What Are Eligible Rollover Distributions (ERDs)?
What’s Not an ERD?
1. Required Minimum Distributions
RMDs are considered to be the first money distributed from a plan or IRA and are not eligible for rollover to another plan or for conversion to a Roth IRA.
2. Section 72(t) payments
Any distributions that are part of a series of substantially equal periodic payments or distributions over a specified period of 10 years or more.
Possible exception
IRS PLR 200419031
05/07/04
Allows “excess” 72(t) payment to be rolled back to IRA. The excess payment is the annual payment amount that exceeded what would have qualified under the RMD method.
3. Hardship Distributions
(from plans only; there are no provisions for hardship withdrawals from an IRA; you can withdraw from your IRA for any reason).
4. Distributions to IRA or plan beneficiaries
(except for spouse beneficiaries). A non- spouse beneficiary cannot do a rollover, but can transfer funds from one inherited IRA to another via a trustee-to-trustee transfer.
A non-spouse beneficiary cannot do a rollover!
However, as of 2007 (under the Pension Protection Act of 2006), non-spouse plan beneficiaries can do a direct rollover of plan funds to a properly titled inherited IRA.
5. Corrective distributions of excess contributions or excess deferrals
6. Deemed distributions
A plan loan treated as a distribution upon default or because it does not satisfy certain requirements cannot be rolled over. An exception applies if the plan participant’s accrued benefits are reduced to repay the loan. A deemed distribution for the cost of life insurance coverage is also not an ERD.
7. Dividends on employer securities
IRA assets can be freely rolled over to other IRAs. This includes distributions of after-tax contributions rolled into the IRA from a company plan and nondeductible IRA contributions. However, after-tax and nondeductible IRA contributions cannot be rolled over from an IRA to a company plan. After-tax funds are contributions made to a plan that are not deductible from the employee’s income. They represent basis that can be withdrawn tax-free. Nondeductible IRA contributions are also basis.
