Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

 Typically the deemed regular contribution to the Roth IRA resulting from a failed conversion will be an “excess contribution.” See ¶ 5.3.05 , CCA 2001-48051. 5.4.07 Mechanics of traditional IRA-to-Roth IRA conversions There are three methods a participant can use to convert assets from a traditional IRA to a Roth IRA: 1. A distribution from a traditional IRA may be contributed (rolled over) to a Roth IRA within 60 days after the distribution is made. See ¶ 2.6.06 and ¶ 5.6.05 (B) regarding this deadline. 2. An amount may be transferred directly from the traditional IRA to the Roth IRA, with the same or a different trustee (or custodian). See ¶ 2.6.01 (E). 3. The traditional IRA can simply be “redesignated” as a Roth IRA maintained by the same trustee or custodian; this is treated as a transfer of the entire account balance. Reg. § 1.408A-4 , A-1(b)(3). All three of these transactions are considered rollovers (“a distribution from the traditional IRA and a qualified rollover contribution to the Roth IRA”). Although a Roth conversion generally must meet the requirements applicable to other types of rollovers (see, e.g. , ¶ 5.2.02 (E)), a Roth conversion is not considered a rollover for purposes of the one-rollover-per-year limitation in § 408(d)(3)(B) (see ¶ 2.6.05 ), so a Roth conversion may occur even if it is within 12 months of a tax-free traditional IRA-to-IRA rollover. Reg. § 1.408A-4 , A-1(a), (c). Prior to the arrival of Roth IRAs, “rollovers” were always tax-free, and most people still associate that word with tax-free transfers from one retirement plan to another. In contrast, the rollover of funds from a traditional IRA to a Roth IRA is taxable. ¶ 5.4.03 (A). Both partial and total conversions are allowed. An eligible individual ( ¶ 5.4.02 ) may choose to convert all, part, or none of his traditional IRA to a Roth IRA. There is no minimum or maximum A participant can transfer a distribution from a traditional 401(a), 403, or governmental 457(b) plan to a Roth IRA either by direct rollover or by 60-day (indirect) rollover. ¶ 5.4.01 (B). See ¶ 2.6.01 for definitions of direct, indirect, and 60-day rollover. The direct rollover is preferable because it avoids the mandatory 20 percent withholding of federal income taxes otherwise applicable to the taxable portion of the distribution. ¶ 2.3.02 (C). Generally, when a plan is about to make a distribution to an employee, the plan MUST offer the employee the option of having the distribution sent, via direct rollover, to any eligible retirement plan (which includes a Roth IRA) and MUST comply with the employee’s request for such a direct rollover. See ¶ 2.6.01 (C). Plan-to-Roth IRA rollovers, like traditional IRA-to-Roth IRA rollovers, are called “qualified rollover contributions.” Only traditional IRA-to-Roth IRA transfers are also called “conversions,” according to the IRS in Notice 2008-30, Section II, Introductory paragraph. This book uses “conversion” for both types of rollover. dollar or percentage amount that must or may be converted. 5.4.08 Mechanics of conversion from other traditional plans