Life and Death Planning for Retirement Benefits

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112 Life and Death Planning for Retirement Benefits
Similarly, if the participant requests that his entire distribution be sent, via direct rollover,
to multiple Roth IRAs, but does not request any outright distribution or direct rollover to a
traditional IRA as part of the transaction, the allocation of his after-tax money among the multiple
Roth IRAs into which the money is transferred does not matter. All his Roth IRAs will be
aggregated (treated as a single account) for purposes of determining the income tax treatment of
any later distribution from any one of his Roth IRAs. See B).
F. How these options apply to QRP beneficiaries
A designated beneficiary is entitled to request a direct rollover of inherited QRP benefits
into a traditional or Roth IRA. Se for explanation of the requirements of such “beneficiary
rollovers,” including the definition of “designated beneficiary.” A designated beneficiary has the
same options as a living participant to request partial outright distribution combined with partial
direct rollover to traditional IRA (see “B”), or to request partial direct rollover to a Roth IRA
combined with partial direct rollover to a traditional IRA (see “C”). However, a designated
beneficiary who is not the surviving spouse does not have the option to use a distribution followed
by rollover(s) (see “D”); nonspouse beneficiaries are not permitted to do “60-day rollovers.”
A).
G. Effective date and retroactivity of Notice 2014-54
The transition rules of Notice 2014-54 are generous to people who totally ignored Notice
2009-68, but offer no relief to people who “obeyed” it.
According to the Notice’s “Proposed Regulation and Transition Rules,” Notice 2014-54
applies to distributions made on or after January 1, 2015. However, for distributions prior to that
date any “reasonable interpretation” of the allocation rules of will be accepted, and
“reasonable interpretations” would include either the old “separate distribution” rule of Notice
2009-68 or the new allocation rules blessed in Notice 2014-54. (Note: This ability to use the new
rules retroactively does not apply to distributions from Designated Roth Accounts; see .
A person who, between 9/28/09 and 10/6/14, took a retirement plan distribution that
included after-tax money will therefore have very different results depending on whether his plan
administrator and tax preparer were sticklers for the rules or defiant free spirits.
1. Partial Direct Rollover/Partial Distribution Examples
Lanny Example: Lanny retired in 2010 and took a total distribution of her $100,000 account at
the Newco Profit-Sharing Plan of which $20,000 was post-1986 after-tax money. She requested a
cash distribution to herself of $20,000 and a direct rollover of $80,000 to a traditional IRA. Her
plan administrator and tax preparer reported this as a tax-free distribution of the after-tax money
combined with a tax-free (tax-deferred) rollover of the pretax money to the traditional IRA, in
defiance of the “separate distributions” rule of Notice 2009-68. This tax treatment is retroactively
blessed by Notice 2014-54. By “violating” Notice 2009-68, Lanny and her advisors got the tax
treatment she wanted and are all set now—they do not need to do anything further, or worry about
the IRS attacking what they did in 2010.
Fanny Example: Fanny retired in 2010 and took a total distribution of her $100,000 account at
the Bigco Profit-Sharing Plan of which $20,000 (20%) was post-1986 after-tax money. She