Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

These two 2010 PLRs reversed the IRS’s earlier position, which was that a hardship extension ( ¶ 2.6.07 ) was required to allow completion of a direct rollover if the check had not been deposited within 60 days. See PLRs 2004-24009 and 2004-39049. B. If the check is never received. What if the participant never receives the check the plan sends him? The IRS has issued inconsistent PLRs. In PLRs 2004-30031 and 2004-36017, the IRS ruled that, if the distribution check is never received, there has been no distribution (the 60-day rollover period, in PLR 2004-30031, being measured from the date of the replacement check that the plan issued to replace the lost check). But in PLR 2004-47042 the IRS ruled that the 60-day rollover deadline was measured from the date of the original (lost) check, not the date of the replacement check. § 408(d)(3)(A)(i) ) says the deadline is “the 60th day after the day on which he [ i.e., the participant or surviving spouse] receives the payment or distribution.” Reg. § 1.408-4(b)(1) says the same. So, based on the Code and its own regulation, the IRS was right in PLRs 2004-30031 and 2004-36017 and wrong in 2004-47042. 2.1.04 Actual distributions and deemed distributions Generally, a participant or beneficiary is taxable on QRP, IRA, or 403(b) benefits only if, as, and when such benefits are actually distributed . ¶ 2.1.01 . The doctrine of “constructive receipt” (holding that income becomes taxable when it is “made available,” not just when it is paid) does not apply to these benefits. Compare § 402(b)(2) , dealing with tax treatment of distributions from “nonexempt” (nonqualified) employee benefit plans, providing that the employee is taxed on amounts “actually distributed or made available .” (If a QRP ceases to be qualified under § 401(a) , income taxation would cease to be governed by § 402(a) , with results beyond the scope of this book.) Here are exceptions to the general rule—events that cause a participant or beneficiary to be currently taxable on retirement benefits without an actual distribution: A. Pledging an IRA as security for a loan. “If, during any taxable year of the individual for whose benefit an individual retirement account is established, that individual uses the account or any portion thereof as security for a loan, the portion so used is treated as distributed to that individual.” § 408(e)(4) (emphasis added); see also Reg. § 1.408-4(d)(2) . The IRS has allowed an exception to this rule for a pledge of IRA assets to secure a former employee’s obligation to repay a pension plan distribution under certain circumstances; PLR 2006-06051. B. Other assignments, pledges, or transfers. Generally, assigning, pledging, or transferring an IRA or other retirement plan to another person causes a deemed distribution of the account. See ¶ 5.8.06 (C); § 72(e)(4)(A)(ii) ; Reg. § 1.408-4(a)(2) ; and Coppola v. Beeson , 2005-2 USTC ¶50,503, 96 AFTR 2d 2005-5375 (5th Cir. 2005) (participant’s pledge of his 403(b) account, as security for alimony he owed, treated as a distribution). However: QRP benefits are nonassignable, so this issue does not arise. § 401(a)(13) .  Regarding transfer of an IRA to a “grantor trust,” see ¶ 4.6.03 (C), ¶ 6.1.06 .  The transfer of the account from the participant to the beneficiary that occurs as a result of the participant’s death is not a taxable event. 

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