IRA (Based) and Rollovers Flashcards
Methods of Rollover
- “Traditional”
- Direct Transfer
Number of traditional rollovers allowed per year
1
Number of direct transfers allowed per year
unlimited
Mechanics of a traditional rollover
- Vested balance is transferred from the plan administrator to the participant
- Within 60 days, the participant needs to deposit the funds into an IRA or another plan
- Mandatory 20% federal income tax withholding that must be replaced. If it is not, it is considered distributed and subject to income tax and possible 10% penalty.
Mechanics of a direct transfer rollover
- Plan trustee transfers rollover directly to an IRA or other plan
- Participant does not take possession of the funds
- No mandatory tax witholding applies
Roth IRAs can be rolled to
Roth IRAs only, 1 per 12 month period
A traditional IRA can only roll over to these accounts 1 time per 12 month period
- Traditional IRA
- Simple IRA
- SEP IRA
Most traditional plans can be rolled to a Roth IRA IF
it is included in income
Most 457b’s can be the target of a transfer if
There are separate accounts for the assets
In order to roll to or from a Simple IRA, the norm is a mandatory waiting period of
2 years
The accounts that you can roll a designated Roth Account TO
- Roth IRAs
- Another Roth account. Any nontaxable amounts distributed muse be rolled over by direct trustee-to-trustee transfer.
The accounts are you allowed to roll to a designated Roth Account
Must be an in-plan rollover included in income:
1. 457b
2. Pre-Tax Qualified Plans
3. 403b
Nontaxable amounts distributed must be rolled over by direct trustee-to-trustee transfer
4. Other Designated Roth Accounts
Rules for inherited IRAs: Spouse beneficiary
Choice:
1. Treated as the owner - can defer RMDs until age 73
2. Treated as a beneficiary (drain in 10 years)
Rules for inherited IRAs: Non-spouse beneficiary
10-year rule
Note: if the account was in RMD status at the time of death, the beneficiary must make annual RMDs in years 1-9 and have the account drained by the end of year 10
Rules for inherited IRAs: Eligible designated beneficiary
- Spouse
- Chronically ill beneficiary
- Disabled beneficiary
- Minor child (under 21)
- Individual not more than 10 years younger than the owner
Roth IRA RMDs
- Non during life
- Non-spouses subject to RMDs
- Spouses can become owner and forego RMDs
Who does that 5 year rule apply to?
- The Estate
- Charities
- Trust not Qualifying as a Designated Beneficiary
Who does the 10 Year rule apply to?
- Non-Spouse Beneficiaries
- See-Thru Trusts
- Successor Beneficiaries
- Minors upon attaining age of maturity (21)
For eligible designated beneficiaries, what are the rules for distributions?
Can be taken over life
Exception: minors
If no beneficiaries are designated, who becomes the beneficiary?
The estate
Distributions from a SIMPLE IRA are subject to a penalty of
25% within the first 2 years
SIMPLE IRAs have many exceptions. One area that does not have an exception similar to Qualified Plans is
Separation from Service age 55+
Some areas where QP do not offer exceptions that IRAs do
- Education expenses
- Health insurance premiums paid while unemployed
- 1st time homebuyers up to $10k
Section 72t
a series of substantially equal payments
