Life and Death Planning for Retirement Benefits

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250 Life and Death Planning for Retirement Benefits
If a participant who is receiving a SOSEPP from a traditional IRA converts the traditional
IRA to a Roth IRA, the conversion is “not treated as a distribution for purposes of determining
whether a modification” of the series has occurred, so the conversion itself does not trigger the
loss of the penalty-exempt status of the series. Reg. A-12.
However, the conversion does not mean that the participant can stop taking his periodic
payments. “[I]f the original series...does not continue to be distributed in substantially equal
periodic payments from the Roth IRA after the conversion, the series of payments will have been
modified and, if this modification occurs within 5 years of the first payment or prior to the
individual becoming disabled or attaining age 59½, the taxpayer will be subject to the recapture
tax of section 72(t)(4)(A).” Reg. A-12; emphasis added.
This statement in Reg. seems to assume that the participant converted the
entire traditional IRA to a Roth IRA. If he converted only part of the traditional IRA to a Roth
IRA, it is not clear whether the rest of his “series” payments would have to come all from the Roth
IRA, or proportionately from the new Roth IRA and the (now-diminished) traditional IRA; or
whether the participant could take the payments from whichever of the two accounts he chooses.
5.6 Recharacterizing an IRA or Roth IRA Contribution
The law provides broad relief to a taxpayer who wishes to “adjust” an IRA contribution by
switching the contribution from a Roth IRA to a traditional IRA or vice versa. The
IRS calls this relief “recharacterizing” an IRA contribution. It is available to anyone who changes
his mind about which type of IRA he wants his “regular” contribution to go to, or about a Roth
conversion he has done, as well as to someone who need to correct a Roth conversion or
contribution for which he was ineligible . Reg. A-10, Example 2.
Since recharacterization applies only to IRA contributions, it is not available for in-plan
conversions; see
A taxpayer who is unhappy with any IRA contribution he made for a particular year, or
who discovers that he was not eligible to contribute to the type of IRA he contributed to, or who
contributed more than he was entitled to contribute, may have other remedies besides
recharacterization: See A)–(E) regarding the ability to return an IRA or Roth IRA
contribution (“corrective distribution”). Se H) regarding the “absorption” of excess IRA
contributions.
5.6.01 Which IRA contributions may be recharacterized
Not all IRA contributions can be recharacterized. Here are IRA contributions that can be
recharacterized:
 The only type of rollover contribution that can be recharacterized is a Roth conversion, i.e.
a rollover from a traditional plan or IRA into a Roth IRA. The contribution (conversion) to
a Roth IRA of a distribution from a traditional plan or IRA may be recharacterized as a
contribution to a traditional IRA. Both valid Roth conversions and “failed” conversions
may be recharacterized. Reg. A-8(b).
 A regular contribution to an IRA or Roth IRA can be reversed by means of a
corrective distribution A)-(E)), or (if the contributor was eligible to contribute