Life and Death Planning for Retirement Benefits

Table of Contents

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A. Gift of right-to-receive IRD ....................................................................................240 B. Transfer from estate or trust to beneficiary ............................................................240 C. Transfer to a 100 percent grantor trust ...................................................................240 Income tax deduction for estate tax paid on IRD ...............................................................240 Who gets the § 691(c) (IRD) deduction..............................................................................241 IRD deduction for deferred payouts....................................................................................242 IRD deduction: Multiple beneficiaries or plans .................................................................243 IRD deduction on the income tax return.............................................................................243 4.7 R OAD M AP : A DVISING THE B ENEFICIARY ...............................................................................243 5.1 R OTH P LANS : I NTRODUCTION ..................................................................................................245 Introduction to Roth retirement plans .................................................................................245 Roth retirement plan abuses ................................................................................................245 5.2 R OTH IRA S : M INIMUM D ISTRIBUTION AND I NCOME T AX A SPECTS ......................................246 Roth (and deemed Roth) IRAs vs. traditional IRAs ..........................................................246 Roth IRAs and the minimum distribution rules .................................................................247 A. No lifetime required distributions...........................................................................247 B. Post-death RMD rules DO apply ............................................................................247 C. Roth distributions do not fulfill RMD for traditional IRA....................................247 D. RMDs and recharacterizations. ...............................................................................247 E. RMDs and Roth conversions. .................................................................................247 Tax treatment of Roth IRA distributions: Overview .........................................................248 Qualified distributions: Definition ......................................................................................249 Computing Five-Year Period for qualified distributions ...................................................250 A. Five-Year Period for participant .............................................................................250 B. Five-Year Period for beneficiaries..........................................................................251 Tax treatment of nonqualified distributions .......................................................................252 The Ordering Rules ..............................................................................................................253 5.3 H OW TO F UND A R OTH IRA; R EGULAR AND E XCESS C ONTRIBUTIONS .................................254 The eight ways to fund a Roth IRA ....................................................................................254 “Regular” contributions from compensation income.........................................................254 Applicable Dollar Limit for regular contributions .............................................................255 Who may make a “regular” Roth IRA contribution ..........................................................256 A. No age limit..............................................................................................................256 B. Participation in an employer plan is irrelevant ......................................................256 C. Income must be below certain levels......................................................................256 D. Regular traditional IRA contribution followed by conversion .............................257 Penalty for excess Roth IRA contributions ........................................................................258 5.4 C ONVERSION OF T RADITIONAL P LAN OR IRA TO A R OTH IRA .............................................258 What type of plan may be converted to a Roth IRA ..........................................................258 A. Individual retirement accounts................................................................................259 B. NonIRA plans ..........................................................................................................259 CHAPTER 5: ROTH RETIREMENT PLANS .............................................................................245