Life and Death Planning for Retirement Benefits

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Chapter 2: Income Tax Issues 135
This explains how a participant can transfer or “roll over” assets from one of his
retirement accounts to another (or “roll” a distribution back into the same plan or IRA it came out
of), without having the transferred or distributed amount included in his gross income. Unless
otherwise indicated, the same rules described here for tax-free rollovers also apply to Roth IRA
“conversions,” which are in essence “taxable rollovers” A)).
Thi deals primarily with rollovers and transfers by the participant. For rollovers and
transfers by a surviving spouse, see also by nonspouse beneficiaries, see
This book deals with rollovers from the perspective of planning and compliance for the
individual participant or beneficiary, and thus deals only with transfers and rollovers to or from
IRAs. Plan administration matters, and rollovers that do not involve IRAs, are not covered; see
instead The Pension Answer Book .
2.6.01 Definitions: rollovers, trustee-to-trustee transfers, etc.
Rollovers and trustee-to-trustee transfers are both ways to move assets from one retirement
plan to another. A rollover can also be a way to money assets out of a plan and then back in to the
same plan. Beyond that, it is difficult to define these terms because they overlap.
A. Background: Rollover vs. trustee-to-trustee transfer. In dealing with “rollovers” and
“transfers” from one plan to another, we are dealing with an evolving and confusing
terminology.
A “rollover” originally meant the distribution of funds out of one retirement plan to the
participant or surviving spouse, followed by the recipient’s redepositing all or part of that
distribution into the same or a different retirement plan—but now we also have “direct rollovers”
(see “C”) where the money passes directly from a nonIRA plan to an IRA, without spending any
time in a “taxable account.”
At one time, a “rollover” always meant a “tax-free rollover”—but now we also have taxable
rollovers (called “Roth conversions”; .
A “trustee-to-trustee transfer” once meant the transfer of funds directly from one IRA to
another IRA of the same participant (or beneficiary), an approach that avoided many of the rules
applicable to “rollovers” (see ; but now we also have trustee-to-trustee transfers from a
nonIRA plan to an IRA (direct rollover; see “C”), and these are subject to certain “rollover” rules,
as well as IRA-to-IRA transfers that are both taxable and subject to (some of) the rollover rules
(Roth conversions; see .
B. Definition of “rollover” and “rollover contribution.” Generally, a retirement plan
distribution is not included in anyone’s gross income if the distribution is “rolled over” to
the same or a different “eligible” retirement plan or IRA, if various requirements are met.
If the rollover meets all the requirements, but the recipient
account is a Roth IRA, the rollover (Roth conversion) is a valid rollover but it is taxable;
see For the requirements of a valid rollover, see For
ways to avoid these requirements, se There are two ways to accomplish
a rollover; see “C” and “D.”