Retirement After Age 70

[Guest Sierra]

The Code of Federal Regulations at section 1.408(q)-1(e) states:

 

(e) Application of distribution rules. (1) Rules applicable to

distributions from qualified employer plans under the Internal Revenue Code and Regulations

do not apply to distributions from deemed IRAs. Instead, the rules

applicable to distributions from IRAs apply to distributions from deemed

IRAs.

 

2) The required minimum distribution rules of section 401(a)(9)

must be met separately with respect to the qualified employer plan and

the deemed IRA. The determination of whether a qualified employer plan

satisfies the required minimum distribution rules of section 401(a)(9)

is made without regard to whether a participant satisfies the required

minimum distribution requirements with respect to the deemed IRA that is

established under such plan.

 

 

JF Comment: This means that the Custodian of the 403b plan that accepts the IRA rollover amount must effectuate Required Minimum Distributions from the IRA portion of the account notwithstanding the fact that the owner of the IRA is older that 70-1/2 and Required Minimum Distributions on the 403(b) portion of his account is not due until he retires from the employer offering the 403(b) Plan.

 

John, In light of the above what say you?

 

Joel L. Frank

[John Feldt 0]

Okay, look up, read about, and understand the full meaning of a "deemed IRA". Be careful to understand the difference between a "deemed IRA" and a mere rollover from an IRA.

 

Patience, I will post my findings.

[tony 0]

 

 

I just hope the original poster does not leave more confused than when he first posted the question because my head is spinning.

 

Tony

 

 

 

Also, are we really try to help this gentleman or are we all wrapped up in an ego trip or something . I have to wonder at times.

[Guest Sierra]

I just hope the original poster does not leave more confused than when he first posted the question because my head is spinning.

 

Tony

 

 

Past70Guy: Are you still here? What are your views?

 

 

 

Okay, look up, read about, and understand the full meaning of a "deemed IRA". Be careful to understand the difference between a "deemed IRA" and a mere rollover from an IRA.

 

Patience, I will post my findings.

 

 

I recognize that a deemed IRA in this statutory framework comes from current contributions to an IRA account established by the 403(b) Plan.

 

Having said that, does it not stand to reason that the distribution rules, including required minimum distributions, apply with equal vigor to an IRA rollover amount that was accepted by the 403b custodian?

[John Feldt 0]

Well, a reasonable thinking person would say yes, but we are dealing with Congress (the law) and with the IRS (via the regulations and other guidance). So, reason tends to get thrown out the window with those two! So I think it's best to research it. :)

[Vince 0]

 

 

Please take a look at what our good friends at benefitslink had this to say in an old post: http://benefitslink.com/boards/index.php?showtopic=24541

 

Ed Slott is a well regarded IRA expert. This is from his site: http://www.irahelp.com/cgi-bin/forum/index...rames/read/3625

2. The age-75 rule applies to pre-1987 balance in 403(b) accounts, grandfathered under the old rule, where the individual must begin RMD from pre-1987 balance at age 75, even if he/she is not required to begin RMD from the rest of the account balance because he/she is till employed. Rollover assets are subject to the RMD rules of the receiving plan. Therefore, for IRA assets rolled to a 401(k) plan, the individual need not begin RMD until he/she retires (except for 5-percent owner as you pointed out)

 

Also: http://www.financial-planning.com/pubs/fpi/20070703102.html

Even if all of your retirement funds are in an IRA, you may still be able to take advantage of this "still working" exception by rolling those funds back to a company plan if you are still working for that company. Only taxable IRA funds can be rolled back to a company plan though and only if the plan will allow such rollovers to be received.

 

 

[Guest Sierra]

A clarification, I believe, needs to be made. If our past 70 guy's IRA consists solely of prior taxable distributions from qualified retirement plans ie 403b, 401k, etc and this IRA balance is rolled over to the current employer's 403b plan then the funds rolled over are not subject to Required Minimum Distribution until past 70 guy retires. This traditional IRA is referred to as a "Conduit IRA".

 

If, however, the IRA in question consists of regular IRA contributions in addition to the distributions from prior employer plans then the IRA is not a "conduit IRA" and is subject to Required Minimum Distributions starting at age 70-1/2 notwithstanding the fact that past 70 guy is still working for his current employer that offers the 403(b) plan and the IRA is rolled over to the plan.

 

So it all boils down to our past70guy informing us of the composition of his IRA. Is it SOLELY a "conduit IRA" or is it a "mixture". You told us in the original post that the IRA came from a previous job. Have you added regular contributions to it? We await your reply.

 

Peace and hope,

Joel L. Frank

[Past70Guy 0]

Thanks for all the information. I responded incorrectly to Sierra because I failed to read the posts first.

 

Here's the correct response:

 

The IRA was created from a previous job. I am happy with where it is and am willing to take minimum withdrawals starting in 2008 (when I reach age 70 1/2).

 

I am currently employed at a University, where I have been making regular monthly contributions to a 403(b)7 plan. My question really only concerned the 403(b)7.

 

As I understand the answers, I may continue making regular monthly contributions to this 403(b)7 plan and do not have to start taking minimum withdrawals until I retire (and cease making contributions).

 

Now a further question: When I DO retire (let's pick 2009 for a specific date, although it could be later), do I have to take a minimum withdrawal in the year I retire (2009 in this example)? I suspect the answer is Yes. The basis for that withdrawal would be what -- the year 2008 ending value? If that's true, then I further assume that the addition to the value for the period I continue contributions in 2009 would only impact the required minimum withdrawal amount for 2010, based on the year 2009 ending value.

 

I hope this is clear.

[Past70Guy 0]

OK, now I've re-read the posts and I see that I still haven't given a full answer to Sierra. I apologize for being dense. Let me try to give more information.

 

My previous IRA (which I really do NOT want to roll anywhere) was created by rolling a company savings plan into a self-directed IRA. I did make contributions to that company savings plan, but they were all pre-tax contributions, I believe, so all of the funds in the IRA are taxable when they are withdrawn.

 

I'm not sure if this further information really answers your question, though. What is meant by a "conduit IRA" and a "mixture" IRA? Is the presence of previously taxed funds a part of it?

 

Hope this helps, too.

 

P.S. I use Past70Guy, but I really won't be 70 until 2008, so I really should have used Past69Guy.

[Guest Sierra]

OK, now I've re-read the posts and I see that I still haven't given a full answer to Sierra. I apologize for being dense. Let me try to give more information.

 

My previous IRA (which I really do NOT want to roll anywhere) was created by rolling a company savings plan into a self-directed IRA. I did make contributions to that company savings plan, but they were all pre-tax contributions, I believe, so all of the funds in the IRA are taxable when they are withdrawn.

 

I'm not sure if this further information really answers your question, though. What is meant by a "conduit IRA" and a "mixture" IRA? Is the presence of previously taxed funds a part of it?

 

Hope this helps, too.

 

P.S. I use Past70Guy, but I really won't be 70 until 2008, so I really should have used Past69Guy.

 

Hi past 70 Guy

 

A "conduit IRA" is comprised solely of distributions you received from an employer sponsored retirement plan; i.e your company savings plan balance rolled into an IRA. This "conduit IRA" remains eligible to be rolled over to another employer's retirement plan if you so desire to gain the tax benefits of not having to take RMD at age 70-1/2. If, however, you added to this "Conduit IRA" amounts other than distributions from an employer's plan, i.e. your annual personal contributions, then it is no longer eligible to gain the tax advantage of waiting until you retire to start RMD and is subject to RMD at age 70-1/2.

 

I trust I have helped you.

 

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

NYC

[John Feldt 0]

Past70Guy: You asked, "...do I have to take a minimum withdrawal in the year I retire (2009 in this example)? I suspect the answer is Yes. The basis for that withdrawal would be what -- the year 2008 ending value? If that's true, then I further assume that the addition to the value for the period I continue contributions in 2009 would only impact the required minimum withdrawal amount for 2010, based on the year 2009 ending value."

 

You are correct that if you terminate your employment in 2009 (retire), that a required minimum distribution (RMD) is needed for 2009, and that is basically determined from your 2008 balance. Your further assumption is also basically correct. (I say basically, because, as with most IRS requirements, exceptions and ajdustments can and do exist - you can check with your financial planner for the exact requirements for your situation).

 

However, that first required minimum distribution (RMD) gets a break in its due date, it does not have to be paid (and taxed) until April 1, 2010. Be careful though for tax planning, because the second RMD is due by 12/31/2010 (that's within the same tax year). So if you take your 2009 RMD in 2010, you will also be required to take your 2010 RMD in 2010 as well, increasing you income for the year because of the two RMDs. If that does not affect you tax brackets, then no big deal. Many people take their first RMD by 12/31 of the first year (12/31/2009 in the example you provided) to avoid moving their income into a higher tax bracket for the next year.

 

Now, Joel mentioned the conduit IRA, which, a few years ago, was the only way to roll over money from an IRA into a plan, such as a 403(b) plan (assuming the plan accepted rollovers). You have indicated that you don't mind taking RMDs from your IRA, and you are not interested in rolling over your IRA money into the 403(b) plan. Read no further.

 

To help other readers understand what has happened, those "conduit IRA" requirements have since been relaxed under an attempt to create "simplification". I'm not sure things really got simpler with those changes, because there are still certain cans and can'ts for rollovers. If anyone is interested in this, I suggest posting the start of another thread with that topic in mind.

[Past70Guy 0]

Thanks Sierra and Thanks John.

 

I understand better now -- it's clear that I didn't know the terminology, so my posts made things more confusing. Sorry for that.

 

At this point, my questions are answered and I can put together a plan:

1. In 2008, make RMD from IRAs only.

2. In 2008, continue making contributions to 403(b)7 at employer, and no RMD needed.

3. In year I retire, make RMD from 403(b)7 as well, based on end of previous year balance there.

4. In following years, make RMD from all plans.

 

Thanks again.

[intruder 0]

Prior to EGTRRA the conduit IRA was used to segregate distributions from the different types of employer plans because rollovers from an IRA were permitted if the only funds in the IRA were derived from that type of plan, e.g., 403b assets in an IRA could be rolled over to another 403b plan if the only assets in the IRA were from a rollover from a 403b plan. After EGTRRA there was no need to segregate rollovers from employer sponsored plans into conduit IRAs because univeral rollovers from an IRA to another type of employer sponsored plans such as Q plan, 403b or govt 457b plan were permitted, including funds which had originally been contributed to a deductible IRA.

 

The Conference Committe report on the EGTRRA change to IRC 403(b)(8)(A)(ii) to allow unrestricted rollovers states "Similarily distributions from an IRA are generally permitted to be rolled over into a qualfied plan, a Section 403(b) annuity or governmental 457 plan." The need for a conduit IRA is required only where there special tax benefits to distributions from a Qualfied plan, as capital gains taxation on pre 1973 accruals and 10 year forward income averaging for those employees who attained age 50 by January 1, 1986. If the Q plan benefits were rolled in to a conduit IRA they would be eligible for special tax benefit if the employee rolled them to another Q plan before retirement. However there would be no special tax benefits for Q plan benefits distributed from a conduit IRA because all IRA distributions are taxed as ordinary income.

 

IRS Pub 590 P 25 col 2 describes the conduit IRA this way "If you receive an eligible rollover distribution from your employer's plan you can roll over part or all of it into one or more conduit IRAs. You can later roll over those assets into a new employer plan. You can use a traditional IRA as a conduit IRA. You can rollover part or all of the conduit IRA to a qualified plan even if you make regular contributoins or add funds from sources other than your employer's plan. However, if you make regular contributions or add funds from other sources the qualfied plan into which you move funds will not be eligible for any optional tax treatment for which it would have otherwise qualified" Pub 590 omits any reference to conduit IRAs for 403(b) plans because there is no optional tax treatment for a distribution from a 403(b) plan e.g., 10 yr forward averaging.

[flyaway 0]

I am far from expert in this technical area but I believe Sierra is correct. It just makes sense. It's time to start spending some of that horde.