stop RMDs when rolled into 403(b)?

[Guest getaxa]

I have a 74-year-old 403b participant that is currently taking RMD from an IRA. He is currently working and contributing to his 403(b). He would like to roll his money from the IRA to the 403b and cease taking RMD.

There should be no problem with this considering that EGTRRA allows for pension portability and money rolled takes on the characteristics of the new plan.

Where does it say that?

The IRA company will not roll the money until it is proven.

Any help would be great!

[mbozek]

Who is the custodian? The custodian has no authority to prevent the participant from transferring funds to another funding entity or IRA (read the custodial agreement) because the question of whether mrds are required after the transfer of the IRA to a 403(b) plan is the sole liability of the taxpayer not the custodian. After the account balance is transferred to the 403(b) the MRD in the IRA will be 0 because the IRA balance will be 0. Somewhere in the custodial agreement is a statement that the custodian is not responsbile for determining the amount of the MRDs. The participant will be required to receive the MRD from the IRA for 2004 if not already paid.

[Guest ERISA_kid]

Agreed. The custodian shouldn't be able to restrict a rollover to a 403(b). However, for the year of the rollover, keep in mind that the RMD amount is not eligible for rollover treatment so only the balance in excess of the year's RMD should be rolled over.

[Appleby]

mbozek is right as usual.

As I'm sure you know (but I want to mention it for the benefit of someone who may not ), the RMD for the IRA must be distributed before the direct rollover is made to the 403(b)…or if the transaction is done as an indirect rollover, the RMD must be retained (outside of the retirement environment) and the balance can then be rolled over.

[Guest getaxa]

Thanks everyone, this is great! I never would have thought about using the custodial agreement.

Thanks!

[Belgarath]

Appleby - while I definitely don't disagree with what you are saying, I'd be interested in your thoughts on the following. While what you say used to be true, I believe the new regulations did away with this requirement for IRA to IRA transfers. If you take a look at the preamble to the regs effective 1-1-2003, under the "Other Rules for IRA's" section (Page 25 & 26 on my copy, FWIW) it seems that the IRS made it very clear this requirement no longer applies to an IRA to IRA transfer. However, since this is an IRA to a 403(b) transfer, rather than an IRA to IRA transfer, how does one apply the law? In the absence of other guidance, one could perhaps take the approach that since under the regulations in 1.403(b)-3 Q&A-1(b), a 403(b) is treated as an IRA for purposes of applying the minimum distribution regulations, and since the new regulations clearly no longer apply the transferor rule between IRA's that you mention, perhaps this is no longer necessary.

I don't have any sense of how the IRS would view this argument. And I don't find it all that persuasive myself, when you balance it against the other requirements in 1.408-8 that say you can't aggregate 403(b) minimum distributions with IRA money. So while I agree that the (probably) correct, and certainly safer approach, is to require the distribution from the transferor IRA, I'd be interested in any thoughts you have on this. Thanks.

[Appleby]

I think you pretty much said it

You are right…. Under the Final RMD regulation, an IRA owner may transfer his/her IRA without distributing the RMD from the transferor IRA, providing the RMD is satisfied from the transferee IRA. This is allowed because RMDs for IRAs can be aggregated. This does not apply to the IRA to 403(b) rollover because, as you correctly stated, the IRA aggregation rules do apply to 403(b)s, but they do not cross-over, i.e. RMDs for 403(b)s cannot be aggregated with RMDs for IRAs. Therefore, since distributions from the 403(b) cannot be attributed to the RMD for the IRA, the option (to defer the RMD to the receiving account) available for trustee-to-trustee transfers between IRAs is not available for IRA to 403(b) plans

Secondly, since the IRA to 403(b) would be a direct rollover (which by definition is a distribution and a rollover contribution as opposed to a trustee-to-trustee transfer which does not involve a distribution), the rollover would include the RMD amount (if not already distributed from the IRA) because the first distribution for the year is always attributed to or includes the RMD amount ( Treas. Reg. 1.408-8, A-4 ). Therefore, should the individual conduct a direct rollover from the IRA to the 403(b) prior to distributing the RMD from the IRA, it would result in the rollover including an ineligible rollover amount (The RMD for the IRA) to the 403(b) account.

The argument could be made that since RMDs can be aggregated for IRAs, who is to say that the individual could not choose to distribute the RMD for the IRA from another/separate IRA?…but my response would also be Treas. Reg. 1.408-8, A-4.

What do you think?

[jevd]

I agree with both Appleby and Belgarath. What about getting astatement from the IRA account owner that he/she has an IRA elsewhere and is taking the RMD from that IRA and holds the IRA custodian/trustee harmless etc. since it is ultimately the account owners responsibility to take the distribution. Without it I would distribute the RMD to the account owner. They could always refuse withholding on the distribution to them and make an indirect rollover to the 403(b) if they desired.

[Appleby]

Good suggestion jevd…but the IRA owner could demand that the custodian process the distribution without the confirmation…and would be within his/her right to do so. For our customers, we explain the rules as they are to the IRA owner or their representative and leave the rest up to them. We never question instruction we receive to make the rollover, since the IRA plan document already include a hold-harmless language, that includes a statement that we are not responsible for determining whether rollovers satisfy the requirements of the Code

[Belgarath]

Back again after a less than enjoyable stint working on the house. Sigh...

Appleby - yes, I agree.