This would create a tax liability when doing a direct rollover
. The IRS finally acquiesced with IRS Notice 2014-54, which allows taxpayers to proactively allocate pre-tax amounts to a traditional IRA and after-tax amounts to a Roth IRA.
Like spouse beneficiaries, you can also roll over ("convert") non-Roth distributions from an employer plan into an inherited Roth IRA (however, you must do so in a direct rollover
A direct rollover
may be in the form of a trustee-to-trustee transfer accomplished through a wire transfer or a check made payable to the trustee.
For taxpayers making a disbursement partly to themselves and partly as a direct rollover
to a Roth IRA or another designated Roth account, the pretax amount of the distribution is allocated first to the direct rollover
Either leave it where it is or do a direct rollover
If it's a direct rollover
, there's no need to withhold taxes.
On September 18, 2014, the IRS released Notice 2014-54 ("Guidance on Allocation of After-Tax Amounts to Rollovers"), which definitively authorizes clients to complete a direct rollover
of their pre-tax plan funds to a traditional IRA while simultaneously allowing them to complete tax-free Roth IRA conversions of their after-tax plan funds.
Thus same-sex spouses are entitled to survivor annuity protection in pension plans, automatic account balance death benefits in 401(k) and 403(b) plans and have direct rollover
treatment on a spouse's death.
But your employer must also allow you to make a direct rollover
to an IRA or to another employer's 401(k) plan.
Revenue Ruling 2012-4 describes whether a qualified defined benefit pension plan (that accepts a direct rollover
of an eligible rollover distribution from a qualified defined contribution plan maintained by the same employer) satisfies SS411 and SS415 of the IRC in a case in which the defined benefit plan provides an annuity resulting from the direct rollover
If your client's rollover form from a previous carrier asks what type of distribution this is, you want to be sure to choose a Direct Rollover
. This ensures that the funds are made payable to and go directly into their new IRA account with you.
A taxpayer may roll over all or part of a distribution from an eligible retirement plan to a Roth IRA (a conversion transaction) either by a direct rollover
to the Roth IRA or by rolling over the amount received within 60 days.