Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Who may convert: age, plan participation, income, etc.....................................................260 A. Age: Under 59½, over 70½, or in between ............................................................260 B. Participation in other plan(s) ...................................................................................260 C. Prior conversion .......................................................................................................260 D. Filing status ..............................................................................................................260 E. Income limit .............................................................................................................260 Tax treatment of converting traditional IRA to Roth IRA ................................................261 Tax treatment of converting nonIRA plan to Roth IRA ....................................................262 Income spreading for conversions in 1998 or 2010 ...........................................................263 Failed conversions................................................................................................................264 Mechanics of traditional IRA-to-Roth IRA conversions...................................................265 Mechanics of conversion from other traditional plans ......................................................265 5.5 R OTH P LANS AND THE 10% P ENALTY F OR P RE -A GE 59½ D ISTRIBUTIONS ...........................266 Penalty applies to certain Roth plan distributions ..............................................................266 A. Qualified distribution...............................................................................................266 B. Nonqualified distribution from Roth IRA..............................................................266 C. Nonqualified distribution from DRAC...................................................................266 D. Conversion followed by distribution within five years .........................................267 Roth conversion prior to reaching age 59½........................................................................267 A. Penalty does not apply to a Roth conversion .........................................................267 B. Penalty applies to certain distributions within five years after a conversion .......267 C. Penalty applies to failed conversion .......................................................................268 Conversion while receiving “series of equal payments” ...................................................268 5.6 R ECHARACTERIZING AN IRA OR R OTH IRA C ONTRIBUTION .................................................269 Which IRA contributions may be recharacterized .............................................................269 Income attributable to the contribution...............................................................................270 How to recharacterize certain IRA/Roth IRA contributions .............................................271 Partial recharacterizations....................................................................................................272 Deadline for Roth IRA contributions and conversions......................................................273 Recharacterization deadline: Due date “including extensions” ........................................274 Same-year and immediate reconversions banned ..............................................................276 5.7 D ESIGNATED R OTH A CCOUNTS ...............................................................................................276 Meet the DRAC: Roth 401(k)s, 403(b)s, 457(b)s ..............................................................276 DRAC contributions: Who, how much, how, etc. .............................................................277 A. Who may contribute ................................................................................................277 B. How much may be contributed ...............................................................................278 C. Election is irrevocable .............................................................................................278 D. What may be contributed to a DRAC.....................................................................278 RMDs and other contrasts with Roth IRAs ........................................................................279 DRACs: Definition of “qualified distribution” ..................................................................279 A. Qualified distribution triggering events .................................................................279 B. How the Five-Year Period is computed for a DRAC ............................................280 C. List of never-qualified distributions .......................................................................280