Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Note that a hardship waiver does not solve all the problems caused by a late rollover:

 See the problem of designating a beneficiary for an IRA established by the participant’s executor to receive a late rollover of a distribution made during the participant’s life, ¶ 4.1.04 (B).  Only the original distribution amount can be rolled over, not any income earned on that distribution during the time the money was outside the IRA—regardless of how long that was, and regardless of what hardship prevented the participant from timely completing the rollover. Rev. Proc. 2003-16, § 3.04.  Another problem with long-delayed rollovers is what to do about required minimum distributions (RMDs; see Chapter 1 ) that would have accrued had the rollover been timely completed. The waiver rulings typically specify that interim RMDs cannot be rolled over despite the extension. Though the rulings do not specify how that nonrollable amount is to be determined, the regulations do: “...if the amount rolled over is received in a different calendar year from the calendar year in which it is distributed, the amount rolled over is deemed to have been received by the receiving plan in the calendar year in which it was distributed.” Reg. § 1.401(a)(9)-7 , A-2; § 1.408-8 , A-1. Polly Example: Polly suffered from a mental disability in 2007, when she was age 69, and she cashed out her entire $500,000 IRA. She did not have the mental capacity to know what she was doing. In 2008, the year she reached age 70½, she was placed under guardianship and the guardian applied for a waiver of the 60-day deadline to allow the $500,000 distribution to be recontributed to the IRA. The waiver is granted by the IRS in 2009; the waiver specifies that any RMD cannot be rolled over. But there was no RMD for the year that the distribution came out of the IRA, in 2007, because Polly was only 69 years old. An RMD would have accrued in 2008 and 2009 if the money had still been in the IRA. Though there was actually no “prior year-end balance” for either year because the account didn’t exist, it is assumed that the $500,000 rollover was received in 2007, the year of the distribution, and therefore (apparently) the prior year-end balance in 2008 and 2009 was $500,000, so her nonrollable hypothetical RMDs for those years should be computed using $500,000 as the prior year-end balance and the appropriate age factor for each year. There is no RMD required for any earnings or growth the $500,000 distribution achieved while it was outside the IRAs (and accordingly that might have been earned inside the IRA had the distribution not occurred)—which is appropriate because Polly was taxable in 2008 and 2009 on any such earnings that occurred (and she is not allowed to roll over that income “as if” it had been earned inside an IRA; see Rev. Proc. 2003-16, § 3.04). Rev. Proc. 2016-47, 2016-37 IRB 346, created a new “self-certification” procedure for obtaining a hardship waiver of the 60-day rollover deadline: If you have received a plan distribution, but you have not completed the rollover of that distribution within 60 days, you can make the rollover late, provided you certify (to the administrator of the plan you are rolling over into) that you qualify for a waiver of the 60-day deadline. The plan administrator can rely on your self- certification and accept the rollover. The IRS has conveniently included a sample letter form Hardship waiver method #1: Self-certification