Life and Death Planning for Retirement Benefits

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94 Life and Death Planning for Retirement Benefits
These two 2010 PLRs reversed the IRS’s earlier position, which was that a hardship
extension 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. 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. 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 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 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 unde
income taxation would cease to be governed by 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.” (emphasis added); see also Reg.
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 C); Reg. 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.
 Regarding transfer of an IRA to a “grantor trust,” se C),
 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.