Lump Sum Distribution from qualifed plan with 10 year averaging and rollover to a Roth
Taxpayer retired in 2003, and turned 70 1/2 in 2010, when he began taking RMD’s from an employer provided 401K plan. In 2018, taxpayer wants to take balance of plan in a lump sum, use 10 year averaging to pay the tax (he does meet the age qualification for this), and roll over the lump sum to a Roth IRA. Can he do it? I believe he is prohibited from doing so, because after his retirement in 2003, he had multiple years of RMD distributions while in retirement. Therefore, the distribution of the remainder of the retirement plan balance in 2018 does not meet the definition of a qualifying lump sum distribution.
Permalink Submitted by Alan - IRA critic on Sat, 2018-06-16 21:18
You are correct. Taxpayer cannot do this for several reasons. First, he was not born before 1936, and there have been intervening distribution year as you indicated. Once direct rollovers to Roth IRAs were allowed in 2008, the IRS should have expected taxpayers to attempt to reduce taxes on these rollovers, although mostly by using the cap gains rates and NUA, since that tax break is available for those born after 1935. The Regs issued regarding Sec 824 of the PPA did not anticipate the that LSD options were always mutually exclusive of rollovers because there were no taxes paid for IRA rollovers, but the Roth rollovers available after 2007 required taxes to be paid, and taxpayers would want to calculate these taxes using the LSD options if they could. But that is not allowable.