Life and Death Planning for Retirement Benefits

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98 Life and Death Planning for Retirement Benefits
basis (investment in the contract). Reg. A-4, A-10, A-11, A-21; C).
A deemed distribution under
 Is not an eligible rollover distribution ; Reg. A-4(d).
 Cannot be a tax-free “qualified distribution” if made from a DRAC C)); Reg.
, A-2(c), A-11; A-4(d).
 Does not count towards fulfilling the minimum distribution requirement B)); Reg.
A-9(b)(4).
 Is subject to the 10 percent early distributions penalty if the participant is under age 59½
and no exception applies; see D).
B. Plan loan offset distributions. If the loan complies with we get away from the
nonrollable deemed distribution that occurs when is violated. We then encounter
another type of loan-related distribution, the “plan loan offset distribution” that occurs
when the employee’s termination of employment (or death) causes the loan to be
accelerated. Typically, the plan requires the loan to be repaid immediately in that event,
deducts the loan balance from the employee’s account, and distributes to the employee (or
beneficiary) the plan benefits minus the loan amount. The plan’s repayment to itself is
called a loan offset, and it is considered an actual distribution, includible in income
when the offset occurs (except to the extent it is rolled over). Reg. A-
13. As an “actual distribution,” the plan loan offset:
 Does count towards the required minimum distribution RMD) (if any) for the year.
Reg. A-9(a); see
 Is subject to the 10 percent early distributions penalty , unless an exception
applies For example, if the employee has retired at age 55 or later at the
time the plan loan offset distribution to him occurs, there is no penalty;
 Is an eligible rollover distribution , except to the extent it represents an
RMD . The participant can “roll over” the non RMD portion of the offset
distribution using substituted funds. Reg A-9; PLR 2006-17037; IRS
Instructions for Forms 1099-R and 5498 (2010), p. 3. See Tilley v. Comm’r, T.C.
Summary 2008-86, in which the Tax Court ruled that, for purposes of computing
the 60-day rollover deadline , the offset distribution was deemed to have
occurred upon expiration of the loan’s 90-day cure period. See PLR 2009-30051,
in which an employee was granted a hardship waiver of the 60-day
rollover deadline for a plan loan offset distribution.
 Is treated as an “eligible rollover distribution” (or as part of such a distribution) for
purposes of the mandatory 20 percent income tax withholding on eligible rollover
distributions C)). However, the plan is not obligated to withhold more
than the cash (i.e., the non-offset) portion of the distribution. Reg.