Dist, r/o & conversion for clients born prior to 1936
An individual who was born prior to 1936 and who made contributions to their qualified plan prior to 1974 and is eligible for 20% capital gains and/or 10-year tax averaging, has assets segregated in a rollover IRA. This individual is now employed through a firm (different from the firm they were employed with when they made the pre-1974 qualified plan contributions) that has a qualified plan that allows for rollovers. This client would like to roll their rollover IRA into the new employer’s qualified plan and then convert those assets (through a direct rollover conversion) to a Roth IRA.
Can the individual do this and still take advantage of the 20% capital gains tax rather than paying ordinary income?
Permalink Submitted by Alan Spross on Tue, 2010-01-05 19:41
No.
While the 10 year option and 20% cap gain options can be resurrected by rolling a conduit IRA containing the full prior lump sum distribution back into a different employer plan, the same rules will apply when taking a distribution from that second qualified plan. This is one of the remaining, but little known benefits of conduit or rollover IRA accounts.
However, any part of such second qualified LSD that is rolled to an IRA, either a TIRA or a Roth IRA, negates use of Form 4972 used to document lower rates on LSDs. In other words, the individual could still take advantage of the LSD benefits, but no part of the LSD can be rolled over.