IRA to Qualified Plan Rollovers
Below, find details about rollovers from an IRA to a qualified employer plan. This is a relatively uncommon type of rollover with important regulations.
When rollovers are discussed, it is generally assumed that the rollover is from a qualified employer plan to an IRA or from an IRA to another IRA. The IRA is generally assumed to be the ending depository of the funds. However, rollovers can be made from an IRA to a qualified plan, which can provide some interesting tax planning opportunities.
Caution
Qualified plans are permitted, but are not required by law, to receive IRA funds, so the plan administrator of the receiving plan should be consulted before attempting a rollover.
Caution
For an amount received by a qualified plan to be a lump-sum distribution eligible for capital gains or special averaging treatment for distributions to individuals born before Jan. 2, 1936, it must contain only funds that originally qualified for the capital gains or special averaging treatment. Thus, regular (non-rollover) contributions should not be made to a rollover IRA if the distributee of the original rollover contribution wants to preserve the chance to roll the original contribution into a qualified plan for purposes of preserving the availability of special averaging and capital gains treatment of distributions from the qualified plan.
Only the Taxable Amount Can Be Rolled
Generally, only the taxable amount of an IRA may be rolled over to an eligible retirement plan. In other words, nondeductible contributions to an IRA may not be rolled over to an eligible retirement plan. (Code Sec. 408(d)(3)(H)) In determining the maximum amount that may be rolled over, an IRA aggregation rule applies to avoid tracing problems. Caution: See “nondeductible contribution direct rollovers” later in this chapter.
Special Aggregation Rule For Determining Taxable Amount
An individual may have multiple IRAs and make nondeductible contributions to one or more of them. He does not have to limit a rollover from any of these IRAs to an eligible retirement plan to the actual taxable amount in that particular IRA. That's because, under Code Sec. 408(d)(3)(H)(ii)(II), the part being rolled over is considered to come from amounts in all IRAs other than nondeductible contributions. This is so notwithstanding Code Sec. 408(d)(2)(A), which normally requires basis to be recovered pro rata when amounts are withdrawn from an IRA and the IRA owner has made nondeductible contributions to any IRA. Code Sec. 408(d)(2)(A) achieves the pro-rata recovery rule by treating all IRAs as one IRA in applying the annuity rules of Code Sec. 72 to tax IRA distributions. Code Sec. 408(d)(3)(H)(ii) provides an exception to the usual application of the annuity rules to achieve the result indicated above.