Rollover of qualified plan benefits - importance of form.

• Author: Kautter, David J.
• Position: Brief Article

A recent Tax Court case, Rodini, 105 TC No. 3 (1995), illustrates the importance of form in successfully rolling over distributions from a qualified retirement plan.

The taxpayers were formerly married and resided in California, a community property state. Divorce proceedings began in 1985, and were finalized on Dec. 31, 1988. The husband was a shareholder, director and employee of a farming operation incorporated in California, and participated in the farm's profit-sharing and defined benefit pension plans. In 1986, on termination of the profit-sharing plan, the husband elected to receive his vested benefits in a lumpsum payment that included a community property component and a separate property component. The couple's Marital Settlement Agreement, executed in 1988, provided that the wife was to receive the community property portion of the profit-sharing payment. The husband transferred the entire distribution to his wife, who within 60 days used the money to establish two separate rollover individual retirement accounts (IRAs). The IRS determined that such transfers of the funds were not qualified rollovers.

Under Sec. 402(a)(1), a distribution from a qualified employees' trust is taxable to the distributee in the year of distribution. Sec. 402(a)(5)(A) provides an exception for...