Pension Payout 10 years
If a pension is paid out over 10 years does it meet the requirement under 402c
and be eligible for rollover? Can each yearly payment transfer to an IRA?
If a pension is paid out over 10 years does it meet the requirement under 402c
and be eligible for rollover? Can each yearly payment transfer to an IRA?
Permalink Submitted by Alan - IRA critic on Sat, 2016-09-17 21:53
No, not if paid out OVER 10 years. 402(c)(2) states that payouts of 10 years or more are not eligible rollover distributions. However, TIIA CREF has been doing a 10 year transfer annuity for many years via a direct rollover to an IRA. The key to this is that there are 10 payments on the same date each year, but the term of the payout is 9 years and 1 day. So I assume for purposes of this rollover rule, this plan is a LESS THAN 10 year plan and must have received specific IRS guidance. There might be a gray area there right at 10 years regarding the plan duration being rounded, but if the payout is clearly over 10 years it is not rollover eligible. Of course, under IRS RMD Rules, any RMD is still considered met, but to the extent of the RMD the rollover becomes an excess IRA contribution that must be withdrawn.
Permalink Submitted by David Mertz on Sun, 2016-09-18 01:51
I think you meant to reference 402(c)(4). To avoid the payments being ineligible for rollover under 402(c)(4)(A), perhaps the payments are set up so that they are not “substantially equal.” CFR 1.402(c)-2 Q&A 5(d) has some useful information on one arrangement that *is* considered to be a series of substantially equal periodic payments over a period of 10 years. CFR 1.402(c)-2 Q&A 6(b)(3) also indicates that a final payment that is less than the others must also be considered substantially equal, so simply arranging the payments to result in the 10th and final annual payment to be less than the others does not make the payments fail to be a series of substantially equal periodic payments.