RMD for and IRA and a 403(b)

Client has an RMD to make before year end. He has 3 deferred accounts:

a) IRA
b) SepIRA
c) 403(b)

QUESTIONS:

1) IRA’s can be aggregated and one distribution can be made from either IRA, right? SEP-IRA vs. Traditional IRA has no effect, right?Since the values are down this fall, how about if he uses actual shares with a 12/31/07 value? Anotherwards, transfer shares out based on the 12/31/07 value.

2) What are the rules on the RMD for the 403(b)’s? Can they be aggregated together with the IRA balances?

Thanks much,

Bernie



Bernie,
1) You are correct that the SEP and TIRA RMDs can be aggregated, but not with the 403b. But for an in kind distribution, the number of shares transferred out to a taxable account will have to total up to the RMD requirement, but it will take more shares to do that if they have dropped in value. In other words, the number of shares needed will be based on the fair market value on the day the RMD transferred out.

2) No aggregation of 403b RMDs permitted except with other 403b accounts for the same owner. Some client’s may also have pre 1987 accruals in their 403b for which RMDs are not required until age 75.



Client would like to simplify the RMD’s.
Can he roll the 403(b) into the T-IRA?

Bernie



Yes, but if he is in an RMD year for the 403b, the 403b RMD should be distributed to him prior to the rollover. This would simplify things for later years, but not for the actual year of the rollover.

Also, it would wipe out any benefit of having any pre 1987 accruals that I mentioned in the prior post. Once these go to an IRA, they follow IRA rules. It is also not possible to rollover only the balance of the 403b other than the older accruals, leaving only the pre 87 accruals in the 403b and then starting their RMDs at 75.

Having all of this in the IRA would simplify things for his beneficiaries also. If he has stopped working, there is no reason to keep the SEP IRA separate, so all these could be combined in one traditional IRA account for simplification of management, paperwork and RMD administration.



I had a 403b account that I rolled over to a separate IRA. On my statements Fidelity lists them separately as Rollover IRA and Traditional IRA.



I find that there no uniformity in how different IRA custodians apply the “rollover” label on their accounts. Typically, when an IRA accepts a direct rollover from an employer plan, the IRA custodian will apply the rollover label. However, if regular contributions are then made to the account, the rollover label remains.

A “rollover” used to have significance prior to the portability expansions of 2001 (EGTRRA). A pure rollover account could be accepted into an employer plan and these accounts could not contain any after tax balances. EGTRRA changed all that, and “rollover” lost much of it’s significance.

Then, along came the Bankruptcy Act in 2005 that provided unlimited protection for IRAs funded by employer rollovers, but by that time the rollover label on an IRA account might well be inaccurate. The BK act does not specify the limit of protection when regular contributions have been made to a rollover account, whether there could be any apportionment of protection limits vrs unlimited or if tainting the account makes it fully subject to the 1,000,000 limit. In addition, these rollover accounts may now contain after tax contributions which an employer plan still cannot accept from an IRA.

As a result, rollover labeled IRA accounts are very much a mixed bag of confusion.



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