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A Trio of New IRA Developments

Three important pieces of news have hit the IRA scene.

Natalie Choate, 10/09/2009

Natalie Choate will be speaking at a location near you if you live in Atlanta (Oct. 23 and Nov. 3); San Diego (Oct. 24); Honolulu (Oct. 26); Baltimore (Oct. 30); New Orleans (Nov. 4); Chicago (Nov. 9 and May 4, 2010); Madison or Milwaukee, Wis. (Nov. 10); Hartford, Conn. (Nov. 17); Dallas (Nov. 19); Houston (Nov. 20); San Antonio (March 16, 2010); Boston (Nov. 23; April 26, 2010); Memphis (Jan. 22, 2010); Orlando (Jan. 28, 2010); Traverse City, Mich. (May 7, 2010); or Minneapolis (June 22, 2010). See all of Natalie's upcoming speaking events at www.ataxplan.com.

This month I'm skipping the usual question and answer format to spread the word about three important new developments: The rollover deadline for certain 2009 distributions has been extended until Nov. 30, 2009; a tax-saving idea based on the direct conversion of "NUA stock" to a Roth IRA has been attacked by the IRS; and the Department of Labor has concluded that taking trustees' fees for managing an IRA for a family trust is not a "prohibited transaction."

Rollover Deadline Extended for "Nonrequired 2009 RMDs"
As we all know (now), the minimum distribution rules were "suspended" for 2009. Specifically, there is no required minimum distribution for 2009 for any defined contribution plan or IRA. The suspension applies to both the plan owner (participant) and beneficiary.

However, some clients had a problem with this. For one thing, many individuals kept on taking their RMDs into early 2009 because they didn't hear about the new law. For another, many retirement plans kept right on paying "RMDs" into the year 2009, despite the new law, because the plan document required these distributions even if the law did not.

The IRS has now addressed these "nonrequired 2009 RMDs." A participant or surviving spouse (as beneficiary) who received a distribution in 2009 that would have been a required distribution under the normal rules but was not actually required to do so because of the one-year suspension can roll over that distribution to another plan or IRA, subject to just a few limits. Furthermore, the deadline for rolling over these "nonrequired 2009 RMDs" is the later of 60 days after the distribution or Nov. 30, 2009.

Now for the limits! This rollover extension will not help everyone who received a nonrequired 2009 RMD. Specifically,

* A nonspouse beneficiary cannot roll over any distribution received in 2009 or any other year. The IRS cannot waive this rule, even if the distribution was made against the instructions of the beneficiary or by mistake.

* A participant (or surviving spouse) cannot roll over into an IRA more than one distribution received from a particular IRA within 12 months. The IRS cannot waive this rule. So, a participant who took (say) three "nonrequired 2009 RMDs" in (say) January, February, and March of 2009 can roll only one of those distributions into a traditional IRA.

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