IRA rollovers into 401k plan

[Guest Brenda Schachle]

If a plan allows rollovers and an employee rolls into the plan assets formerly in a deductible IRA, this would be considered just a plain old rollover -- not a "deemed IRA" -- correct? My understanding is that owner-trustees must have a custodian to hold a "deemed IRA" but that has not been the case for rollovers. Do rollovers from IRA's need to be looked at differently than other non-related rollovers from qualified plans?

Employees who are not 5% owners may be exempted from the RMD rules under qualified plans. What if that individual rolls his deductible IRA's into the plan -- are they now also exempt from the RMD rules until the individual retires?

Any ideas?

[g8r]

You are correct that rollovers from an IRA are not the same as "deemed IRA" contributions. However, there is no guidance from the IRS on how IRA rollovers need to be handled. For example, you pointed out the RMD rules. In addition, there are the prohibition on the purchase of life insurance and loans. I guess one position is that since the IRS has been silent, that a reasonable interpretation is they take on the charchteristics of the plan once they are rolled over. However, the deemed IRA regulations do give you reason to pause. If rolled over funds are treated differently, then I don't know why you'd ever advise someone to make deemed IRA contributions to a plan. You'd be better off advising the person to make the IRA contribution to an actual IRA and then immediately roll it over to the qualified plan. Perhaps there may be better bankruptcy protection by keeping it charachterized as IRA money. But, I don't think it's clear whether you have bankruptcy protection over deemed IRA contributions.