Life and Death Planning for Retirement Benefits

Table of Contents

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D. QDROs and payments to beneficiaries ..................................................................281 Nonqualified DRAC distributions.......................................................................................281 Rollovers of DRAC distributions: General rules ...............................................................282 DRAC-to-DRAC rollovers ..................................................................................................283 A. May roll to any other DRAC...................................................................................283 B. Direct rollover ..........................................................................................................283 C. Total direct rollover preserves basis in excess of value ........................................283 D. Direct rollover preserves holding period................................................................283 E. 60-day (“indirect”) rollover.....................................................................................284 DRAC-to-Roth-IRA rollovers: In general ..........................................................................284 A. Who is eligible .........................................................................................................284 B. Minimum distribution effects..................................................................................284 C. Favorable effect on basis recovery .........................................................................285 D. Rollover when basis is higher than market value ..................................................285 DRAC-to-Roth IRA rollovers: Effect on Five-Year Period ..............................................285 A. Rollover of a qualified distribution ........................................................................285 B. Rollover if participant already has a Roth IRA .....................................................286 C. Danger: Rolling to participant’s first Roth IRA ....................................................286 DRAC accounting may not shift value ...............................................................................286 In-plan conversions ..............................................................................................................287 5.8 P UTTING IT A LL T OGETHER : R OTH P LANNING I DEAS AND P RINCIPLES .................................287 Roth plan or traditional? It’s all about the price tag ..........................................................288 Factors that incline towards doing a Roth conversion .......................................................290 Factors that incline against a Roth conversion ...................................................................291 How participant’s conversion helps beneficiaries..............................................................292 Annual contributions: Traditional vs. Roth plan ................................................................293 Roth plans and the estate plan .............................................................................................294 6.1 T RUST AS B ENEFICIARY : P RELIMINARIES ...............................................................................297 Trust as beneficiary: Drafting checklist ..............................................................................297 Trust accounting for retirement benefits.............................................................................298 Trust accounting: Drafting solutions...................................................................................300 “Total return” or “unitrust” method ....................................................................................301 Transferring a retirement plan out of a trust or estate........................................................302 A. Transferability of retirement benefits .....................................................................302 B. Examples of fiduciary transfers of inherited retirement plans ..............................303 C. PLRs approving these transfers ..............................................................................303 D. IRA providers and plan administrators ..................................................................304 Can a participant transfer an IRA to a living trust? ...........................................................305 Individual retirement trusts (trusteed IRAs) .......................................................................305 6.2 T HE M INIMUM D ISTRIBUTION T RUST R ULES ..........................................................................307 When and why see-through trust status matters.................................................................307 CHAPTER 6: LEAVING RETIREMENT BENEFITS IN TRUST ............................................297