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IRAs


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[Guidance Overview] New Illinois Law Will Require Employers to Enroll Private Sector Employees in State-Run Payroll Deduction IRAs
"The Act requires private sector employers that do not already maintain a retirement plan to enroll their employees in automatic 'payroll deposit retirement savings arrangements' and to remit after-tax payroll deductions to a separate trust fund (State Fund or Fund) established by a state-run board.... [T]he Program will not be implemented if 'the IRA arrangements offered under the Program fail to qualify for the favorable federal income tax treatment ordinarily accorded to IRAs under the [Internal Revenue Code] or if it is determined that the Program is an employee benefit plan and state or employer liability is established under [ERISA].' ... An IRA for this purpose is defined under the Act as 'a Roth IRA under Section 408A' of the Code." (Steptoe & Johnson LLP)
FSI to Fight Rollout of State-Sponsored Auto IRAs
"Having states involved in retirement savings squeezes out financial advisers, said David Bellaire, executive vice president and general counsel at the [Financial Services Institute (FSI)]. 'We see this as unnecessary, unwise competition against small [financial advisers] that are working hard to address these needs,' Mr. Bellaire said. 'There's significant research that shows that investors, particularly those that are planning for retirement, have better outcomes when they work with financial advisers.' " (InvestmentNews)
Treasury Finalizes Rules for New Retirement Savings Account: The myRA
"[T]he new regulations state that the myRA is going to be treated as a Roth IRA. This means all of the interest growth inside the myRA on the new electronic savings bond will come out tax free if certain holding period and trigger events are satisfied. By treating the myRA as a Roth IRA, the Treasury Department also helped exclude myRA account balances from required minimum distribution requirements after age 70-1/2. This could be a big benefit for some individuals looking for tax and investment class diversification." (Forbes)
[Guidance Overview] Tax Extenders Reinstated Temporarily
"In its final form, the legislation 'patches' the tax extenders for one year, retroactively reinstating a wide range of provisions that technically lapsed at the end of 2013, to now be available for the current 2014 tax year. This includes the popular rule allowed those over age 70-1/2 to make a qualified charitable distribution (QCD) from an IRA, satisfying the current year's required minimum distributions while simultaneously completing a charitable bequest and excluding the IRA distribution from income entirely for tax purposes, with just enough time left to complete a QCD before year end." (Michael Kitces in Nerd's Eye View)
[Official Guidance] Text of Treasury Department Final Regs Governing Retirement Savings Bonds for Use by myRA Accounts
"The United States Department of the Treasury, Bureau of the Fiscal Service, offers a new nonmarketable, electronic retirement savings bond for Treasury's new retirement savings program. The bonds will be issued to a designated custodian for Roth individual retirement accounts established under Treasury's program. This new savings bond is only available to participants in the retirement savings program and will protect the principal contributed while earning interest at a rate previously available only to federal employees invested in the Government Securities Investment Fund (G Fund) of their Thrift Savings Plan." (U.S. Department of the Treasury)
[Official Guidance] Text of DOL Information Letter: myRA Accounts Facilitated by Employers Would Not Be Covered Under Title I of ERISA
"[We] do not believe Congress intended in enacting ERISA that a federal government retirement savings program created and operated by the U.S. Department of the Treasury would be subject to the extensive reporting, disclosure, fiduciary duty, or other requirements of ERISA, which were established to ensure against the possibility that employees' expectation of a promised benefit would be defeated through poor management by the plan sponsor and other plan fiduciaries.... Thus, given the character of the program, including its voluntary nature, its establishment, sponsorship, and administration by the federal government, and the absence of any employer funding or role in its administration or design, ... an employer would not be establishing or maintaining an 'employee pension benefit plan' within the meaning of section 3(2) of ERISA based solely on the facts that employees participate through payroll withholding contributions and that the employer distributes information, facilitates employee enrollment, and otherwise encourages employees to make deposits to myRA accounts owned and controlled by employees." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])
Three Options for Taking Your RMD When Your IRA Holds an Illiquid Asset
"[1] RMDs from IRAs can be aggregated.... You cannot aggregate your owned IRAs with those of your spouse or with IRAs that you have inherited. [2] You can satisfy an RMD by taking a distribution in-kind of a portion of the asset that is equal to or more than your RMD amount....[3] You can skip the RMD." (Slott Report)
[Guidance Overview] Understanding the New Once-per-Year 60-Day Rollover Rules for IRAs and the Exclusion for Trustee-To-Trustee Transfers
"The IRS has declared that it will begin to enforce the new aggregation-based IRA rollover rules in 2015, with a special transition rule that will still allow old 2014 rollovers to cause a 1-year waiting period for just the accounts that were involved and not all IRAs. Nonetheless, going forward advisors and their clients will need to be more cautious than ever not to run afoul of the rules when engaging in multiple 60-day rollovers over time -- or better yet, simply ensure that IRA funds are only moved as a trustee-to-trustee transfer to avoid the rules altogether!" (Michael Kitces in Nerd's Eye View)
Your RMD Must Come Out of Employer Plan Before Moving Funds to an IRA
"An RMD amount cannot be rolled out of a plan and go to an IRA.... [W]hen the plan sends the entire plan balance to you or to an IRA account without sending you a check for the RMD, what you end up with is an excess contribution in the IRA. You can't fix this by just taking out the RMD amount. You must tell your IRA custodian that you are removing an excess contribution. In order to remove an excess contribution, you must also remove the earnings attributable to the excess contribution." (Slott Report)
[Guidance Overview] IRS Releases Guidance on After-Tax Rollovers -- Part 2: New Rules
"The new rules are effective for distributions after December 31, 2014. A plan can choose to operate under the new rules (or the old rules) for periods prior to that date, but the new rules cannot apply to distributions from a designated Roth account prior to September 18, 2014. The IRS has issued a proposed regulation to delete from the Roth 401(k) regulations the sentence requiring separate distribution treatment, and will later issue revised special tax notices. Seldom, if ever, would there be a need for a plan amendment to implement the new rules." (SunGard Relius)
[Official Guidance] Text of IRS Announcement 2014-34: Realignment of Technical Work Between the Tax Exempt and Government Entities Division and Office of Associate Chief Counsel (Tax Exempt and Government Entities) (PDF)
"On January 2, 2015, the authority to prepare revenue rulings, revenue procedures, announcements, and notices, and to issue technical advice (including technical advice memoranda (TAMs)), certain letter rulings, and certain information letters on matters involving exempt organizations, qualified retirement plans, and IRAs will be shifted to TEGE Counsel. TEGE Counsel will be responsible for the issuance of letter rulings except for the letter rulings listed [in this announcement]. In addition, TEGE Counsel will be responsible for ruling on issues involving employer deductions for contributions to welfare benefit funds.... The Employee Plans office of TE/GE (Employee Plans) will retain the authority to issue determination letters and the Exempt Organizations office of TE/GE (Exempt Organizations) will retain the authority to issue determination letters, including determination letters on the exempt status of organizations under Sections 501(c) and 521." (Internal Revenue Service [IRS])
Don't Miss Taking a Distribution From Your Inherited IRA by Year-End
"If the IRA owner died before his required beginning date (RBD), which is April 1 of the year after he turned age 70-1/2, then generally you have two options: [1] The 5-year-rule; [2] The single life option (a.k.a. the 'stretch IRA'). In most cases, you're better off choosing the stretch IRA because you can take the funds out over your single life expectancy starting the year after the IRA owner died." (Slott Report)
[Guidance Overview] IRS Updates Special Tax Notice for Retirement Plans
"[T]he new model notices include the following modifications: [1] Provide for the rollover of automatic contributions that are withdrawn upon the request of the employee within 90 days of enrollment; [2] Provide for the penalty-free distribution of amounts rolled over to an IRA to pay for certain health insurance premiums; [3] Update the summary of the tax treatment of rolled-over after-tax contributions; and [4] Update the summary of the tax treatment of rollovers to Roth IRAs." (Bradley Arant Boult Cummings LLP)
Don't Try to Take a Lump-Sum Distribution from a Qualified Plan After Thanksgiving
"Lump-sum distributions from a qualified retirement plan may be eligible for special tax breaks. The special tax breaks include net unrealized appreciation on company stock that's highly appreciated in value over the years it's been in your plan.... To qualify as a lump-sum distribution, the distribution must occur in one tax year and your account balance must be zero by the end of that year." (Slott Report)
[Guidance Overview] Changes Issued for Tax Notices Required to Be Provided to Persons Entitled to Receive a Retirement Plan Distribution
"The changes not only reflect the change in the rollover rules but also discuss the In-Plan Roth Rollover tax treatment. The changes include a clarification that refunds of automatic enrollment contributions are not eligible to be rolled over, if your plan has implemented automatic enrollment in salary reduction or deferral contributions of persons when they are first eligible. There is one notice for a plan without a Roth account and a separate notice for a plan with a Roth Account." (Winstead PC)
[Guidance Overview] IRS Clarifies Key Rollover Question
"One of the most hotly debated issues in the retirement planning community has been whether a client with pretax and after-tax employer-plan money can roll it over in two parts -- moving that after-tax cash to a Roth IRA tax-free, that is, while also directly moving the pretax money into a traditional IRA.... [A] new IRS notice provides an emphatic answer: Yes, they can.... Although the notice says it will generally apply to distributions taken in 2015 or later, it also says taxpayers can apply a reasonable interpretation of the existing rules. Practically speaking, the guidance is effective immediately." (Ed Slott, in Financial Planning)
Chart of Self-Directed IRA and 401(k) Prohibited Transaction Disqualified Persons
"Often times, a disqualified person is generically referred to as a family member. While that definition can be accurate, it really can cause problems when applied as some family members are disqualified (e.g. spouse of plan owner) while others are not (e.g. brother of plan owner).... [The author has] created a disqualified person diagram to help sort out the details. If a party is in red, that means they are a disqualified person and that your retirement plan cannot transact with them. If the party is green, that means they are NOT disqualified and your retirement plan may transact with them." (Mat Sorensen)
Reforming Roth Provisions May Be Key to Improving Retirement Saving Rates for Millennials
"[The author proposes] the following two changes to the Roth provision, effective for all 401k plans: [1] Roth accounts should be required for all sponsors offering a 401k plan.... [2] Roth contributions should be tax deductible up to a $10,000 per year limit, and a lifetime limit of $100,000.... Younger workers would benefit the most, as they would have the longest investment horizon. With these changes, the new objective in retirement saving would be maxing out the $100K as soon as possible in an employee's working life." (Employee Fiduciary)
How One Executive Ended Up With $196 Million in an IRA
"Wealthy individuals can get around the annual IRA contribution limit of $5,500 for 2014 ... Company founders can fill retirement accounts with stock that isn't publicly traded. They use low values to stay technically under the contribution limit. After the stock rises in value, they can convert it into something more liquid. The GAO report said IRAs were designed as a retirement savings vehicle, not as a way to shield wealth." (Bloomberg)
Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances
"The percentage of all families with an employment-based retirement plan from a current employer decreased from 38.8 percent in 1992 to 36.2 percent in 2013 ... [T]he percentage of family heads who were eligible for [DC] plans and chose to participate held essentially stable at 78.2 percent in 2010 to 78.7 percent in 2013. The percentage of families owning [IRAs] or Keoghs was also unchanged from 2010 (28.0 percent) to 2013 (28.1 percent).... [T]he median (mid-point) account balance of those families owning an individual account retirement plan increased in 2013: The value was $22,992 in 1992, reached $38,608 in 2001, and increased to $59,000 in 2013." (Employee Benefit Research Institute [EBRI])
GAO Report on Individual Retirement Accounts: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, But More Direction from Congress Is Needed
"This report [1] describes IRA balances in terms of reported FMV aggregated by taxpayers; [2] examines how IRA balances can become large; and [3] assesses how IRS ensures that taxpayers comply with IRA tax laws.... Congress should consider revisiting its legislative vision for the use of IRAs. GAO makes five recommendations to IRS, including approving plans to fully compile and digitize new data on nonpublicly traded IRA assets and seeking to extend the statute of limitations for IRA noncompliance. IRS generally agreed with GAO's recommendations." (U.S. Government Accountability Office [GAO])
[Guidance Overview] IRS Chart of Rollover-Eligible Retirement Plans and IRA Combinations, Updated November 2014 (PDF)
BenefitsLink came across this handy unofficial chart on the IRS web site. It's a one-page summary in the form of a table, listing the eight kinds of plans and IRAs that can make rollover-eligible distributions, and the corresponding eight kinds of plans and IRAs into which those distributions can (or cannot) be rolled over. Updated Nov. 17, 2014, to reflect revised rollover rules. (Internal Revenue Service [IRS])
2014 Year-End Retirement and Distribution Planning for IRA Owners and Small Businesses
"If you turned age 70-1/2 before 2014, or hold an inherited retirement plan ... Review your records and make sure you take the full required distribution before the end of the year to avoid a 50% penalty.... If you turn age 70-1/2 in 2014 and you own an IRA: You also have a required minimum distribution due for the year 2014, but you have a choice: This first year's distribution can be postponed until as late as April 1, 2015.... Multiple individual beneficiaries of a 2013 decedent have until Dec. 31, 2014, to divide up their inherited IRA into multiple inherited IRAs, one payable to each beneficiary." (Natalie Choate, in Morningstar Advisor; free registration required)
[Guidance Overview] New IRS Rules on Direct Rollovers of Taxable and Non-Taxable Amounts Require Changes to DC Plan Administration by January 1, 2015
"[P]lan sponsors should review their rollover election forms to ensure that participants are able to clearly indicate where they wish the taxable and non-taxable portions of their distributions to be sent. Sponsors also should work with record-keepers and trustees to revise their Form 1099-R processes to allow separate Forms 1099-R for allocated amounts to different retirement accounts. In addition, plan sponsors, whose plans do not permit separate accounting for after-tax contributions, should consider altering their record-keeping practices to allow more rollover flexibility for participants." (McDermott Will & Emery)
Aging Boomers and Rollovers to IRAs
"As large numbers of 401(k) and 403(b) participants approach retirement, regulators are becoming increasingly aware that they will be moving from a plan environment where they are 'bubble wrapped' by plan fiduciaries -- and have the benefit of being able to select from investments that have been vetted by the fiduciaries and that are, as a result, good quality and relatively low-cost investments.... The regulators are asking, 'Does it make sense for participants to leave the protected environment of retirement plans and go into the retail environment of IRAs?' " (FredReish.com)
Caution: New IRS Rules for IRA Rollovers Come with Risks for Advisers
"The Internal Revenue Service has published further guidance on its new one-IRA-rollover-per-year rule, but financial advisers beware: You must ask clients key questions on where their money has been or risk a snafu that could sever that relationship.... Though rollovers completed through the remainder of the year are acceptable, financial advisers need to go over the regulation and talk to their clients and prospects about its implications." (InvestmentNews)
When Splitting IRA Money in a Divorce, Be Careful
"IRAs ... are split according to the divorce agreement, not a QDRO. A copy of the divorce decree or separation agreement is given to the IRA custodian. When an IRA is split in a divorce, transferring the portion of the IRA that goes to the former spouse via a direct trustee-to-trustee transfer to an IRA in the name of the former spouse is the best way to move the funds. QDROs only apply to company retirement plans such as a 401(k). They do not apply to IRAs." (Slott Report)
[Official Guidance] Text of IRS Announcement 2014-32: Application of One-Per-Year Limit on IRA Rollovers (PDF)
"This announcement is intended to address certain concerns that have arisen since the release of Announcement 2014-15. The IRS will apply the Bobrow interpretation of Section 408(d)(3)(B) for distributions that occur on or after January 1, 2015. This means that an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA in the preceding 1-year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under Section 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. In other words, the Bobrow aggregation rule, which takes into account all distributions and rollovers among an individual's IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014.... [A] rollover between an individual's Roth IRAs would preclude a separate rollover within the 1-year period between the individual's traditional IRAs, and vice versa.... The one-rollover-per-year limitation also does not apply to a rollover to or from a qualified plan (and such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers), nor does it apply to trustee-to-otrustee transfers.... IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA." (Internal Revenue Service [IRS])
[Guidance Overview] IRS Clarifies Application of One-Per-Year Limit on IRA Rollovers, Allows Owners of Multiple IRAs a Fresh Start in 2015 (PDF)
"In Announcement 2014-32, posted [November 10, 2014] the IRS made clear that the new interpretation will apply beginning Jan. 1, 2015, and said that a distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs. Although an eligible IRA distribution received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, subsequent distributions from any of the individual's IRAs (including traditional and Roth IRAs) received within one year after that distribution will not get tax-free rollover treatment. As [this] guidance makes clear, a rollover between an individual's Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual's traditional IRAs, and vice versa." (Internal Revenue Service [IRS])
IRA Rollovers Under Increasing Scrutiny
"In recent years, federal regulatory bodies have placed IRAs generally, and rollovers specifically, under increased scrutiny.... The cascade of rule making has also brought attention to the nature of communication between financial professionals and investors about retirement savings options, and created some anxiety among advisers about the processes they use to consolidate retirement assets. Now is the time to reset the bar on how you communicate with investors about IRAs and how you document those communications." (InvestmentNews)
Fidelity's Quarterly Retirement Snapshot: Average Balances Increase Year-Over-Year, Record Contributions
"The quarter-end 401(k) balance, which includes all participating employees at various stages of their careers, was $89,100, down 2% from the end of Q2 but an increase of nearly 6% from the same period last year. For employees in a 401(k) plan for 10 years straight, the average balance was $241,800, down 2% from the end of Q2 but up 8% from the same period last year....The average 401(k) contribution reached $6,080 in Q3, up 1% over the last year. The average contribution to a Fidelity IRA is $4,357, up 3% over the same period last year." (Fidelity)
Changes Coming for the 402(f) Rollover Notice to Participants
"The current IRS model 402(f) notice provides that if the participant has after-tax and is making a direct rollover of only a portion of the amount, and a portion is paid to the participant, each of these payments will include an allocable portion of the after-tax contributions. In Notice 2014-54, the IRS states that they will be revising the safe harbor explanations provided in the model 402(f) notice to explain the Notice's new rules." (McKay Hochman)
The Art of Borrowing from Your IRA and Rolling Back in Time to Avoid Income Taxation
"[A] taxpayer may exclude the distribution from gross income if that distribution is returned to an IRA ('rolled over') 'not later than the 60th day after the day on which he receives the payment or distribution.' Even if the taxpayer does not place the entire amount into an IRA by the 60th day, to the extent a partial amount is rolled over, that part is excluded.... The Eighth Circuit [recently] reversed the Tax Court's rather simplistic denial of the taxpayer's partial rollover of distributions he had taken from IRAs in order to lend the monies, on what hopefully would be a very short-term basis, to two companies which were bidding on a governmental contract and which relied on the taxpayer's software in order to conduct their businesses." [Haury v. Comm., No. 13-1780 (8th Cir. May 12, 2014)] (Bloomberg BNA)
Do I Have a Required Distribution From My IRA This Year?
"We are down to the last two months of the year. It is time for those who have required minimum distributions (RMDs) from a retirement plan to make sure that those distributions are taken.... [1] Individuals age 70-1/2 or older by December 31 of the year.... [2] Individuals who have set up a 72(t) distribution plan.... [3] Beneficiaries of all retirement accounts.... [4] Deceased account owners." (Slott Report)
Majority of IRA Owners Hold 'Extreme' Asset Allocations (PDF)
"23.7 percent of IRA owners have less than 10 percent in equities and 35.5 percent have more than 90 percent in equities.... [A]lmost 1 in 5 IRA owners (18.5 percent) had more than 90 percent of their assets in bonds and money." [From an EBRI study entitled 'IRA Asset Allocation, 2012, and Longitudinal Results, 2010-2012.'] (Employee Benefit Research Institute [EBRI])
Roth vs. Regular 401(k): Doing the Math
"From the point of view of plan participants and plan sponsors, Roth math can be a little confusing. For some participants, Roth contributions will produce greater benefits (net of taxes) than regular contributions. For others, they produce smaller benefits. Which outcome applies often depends on the participant's marginal tax rate when the contribution is made and when it is distributed." (October Three Consulting)
'4-Part Harmonization' on Rollovers
"Advisors seeking to capture IRA rollovers face a 'four-part harmonization' of regulatory and other government entities -- that is, SEC, DOL, FINRA and GAO -- in the words of ERISA attorney Fred Reish.... As they look at distributions from DC plans and rollover issues, the four groups are all concerned with conflicts of interest and fees for mutual funds and advice. Reish highlighted the commonalities among the 2013 GAO report, DOL Advisory Opinion 2005-23A and FINRA Regulatory Notice 13-45. And both FINRA and the SEC included IRA rollover practices as an examination priority in 2014." (American Society of Pension Professionals & Actuaries [ASPPA])
The Back Door Roth IRA Contribution: Unintended Tax Consequences
"The back door Roth technique involves making a nondeductible contribution to a traditional IRA and immediately converting it to a Roth IRA. Because the contribution to the traditional IRA is nondeductible, converting those assets to a Roth would result in no income tax upon conversion. An often overlooked aspect of this technique is that IRS rules don't allow a taxpayer to hand select which IRA assets he or she wishes to convert. If an individual has other IRA accounts, there is the potential for a tax surprise[.]" (Baker Newman Noyes)
How Big Is the Problem? The High Cost of Accounts Left Behind (PDF)
"[1] 9.5 million employees change jobs each year. [2] 38 million retirement accounts connected with former employees left with previous employers. [3] $92/year: Average recordkeeping, custody, and administration fee per account. [4] $3.5 billion: Estimated annual cost of DC plan accounts belonging to previous employees. [5] $43.5 billion: Estimated cost of former employees over a 10-year period." (Millennium Trust Company)
Retirement Savings Flows and Financial Advice: Should You Roll Over Your 401(k) Distribution? (PDF)
"Pension rollovers are an important source of revenue for money managers.... [As] well as addressing an issue of personal finance and the quality of financial advice that individuals receive, this article addresses the issue of the limits of the effects of inertia.... It then considers a behavioral economics explanation for why rollovers have occurred. It considers advertising and advice on rollovers as part of that explanation and examines reasons why participants may not be considering fees in their decision." (Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS])
Your Roth IRA Calculator May Be Lying to You
"How many people, after running such a calculation and determining it was advisable to opt for the traditional IRA, actually put aside the amount of money they would have used to pay the tax on the conversion and invest it in a similar manner? Would/do you? Each and every year?" (Slott Report)
Updated GAO Report: Preliminary Information on IRA Balances Accumulated as of 2011
"In 2014, the federal government will forgo an estimated $17.5 billion in tax revenue from IRAs. Congress limited annual contributions to IRAs to prevent the tax-favored accumulation of unduly large balances, but concerns have been raised that tax benefits accrue primarily for higher income individuals. This statement provides preliminary observations based on ongoing work on information on IRA balances in terms of reported fair market value aggregated by taxpayers. GAO analyzed 2011 IRS statistical data." [Originally released Sept. 16, 2014; reissued Oct. 22, 2014.] (U.S. Government Accountability Office [GAO])
[Guidance Overview] IRS Issues Favorable Guidance on After-Tax Rollovers
"Starting in 2015, participants can avoid current taxes on retirement plan distributions that include after-tax amounts. The rules apply to defined benefit, defined contribution, 403(b) and governmental 457(b) plans. Until now, participants had to allocate pro rata portions of pre-tax and after-tax contributions to each direct rollover." (Towers Watson)
[Official Guidance] 2015 IRS Form 5498 (Draft): IRA Contribution Information (PDF)
"The information on Form 5498 is submitted to the Internal Revenue Service by the trustee or issuer of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account. For information about IRAs, see Pubs. 590 and 560." (Internal Revenue Service [IRS])
The October 31 IRA Trust Deadline: The Who, What, When and Why
"There is still one more IRA deadline to meet for this month.... It applies to: [1] IRAs with a trust as the beneficiary; [2] The IRA owner died in 2013.... A copy of the trust or a list of the beneficiaries and their entitlements must be provided to the IRA custodian.... Most individuals who name a trust as the beneficiary of their IRA do so with the understanding that the required distributions from the IRA will continue to be made to the trust using the age of the oldest trust beneficiary. This will NOT happen unless the October 31 deadline is met." (Slott Report)
IRS Waives 60-Day IRA Rollover Rule Due to Taxpayer's Medical Condition
"In June 2010, Matt was informed by the bank's attorneys that his accounts would be closed in 30 days and all funds would be distributed. As a result of Matt's mental illness, he ignored the notice and didn't realize that checks totaling the IRA's value were distributed and mailed to him on July 13, 2013. The next month, the checks were discovered by Matt's spouse, who was not aware that the checks were IRA proceeds." (Slott Report)
Recent IRS Guidance on Roth Rollovers Lifts Long-Standing Ambiguity
"The guidance in [the] proposed rules ... and accompanying guidance in Notice 2014-54 clarified that plan participants can transfer after-tax savings from their retirement plans to Roth IRAs. The IRS also gave guidance on sending retirement plan distributions to multiple destinations, something that hadn't been clear in the past[.]" (Bloomberg BNA)
IRS Blesses Tax-Free Roth Conversions
"Recent IRS pronouncements have cleared the path for tax-free Roth conversions of after-tax money in retirement plans for some individuals. To be among the lucky people who can do this, you must meet two requirements: First, you must participate in a qualified retirement plan (such as a 401(k) plan). Second, you must have after-tax money either in that plan or in a traditional IRA. If you have both those characteristics, you can convert the after-tax money to a Roth IRA tax-free with the blessing of the IRS." (Natalie Choate, for Morningstar Advisor; free registration required)
Recent Guidance Relating to Pretax and After-Tax Distributions
"With an increase in the number of retirement plans that offer Roth after-tax contributions, more participants may be retiring with pretax and after-tax amounts in their plan accounts.... The new rules assign the pretax amount to the direct rollover portion first. This allows participants to directly roll over the pretax portions. Any excess pretax amount is next assigned to any indirect rollover and remaining pretax amounts are taxable." (Milliman Retirement Town Hall)
Can I Move Non-IRA Assets to an Inherited IRA?
"Only inherited IRA or inherited employer plan assets can be directly transferred from one inherited retirement account to another inherited IRA account. If you moved the non-IRA assets into an inherited IRA you would have an excess contribution, which would be subject to a penalty of 6% per year for every year that it remained in the inherited IRA." (Slott Report)
Qualifying a 'See-Through' Trust as an IRA Designated Beneficiary -- Conduit or Accumulation?
"Treasury Regulations actually do allow trusts in certain circumstances to be treated as designated beneficiaries eligible to stretch post-death RMDs over life expectancy, by looking through the trust to the underlying beneficiaries and using their life expectancies instead. The caveat, though, is that qualifying for "see-through" trust treatment requires the trust to be drafted properly, consider crucial decisions like whether to be structured as a 'conduit' or 'accumulation' trust, and at best may still entail the trade-off of less favorable income tax treatment to achieve other financial and estate planning goals!" (Michael Kitces in Nerd's Eye View)
[Guidance Overview] Changes to Allocation Rules for Distributions Including After-Tax Amounts (PDF)
"Although the participant now has flexibility to determine the amounts to be rolled over and the destinations, the requirement that the first dollars rolled must be pretax is unchanged. A participant can effectively roll all the non-Roth, non-taxable money to a Roth IRA, but only if all pretax dollars are rolled over to an eligible retirement plan; it is not possible to roll over only the non-taxable money and take the taxable amount as a distribution." (Buck Consultants at Xerox)
[Guidance Overview] New Allocation Rules for Roth Account Rollovers
"A major benefit of the new rules will be the ability to choose one rollover target for pre-tax money and a different rollover target for Roth money. For example, an employee changing jobs could send the pre-tax money to the new employer's plan and set up a new Roth IRA for the Roth money. Plan administrators will need to be aware of these rules for purposes of reporting on Form 1099-R distributions of pre-tax and after-tax amounts that will be separately rolled over." (McGuireWoods LLP)
[Guidance Overview] IRS Guidance Relaxes Allocation Rules Making After-Tax Rollovers Easier
"The new guidance applies only to eligible rollover distributions and does not change the requirement for allocation of the investment in the contract between a lump sum and an annuity when a participant is receiving both.... While the new rules provide that multiple disbursements to different destinations are treated as a single distribution, each disbursement may still be required to be reported on a separate Form 1099-R.... Plan sponsors should consider reviewing and updating their 402(f) safe harbor notices[.]" (Ice Miller LLP)
If You Really Have to Touch Your Retirement Stash, Here's How to Do It Right
"Gone are the days when it was considered taboo, or even unusual, to consider touching one's 401(k) before retirement.... Here are five questions to ask yourself before deciding whether -- or how -- to start raiding your 401(k). [1] What's the tax hit on a 401(k) loan compared with a withdrawal? ... [2] If I choose a withdrawal, can I avoid some of the tax penalties? ... [3] Am I feeling solid in my job? ... [4] Will I mind my account in a slow lane for six months or more? ... [5] Do I have an IRA alternative?" (The Wall Street Journal; subscription may be required)
[Opinion] Text of Group Letter to Congress: 40 Facts About ERISA and Retirement Plans (PDF)
"The employer-provided retirement system has been overwhelmingly successful in providing retirement income. In 2011, private-sector employers contributed over $255 billion into their retirement plans and paid out over $470 billion in retirement benefits. [The authors] support the current system and encourage Congress to maintain the flexibility that allows employers to provide benefits tailored to their workforce." (American Benefits Council and 22 other Employer and Professional Organizations)
Roth IRAs and the Magical Disappearing and Reappearing Compensation Trick for Individuals with Foreign Earned Income
"In determining compensation for purposes of the 'dollar limitation' applicable to Roth IRAs ... compensation does NOT include foreign earned income (nor any amounts excluded through the foreign housing exclusion).... On the other hand, ... foreign-earned income IS treated as income for purposes of ... the phase-out limit.... Under phase-out rules, the contribution limit for Roth IRAs may be reduced based on a combination of the amount of a taxpayer's modified adjusted gross income (AGI) and federal income tax filing status.... AGI is computed for purposes of the 'phase out limitation' without regard to the I.R.C.'s provisions excluding certain foreign earned income or housing costs from gross income." (Bloomberg BNA)
[Guidance Overview] IRS Reaches a Split Decision on Rollover Allocation Rules
"The guidance issued in Notice 2014-54 becomes effective on January 1, 2015. For periods before January 1, 2015, the Notice permits a reasonable interpretation of the statutory rollover rules, which would include allowing pre-tax and after-tax amounts to be directed to separate destinations. Plan administrators using the IRS model rollover notice or a notice with similar language may consider revising their rollover notices to reflect the new guidance." (Sutherland Asbill & Brennan LLP)
[Guidance Overview] IRS Provides Flexibility for Allocating the Pre-Tax and After-Tax Portions of a Distribution Made to Multiple Destinations
"In its background discussions, the IRS indicates that ... comments ... following the release of the 2009 rollover notice ... pointed out that participants could achieve their allocation goals by taking their distributions in several steps, but only if they had sufficient other funds to replace the portion of the distribution withheld to pay income tax withholding.... [Notice 2014-54] clarifies and simplifies the process for multiple destination distributions. It also indicates that the IRS will revise the 2009 rollover notice to reflect this change." (Thomson Reuters / EBIA)
Strategies Arise to Take Advantage of New IRS After-Tax Rollover Opportunity
"Retirement plan advisers have said after-tax savings programs aren't a common feature at the employers they're working with. In fact, some companies have actively backed away from those programs.... For plan sponsors, the issue goes back to whether they're able to keep the contributions in the 401(k) separate from the earnings, as the earnings on that after-tax money can't be pulled into the Roth -- only the after-tax money ... Though larger employers are likely to already have their custodians account for contributions separately from the earnings, this isn't necessarily the case for smaller firms." (InvestmentNews)

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