Does rollover of KEOGH to conduit IRA eliminate 10 year averaging opti

[Guest Joe Twidwell]

Subject owner was born in 1933 and established KEOGH. In 1994 he terminated KEOGH and rolled assets into seggregated conduit IRA. He has not taken any distributions from IRA. Can he still use 10 year averaging if he takes entire balance of IRA?

[Guest Dook]

No. Neither 10 or 5 year forward averaging have ever been available for use on distributions from IRAs. Once the funds are moved from a qualified plan to an IRA the ability to use any forward averaging is lost.

[Guest]

The only way he could recapture the ability to use averaging is if he rolled these funds from the conduit IRA into a qualified plan. After this rollover he could take a lump sum from the employer's plan and elect averaging. Tell your client to go get a job at a company that accepts rollovers!

[Guest Joe Twidwell]

I believe that one of the research materials spoke about losing the 10 year averaging once the first rollover to the IRA happened. Do you recall anything on this issue?

[Guest David Dye]

Harry O is correct. The primary purpose of having a segregated conduit IRA is to maintain the tax qualified status of the dollars in the IRA. However, in order to take advantage of the tax qualified status, the funds in the IRA must be rolled back over into another employer-sponsored qualifed plan, then a distribution taken from the qualified plan. A distribution directly from the IRA will not qualify for special tax treatment.

Handling the funds as described above will preserve the special qualifed status afforded to funds in qualified plans, including 10-year averaging and capital gains treatment (on pre-1974 contributions).

Of course, 5-year averaging no longer applies.