Life and Death Planning for Retirement Benefits

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260 Life and Death Planning for Retirement Benefits
 The employer cannot make matching (or any other) contributions to a DRAC. The
employer’s matching contribution (if any), and any other employer contributions to
the plan on behalf of the participant, must be made to the participant’s “traditional”
CODA account, regardless of whether the participant’s contribution that is being
“matched” was made to a traditional account or to a DRAC.
 Money cannot be rolled from a Roth IRA into a DRAC, even if that Roth IRA
contains nothing but money rolled into it from the same or another DRAC. Reg.
A-5.
Elective deferrals may be contributed prospectively only to a DRAC. Once the participant
has elected to have his deferral contribution sent to a traditional 401(k) account, he cannot later
move the funds from the traditional account into a DRAC. Reg. The only
exception to that statement is, once he becomes entitled to a distribution from the traditional
elective deferral account, he can roll such distribution from that account to a DRAC if permitted
by the plan (see .
5.7.03 RMDs and other contrasts with Roth IRAs
A DRAC (unlike a Roth IRA) is part of a 401(k), 403(b), or governmental 457(b) plan. As
such it is subject to all the same rules that apply to traditional accounts in such plans, except to the
extent provides otherwise.
For example, DRACs are subject to the same lifetime and post-death minimum distribution
rules as other plan benefits. Reg. A DRAC owner approaching age 70½ should
consider rolling over his DRAC to a Roth IRA to avoid “lifetime” required distributions; see
A),
DRAC distributions are subject to the income tax withholding rules applicable to other
distributions from qualified plans; see DRACs are also subject to federally granted spousal
rights (see , and the rules restricting distributions from elective deferral accounts (not covered
in this book; see, instead, Chapter 27 of The Pension Answer Book . Roth IRAs are
subject to none of these. Other differences include the irrevocability of contributions C)),
the definition of qualified distributions , the treatment of nonqualified distributions
, and the rollover rules .
5.7.04 DRACs: Definition of “qualified distribution”
As with a Roth IRA, there are two types of distributions from a DRAC, qualified
distributions and other (nonqualified) distributions. Qualified distributions from a DRAC, like
qualified distributions from a Roth IRA, are income tax-free Reg. , A-
2(a). However, the definition of qualified distribution is different for the two types of Roth plan.
Each involves a five-year waiting period and a triggering event, but the computation of the Five-
Year Period, and the triggering events, are not the same.
A. Qualified distribution triggering events. A DRAC distribution is a qualified distribution
only if it is either (1) made on or after the date the participant reaches age 59½, (2) made
after his death, or (3) attributable to the participant’s being disabled “within the meaning
of section 72(m)(7).” An additional category of qualified distribution from a Roth IRA, the