IRAs: Beyond the Basics Rollovers and Transfersttsmedia.ttstrain.com/IRAsBeyond1014.pdf · 5....

Copyright Sunwest Training Corp. 2014

TOTAL TRAINING SOLUTIONS

IRAs: Beyond the Basics

Rollovers and Transfers

What’s the Difference?

Presented by: Patrice M. KonarikSunwest Training Corp.

Website: www.sunwesttraining.com

Email: [email protected]

Phone: 830-336-34221


ROLLOVER / TRANSFER OVERVIEW

• Rollovers from a Qualified Plan to IRA• Direct and Indirect Rollovers from a QP to a

Traditional

• Direct and Indirect Rollovers from a QP to a Roth

• Rollover from IRA to IRA• From a Traditional to Traditional, Roth to Roth

• SEP to SEP or SEP to a Traditional

• SIMPLE to SIMPLE or SIMPLE to a Traditional

• Direct Transfer from IRA to IRA• From a Traditional to Traditional, Roth to Roth

• SEP to Traditional

• SIMPLE to a Traditional

• Transfer from Spouse to Spouse due to divorce

2

QUALIFIED EMPLOYER PLAN TO IRA

• Plan examples include: 401(k), 403(b),

457 plan, ESOP, Profit Sharing

• SEP and SIMPLEs are considered “non-

qualified” plans – we will discuss later

• “Rollover” means money is placed into

an IRA or to another QP

• May or may not trigger a taxable event

depending on which IRA plan type it is

being rolled into – Traditional vs. Roth.Copyright Sunwest Training Corp. 2014

QUALIFY THE MONEY

• Where is it coming from?

• Is this your plan?

• What kind of plan is it?

• Who is the company making the check payable to?

• Do any of these funds contain after-tax money?

• If the customer is over 70½ - Has your required minimum distribution been taken?

• What paperwork needs to be completed?

• Do you want to commingle the funds with your other IRAs?


QRP ROLLOVERSSIX RED FLAGS

1. Rollover Certification/Election/Review – Have the customer complete this form in addition to the contribution form to certify he/she is an eligible rollover recipient and all of the funds are eligible to be “rolled over”.

2. IRA Investment – Make sure the incoming direct rollover funds are placed in an “IRA” product - not a regular account.

3. Rollover Code – The incoming funds can sometimes be confused with an IRA-to-IRA “transfer”. Make sure funds coming directly from a QP are coded as a “rollover” - not as a “transfer”.

4. Nonspouse Beneficiary – Beginning is 2007, a nonspouse beneficiary is allowed to do a direct rollover from an employer QP into an Inherited IRA.If the beneficiary instructs the company to make the check payable directly to the beneficiary (and not a financial institution), this rollover options is no longer available.

5. Rollover to Roth IRAs – Beginning in 2008, employer plan participants can choose to have their funds rolled into a Roth IRA without going through the Traditional IRA first, when coming from any employer plan to a Roth, the contribution code is rollover – not conversion.

6. “After-tax” contribution should ALWAYS go directly into a Roth.


ROLLOVER REVIEW OR CERTIFICATION:WHAT CAN AND CANNOT BE ROLLED OVER?

• Can

• Most funds from an employer sponsored/controlled

plan

• Both pre-tax and after tax contribution and earnings

on both types

• Cannot

• Required minimum distribution (RMD) if customer is 70

½ or older

• Payments scheduled to be paid out in more than a 10

year period (annuity payments)

• Funds that have been in a “non-qualified” deferred

compensation planCopyright Sunwest Training Corp. 2014

QUALIFIED PLAN ROLLOVER

QP DIRECT ROLLOVER

VS.

QP ROLLOVER

ACCESS


QUALIFIED PLAN ROLLOVER DIRECT VS INDIRECT

DIRECT NO ACCESS

• Check is made payable to receiving institution

• Can be mailed to individual, to bank or wired to bank

• No federal income tax withholding required

INDIRECT

OWNER ACCESS

• Check is made payable to individual

• Check is given or mailed to individual

• Company required to do 20% mandatoryfederal income tax withholding on taxable portion


DIRECT ROLLOVER

• Company may have financial institution complete an “Acceptance Form”

• Financial institution may send company a “Direct Rollover Request Form”

• Plan participant may give company instructions without the bank completing any forms

• Company makes check payable to “Financial institution fbo customer name”

• Company sends it to financial institution by mail or wire or may even send it to the plan participant

• Financial institution deposits it DIRECTLY into an IRA and has customer complete a Rollover Certification/Review Form.


INDIRECT ROLLOVER

• Customer instructs company to make the check payable and

mail to the individual

• Company has to do 20% federal income tax withholding as a

tax credit to customer

Amount of reportable distribution: $100,000

20% federal withholding ( 20,000)

Amount of net check $ 80,000

How much can be rolled over - $100K or $80K?

$100K

How much is the check?

$80K – oops



1099-R IRA DISTRIBUTION REPORTING


IRS 1040 FORM

100,000.00 0Rollover


5498 IRA CONTRIBUTION REPORTING

NONSPOUSE BENEFICIARY QP ROLLOVER

1. Beneficiary instructs company to make the check payable to: “First Bank fbo Daughter as beneficiary of Mom”

2. Company codes the distribution as a “direct rollover due to death” (IRS code G 4)

3. Receiving institution opens Inherited IRA titled: “Daughter beneficiary of Mom” and codes it as a “rollover contribution”.

4. Beneficiary completes a Beneficiary Election of Payment Form choosing “death distributions” over their own single life expectancy beginning the year after the owner’s death - if nonspouse beneficiary.


QP ROLLOVER TO A ROTH IRA

• Company can make the check payable to the institution or the participant.

• Company should make two separate checks for pre-tax and after-tax portion or include in same check

• Participant can roll the pre-tax funds into a Traditional or Roth IRA

• After-tax employee contributions should NEVER be rolled into a Traditional

• Any pre-tax funds rolled into the Roth will be includible in the participant’s income that year.

• Receiving financial institution codes deposit into either plan type as a “rollover contribution”


MOVING AN IRAROLLOVER VS TRANSFER

IRA ROLLOVER

VS

IRA TRANSFER

ACCESS


NEW ROLLOVER RULES


• Beginning January 1, 2015, an IRA accountholder will only be able to do

one tax-free 60-day rollover from the total IRAs owned by the accountholder

in a 12 month period beginning from the day of receipt of the funds –

regardless of how many IRA plans or plan types owned.

• Any additional rollovers where the accountholder has receipt of the funds

will be disallowed, be considered taxable income and may also receive an

IRS 10% penalty if under age 59.5.

• If an additional rollover occurs within the 12 month period and is not

withdrawn before the tax filing deadline plus extensions, it will receive an

additional 6% excess contribution penalty for each year it stays in the IRA.

• The IRA accountholder MUST CERTIFY the funds are eligible for rollover

and that no other rollover has occurred from ANY of his/her IRAs in the last

12 months by completing the “Rollover Certification” or “Rollover

Review” form provided by your forms vendor.

• It will be very important for IRA money to be moved only as “IRA Direct

Transfers” if any IRA rollover has occurred within the last 12 months.

• This rule does not apply to Qualified Plan Rollovers or Conversions from

Traditional to Roth IRAs.

IRA TO IRA ROLLOVER


FINANCIAL INSTITUTION↓

INDIVIDUAL↓

FINANCIAL INSTITUTION

Check madepayable toindividual

Must be rolled over within

60 days

One rolloverper 12 month

period perAGGREGATE IRA plans

ROLLOVER PROCEDURES

• Customer signs an IRA distribution form as either “premature – no exception” or “normal”

• Financial institution makes check payable to the accountholder

• Customer puts money back into an IRA within 60 days

• Receiving institution completes a contribution form and codes it as a “rollover” contribution

• Customer certifies the funds are eligible by also completing a Rollover Certification / Review Form

• Only one rollover allowed per total IRA plans the customer owns in a 12 month period –beginning with the date of the distribution


ROLLOVERSEP OR SIMPLE TO TRADITIONAL

• A SEP plan type can be rolled into a Traditional at any time.

• Distribution is reported as “premature – no

exception” or “normal” depending on age

• Contribution is reported as a “rollover”

• A SIMPLE plan can only be rolled over after customer has been participating in the SIMPLE for at least two years

• Distribution is reported as “premature – no

exception” or “normal” depending on age

• Contribution is reported as a “rollover”Copyright Sunwest Training Corp. 2014

ROLLOVERS AFTER AGE 70½ CHECK IS MADE PAYABLE TO CUSTOMER

1. Determine if customer is over age 70½.

2. Ask if required distribution has been or will be met from another institution

3. If not been met, have customer provide you with the RMD amount calculated by the other institution

4. If they don’t know the RMD amount, they must provide you with the prior year end balance so you can calculate distribution amount

5. “Less cash” the amount from the rollover contribution


IRA TO IRA DIRECT TRANSFER


FINANCIAL INSTITUTION↓

FINANCIAL INSTITUTION

Receiving Financial Institution sends “Transfer Request Form” to current

custodian/trustee.Check madepayable to

new custodian fbo customer’s IRA

Unlimited transfers from

IRA to IRAper year

Not reportedto IRS except

in FMV on5498

“PERFECT” IRA TRANSFER PROCEDURES

• Receiving institution completes a “Transfer Request Form” and has customer sign it and is mailed to current custodian

• Current custodian makes the check payable to the “New custodian fbo the customer’s IRA” and codes it as a “transfer out”

• Receiving institution opens the IRA as a “transfer in”.

• Neither transaction is reported separately to the IRS.


“IMPERFECT” TRANSFER PROCEDURES

Customer comes into current IRA custodian. Asks the bank to

“transfer” the IRA to another institution by making the check payable

to the new institution and handing the check to the customer

• Can you do that? Yes?

• Should you do that? NO!

What should you do?

1. Have the customer contact the receiving institution and have

them send you a “Transfer Request Form”. When the check is

mailed to the other institution, both sides will code it as a “transfer”

which will not report to the IRS. OR….

2. Make the check payable to the customer and code it as

“premature” or “normal”. Instruct them to put that amount back

into an IRA within 60 days with the contribution coded as a

“rollover” contribution (which will cancel out the taxability of the

1099-R). Make sure they haven’t done a rollover in the last 12 mosCopyright Sunwest Training Corp. 2014

HAND-CARRIED CHECK

• If the customer hand-carries the check from an IRA at

another bank made payable to the customer, you

should “assume” the other bank coded it as a

“distribution” so the receiving bank codes it as a

“rollover” contribution.

• If the customer hand-carries the check from an IRA at

another bank made payable to the receiving bank fbo

the customer without the receiving bank initiating the

transfer, DO NOT code the contribution side until you

verify how the it was coded on the distribution side:

• “premature” or “normal” out = “rollover” contribution in

• “transfer out” = “transfer in”


TRANSFERSSEP OR SIMPLE TO TRADITIONAL

• A SEP plan type can be transferred into a Traditional at any time.

• Distribution is reported as “transfer out”

• Contribution is reported as a “transfer in”

• A SIMPLE plan can only be transferred after customer has been participating in the SIMPLE for at least two years

• Distribution is coded as “transfer out”

• Contribution is coded as a “transfer in”


TRANSFERS AFTER AGE 70½ CHECK IS MADE PAYABLE TO “FI FBO CUSTOMER”

• When completing “Transfer Request Form”, have customer indicate whether RMD will be met from sending or receiving institution

• If from sending institution, issue RMD and

transfer the balance

• If from receiving institution, have customer indicate the RMD amount or give you the prior year end balance for calculation purposes.

• Transfer in the full amount and give customer RMD by the end of the year.


TRANSFERS DUE TO DIVORCE

• Must have legal court documentation of final divorce explaining settlement

• Set up IRA in receiving spouse’s name and SSN

• Code the distribution and contribution as a “transfer out” and “transfer in”

• If receiving spouse wants to transfer the money out, have new institution send you a “Transfer Request Form”

• If receiving spouse wants the cash out the IRA, use either “premature – no exception” or “normal” depending on the receiving spouse’s age

• All distributions taken from the IRA by the receiving spouse should be reported in their name and SSN



IRA TRANSFER/ROLLOVER COMPARISON CHART

QUALIFY THE MONEY!!

Where are the funds

coming from? (Plan type)

How is the check made

payable? (ACCESS) = IRA Distribution Code /

IRA Contribution Code

IRA at another institution Receiving institution initiated

by receiving institution

IRA Transfer Out /

IRA Transfer In

IRA at another institution Receiving institution, hand-

carried by customer and non-

initiated

IRA TRANSFER????

IRA ROLLOVER????

MUST VERIFY

DISTRIBUTION CODING

IRA at another institution Individual Premature or Normal Out/

IRA Rollover In

Qualified Plan Receiving institution QP Direct Rollover Out /

QP (Direct) Rollover In

Qualified Plan Individual Premature or Normal Out /

QP Rollover In


DIRECT TRANSFER VS. DIRECT ROLLOVER CHECK IS MADE PAYABLE TO RECEIVING

CUSTODIAN/TRUSTEEDIRECT CUSTODIAN/TRUSTEE TRANSFER

Coming from a:

Traditional IRA

Roth IRA

SEP IRA

SIMPLE IRA (after 2 years

of participation)

Going directly to a:

Traditional IRA

Roth IRA

SEP or Traditional IRA

SIMPLE or Traditional

IRA

NON-REPORTABLE:

Transfer out/Transfer In




DIRECT ROLLOVER

Coming from a:

401k

403b

Profit Sharing/ESOP

Gov‘t 457

Traditional IRA

Going to a:

Traditional/Roth/QP

Traditional/Roth/QP

Traditional/Roth/QP

Traditional/Roth/QP

Qualified Plan

Direct Rollover out and in







WHERE TO GET MORE INFORMATION

The IRA “Red Book”

To purchase the complete 275 page Sunwest Training IRA Training and Reference Manual for a special Webinar Attendee price of $85 including shipping, email your shipping address and quantity needed to:

[email protected]

32


THANK YOU FOR YOUR PARTICIPATION!

For program content questions

contact:

Sunwest Training Corp.

[email protected]

830.336.3422

For Webinar and other product

information contact:

TTS

[email protected]

800.831.0678

www.BankWebinars.com

Upcoming Webinars

October 16th - Notary Public

October 21st - Ratio Analysis to Determine Financial

Strength

October 21st - Compliance Perspectives: A Monthly Update

October 22nd - Mortgage Servicing Compliance: Meeting

Extensive New Regulatory Expectations

October 23rd - Currency Transaction Reporting: Line by Line

October 28th - UDAAP for the Board

October 28th - The 8 Keys to Teller Excellence

October 30th - IRAs: Way Beyond the Basics - Beneficiaries

and Distributions

November 4th - Dealing with Appraisals

November 4th - Business Writing for Financial Professionals

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IRAs: Beyond the Basics Rollovers and Transfersttsmedia.ttstrain.com/IRAsBeyond1014.pdf · 5....

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