rollover ira transfer to qualified plan (conduit ira)

[Guest amy darnell]

i know of a participant who was employed with employer 1, terminated & rolled employer 1's monies into qualified plan of employer 2, has now terminated employment with employer 2, rolled monies out from employer 2's qualified plan (including monies from employer 1's plan) and into ira. she is now re-hired with employer 1, and wants to roll monies from ira (qualifed plan 1 and qualified plan 2) into employer 1's plan again. the participant's tpa states that the ira monies are not pure (plan 1 and plan 2 have been mixed)and cannot be rolled back to employer 1's plan; however, other parties disagree, as both sources are qualified plans. any thoughts on the status of this 'conduit' ira & the feasibility of rolling the ira monies back into employer 1's plan?

[This message has been edited by amy darnell (edited 05-24-2000).]

[This message has been edited by amy darnell (edited 05-24-2000).]

[KIP KRAUS]

Amy:

My understanding is that as long as qualified money has been rolled into the IRA and no non-qualified money has been comingled with it, the money can be rolled back into a qualified plan.

If both roll overs into the IRA came from qualified plans, and qualified under the same IRS regs., in my opinion the employee can roll the whole amount back into to employer 1's plan.

Unless the CPA can provide a siting for his position, I'd argue that the money is qualified money.

[Guest amy darnell]

thank you, kip. this has been my understanding to date, as well; i'm seeking documentation to support this.

the pension answer book (q 31:37) states that an ira that contains only assets attributable to a rollover contribution from a qualified retirement plan may be rolled over to a second qualified plan or to the original plan. it is this wording that spawned the discussion: the use of 'a' and 'second' is what i believe the tpa is looking at to state that the ira is not a true conduit eligible to rollover to employer 1's plan.

in that same section, there is also mention of an individual who rolled over a distribution from a terminated qualfied plan into an ira that had previously been established with contributions from 'other sources', the ira was found to not be a true conduit ira & the new plan was disqualified.

any additional thoughts or resources with clearer picture?

[Dave Baker]

I think there is no significant risk to the proposed rollover, despite the "a" language ... the idea is that any qualified plan's distribution can qualify for special tax treatment, in particular 5-year income averaging. That treatment is not available for IRA distributions. So the rule behind keeping the conduit IRA "pure" is to prevent a rollover IRA from being used as a way to move IRA non-rollover contributions (which would not qualify for 5-year income averaging if paid from the IRA) into a qualified plan from which they could be paid and qualify for 5-year income averaging.

Having two different plan distributions in the conduit IRA shouldn't matter -- those moneys are from *some* qualified plan, where they were capable of being paid using 5-year income averaging, so the payment of the conduit IRA balance into a single retirement plan doesn't turn non-rollover IRA money into qualified plan money -- it's all qualified plan money to start with.

[Guest Rick Butler]

I agree with the everyone else's opinion that the rollover is O.K. However, just so you know, the site the CPA may be relying on is Private Letter ruling 9505023. He is just misinterpreting how far the ruling goes.