Life and Death Planning for Retirement Benefits

Table of Contents

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H. Return of IRA contribution................................................................................... 96 I. Income tax deduction for certain beneficiaries ..................................................... 96 J. Distribution to charitable entity ............................................................................ 96 K. Qualified Health Savings Account Funding Distributions ................................... 97 L. QDROs and divorce-related IRA divisions .......................................................... 97 2.1.07 Income tax, RMD, and estate planning aspects of plan loans .......................................... 97 2.1.08 Excess IRA contributions; corrective distributions .......................................................... 99 2.2 I F THE P ARTICIPANT H AS A FTER - TAX M ONEY IN THE P LAN OR IRA ............................ 102 2.2.01 Road Map: Tax-free distribution of participant’s “basis” ............................................ 102 2.2.02 General rule: The “cream-in-the-coffee rule” of § 72 .................................................... 103 2.2.03 Participant’s basis in a QRP or 403(b) plan.................................................................... 103 2.2.04 QRP distributions from account that contains after-tax money...................................... 104 A. Separate employee contribution accounts may be distributed separately........... 105 B. “Cream” rule exception for pre-1987 balances................................................... 105 C. One “distribution” may be sent to multiple destinations .................................... 106 2.2.05 Partial and split rollovers, conversions: QRP distributions ........................................... 107 A. Introduction: Please read this first ...................................................................... 107 B. Part direct rollover to Roth IRA, part direct rollover to traditional IRA ............ 108 C. Part outright distribution, part direct rollover into any IRA(s) ........................... 109 D. Distribution outright to participant followed by one or more 60-day rollover(s)110 E. Direct rollover into multiple traditional (or Roth) IRAs..................................... 111 F. How these options apply to QRP beneficiaries................................................... 112 G. Effective date and retroactivity of Notice 2014-54............................................. 112 2.2.06 Participant’s basis in a traditional IRA ........................................................................... 115 2.2.07 Beneficiary’s basis in an inherited IRA .......................................................................... 115 2.2.08 How much of a traditional IRA distribution is basis?..................................................... 116 A. The cream-in-the-coffee formula ........................................................................ 116 B. Distribution Amount ........................................................................................... 117 C. Year-end Account Balance ................................................................................. 117 D. Total Nondeductible Contributions..................................................................... 118 E. Outstanding Rollovers ........................................................................................ 118 F. The aggregation rule: Which IRAs must be aggregated ..................................... 118 G. Cream-in-the-coffee formula: Examples ............................................................ 119 2.2.09 Partial rollovers and conversions: IRA distributions ...................................................... 120 2.2.10 Exceptions to the cream-in-the-coffee rule for IRAs...................................................... 120 A. IRA-to-nonIRA-plan rollovers............................................................................ 121 B. Return of IRA contribution before tax return due date....................................... 121 C. QHSAFDs ........................................................................................................... 121 D. Qualified Charitable Distributions ...................................................................... 121 2.3 I NCOME T AX W ITHHOLDING ............................................................................................ 121 2.3.01 Withholding of federal income taxes: overview............................................................. 121 2.3.02 Periodic, nonperiodic, and eligible rollover payments ................................................... 121 2.3.03 Exceptions and special rules ........................................................................................... 123