for an employer as to which he is not a 5-percent owner and which maintains a QRP that accepts rollovers, by rolling over the benefits to this employer’s QRP. See ¶ 1.4.04 and PLR 2004-53015.  A participant can stop or prevent RMDs by rolling traditional plans and DRACs to a Roth IRA. See ¶ 5.2.02 (A), ¶ 5.7.08 (B).  A surviving spouse beneficiary can use a rollover or Roth conversion to prevent, delay, or stop RMDs from a plan inherited from the deceased participant. See ¶ 3.2.01 (A), (C), ¶ 3.2.04 . 1.2.07 Post-year-end recharacterization of Roth conversion A “Roth conversion” (see ¶ 5.4) can be “recharacterized” (reversed or undone) by transferring the “conversion contribution” (and its earnings) from the Roth IRA to a traditional IRA by a certain deadline. See ¶ 5.6. If there is a Roth conversion in a particular year (“Year 1”), and that conversion is recharacterized in the following year (“Year 2”; see ¶ 5.6.02 for the deadline), the recharacterized conversion contribution, and the net income—or loss—allocable to it (which must be transferred to the traditional IRA along with the contribution itself in order to have a valid recharacterization; see ¶ 5.6.02 ) are added to the prior year-end account balance of the traditional IRA that received the recharacterized amount, for purposes of computing the RMD for the year of the recharacterization (“Year 2”). This rule applies to recharacterizations of both “failed” ( ¶ 5.4.06 ) and valid Roth conversions. Reg. § 1.408-8 , A-8(b). Note that the amount added to the prior year- end balance is the amount that is actually transferred into the traditional IRA, NOT the prior year- end balance of the Roth IRA itself. 1.2.08 Valuation rules for determining account balance ¶ 1.2.05 – ¶ 1.2.07 explain which account balance is used and what adjustments to the balance are required. But the most important thing about that account balance is its value. The value of the account balance is what the ADP is divided into to determine the RMD. IRA providers are required to provide the year-end fair market value (FMV) of the IRA to the IRS annually on Form 5498. Reg. § 1.408-8 , A-10. There is one special valuation rule, governing how a variable annuity contract held inside a defined contribution (DC) plan is to be valued for RMD purposes. See Reg. § 1.401(a)(9)-6 , A-12(a), discussed at ¶ 11.1.01 , Rule #1. Surprisingly, except for that one rule, there is no guidance on how to determine FMV for RMD purposes. See Notices 2002-27, 2002-1 CB 814, and 2003-3, 2003-1 CB 257.