The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Utah is representative of a common inquiry regarding rollovers to IRAs. The advisor asked:
“Is there a special rollover allowance for airline employees?”
Highlights of Discussion
• Yes, there was in 2012 for anyone considered a “qualified airline employee,” but he or she may have to file amended tax returns by April 15, 2013, to take advantage of this unique tax-savings opportunity.
• A qualified airline employee is defined as a current or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier that either:
— was terminated; or
— became subject to certain relaxed funding requirements under the Pension Protection Act of 2006.
• This provision also applies to surviving spouses of qualified airline employees. However, it does not apply to covered executives of an airline carrier.
• The special rollover provision applies to “airline payments,” defined as money or other property that was payable by a commercial passenger airline carrier to a qualified airline employee where both of the following conditions apply:
— under an order of a federal bankruptcy court in a case filed after Sept. 11, 2001, and before Jan. 1, 2007;
— in respect of the qualified airline employee’s interest in a bankruptcy claim against the carrier, any note of the carrier (or amount paid in lieu of a note being issued) or any other fixed obligation of the carrier to pay a lump sum amount.
• In 2012, as a result of the FAA Modernization and Reform Act, which was signed into law on Feb. 14, 2012, qualified airline employees were allowed to roll over to a traditional IRA up to 90% of all airline payments they had received. The IRS also allowed a qualified airline employee who had previously rolled over any airline payments to a Roth IRA to transfer (or recharacterize) a portion of the rollover contribution (including any allocable income or loss) as a rollover contribution to a traditional IRA, limited to 90% of all airline payments received.
• As a tax perk, qualified airline employees are allowed to exclude from their gross income, for the tax year in which the airline payment was made, any 2012 rollover contribution of an airline payment to a traditional IRA (or recharacterization of an airline payment from a Roth IRA to a traditional IRA).
• Generally, the qualified airline employee was required to complete the rollover contribution (or recharacterization) to the traditional IRA within 180 days from the date he or she received the airline payment, or before Aug. 14, 2012, whichever was later.
• Affected individuals and their tax advisors may refer to their IRS Forms 8935, Airline Payments Report, to determine the amount of airline payments and the year(s) they received them.
• Those who are excluding airline payments from gross income will need to file Form 1040-X, Amended U.S. Individual Income Tax Return, for the tax year(s) they received the airline payments in order to claim the tax exclusion. For some, the deadline to file an amended return for this purpose is April 15, 2013.
• Qualified airline employees who took advantage of this special rollover provision should consult their tax and/or legal advisors to determine whether the April 15, 2013, filing deadline applies to them.
Conclusion
The special rollover rules that apply to qualified airline employees is a topic for discussion with the appropriate tax and/or legal advisors. Financial advisors who can demonstrate their awareness of the provision and the importance of the April 15, 2013, filing deadline for some set themselves apart from the average advisor and are better positioned to support their clients.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.
