403(b) Annuitization Transfer
I have a client who annuitized a 403(b) account over 5 years, with payments quarterly, directly into an IRA. The payments went trustee to trustee and never touched the clients hands for the first 3 and 1/2 years. The client just turned age 70 and the tranferring 403(b) carrier is saying that they now cannot send the payments directly to the IRA account but must instead send them to the client. My questions is that if this is done, does the client have 60 days to rollover each quarterly payment into the IRA once they receive it or will they violate the once per year rollover provision and create a tax liability on the entire IRA if they try to rollover the four quarterly annuitization payments in a calendar year?
Permalink Submitted by Alan Spross on Thu, 2008-09-11 00:22
There is no problem here with the 12 month waiting period, as that only applies to distributions FROM an IRA. These distributions are coming from the 403b and rollover to the IRA will not be limited.
The client must have turned 70 prior to July, or 2008 would NOT be an RMD distribution year since client would not be 70.5 in 2008 otherwise. The RMD rules require the RMD to be withheld or distributed by the plan and cannot be transferred, but there is no IRS reason why the balance cannot still be transferred.
The larger problem here seems to be the mandatory 20% withholding from the non RMD portion because it is rollover eligible. In order to complete the rollover and avoid taxes, the client would have to front the funds to complete the full rollover. He could adjust his other tax payments to account for a rather large withholding if that is the case. Perhaps the plan should at least be asked if they will distribute the annual RMD, and then directly transfer the remainder to avoid the withholding problem.