Chapter 7 - Distributions from Qualified Plans

Question 1

Qualified plan distribution options

Answer 1

Annuity
Lump-sum
Rollover
In-service withdrawals
Repaid loans
Non-repaid loans = distributions

Question 2

In-service distributions

Answer 2

Not allowed before 59 1/2
intended to promote phased retirement

Question 3

Early termination distributions

Answer 3

Permitted to leave in plan
if < $1,000 forced distribution
if $1,000 - $5,000 at plan discretion - increases to $7,000 in 2024

Question 4

Profit sharing plan distributions

Answer 4

In service distributions generally not before 59 1/2 unless hardship
After tax contributions - available immediately
employer contributions after 2 years
Hardship distributions from employee contributions plus earnings
Loans
Lump sum
Rollover
Not required to offer annuity payouts

Question 5

Loans from qualified plans

Answer 5

not exceed lesser of $50,000 or 1/2 vested account balance (balance under $20k limit is less of $10,000 and vested balance)
must be paid back over 5 year level amortization schedule

Question 6

Additional loans from qualified plan

Answer 6

Maximum loan is lesser of
$50,000 reduced by highest outstanding loan balanced over previous 12 months or
1/2 of vested account balance reduced by outstanding loan balance

Question 7

Roth 401k nonqualified distributions

Answer 7

Pro rata mix of tax free contributions and earnings

Question 8

10 year forward averaging

Answer 8

must be born prior to 1/2/1936
Divide lump sum distribution by 10
Calculate tax using 1986 ordinary income rates
Multiply by 10

Question 9

Pre 1974 Cap Gain Treatment

Answer 9

Portion of distribution attributable to pre 1974 participation in plan is subject to 20% LTG and remaining is eligible for 10 year forward averaging

Question 10

Pre 1974 formula

Answer 10

LTG portion = (months of pre 1974 participation/total months participation) x taxable

Question 11

NUA calculation

Answer 11

FMV at distribution - value of stock at date of employer contribution = NUA

Question 12

Loan offset

Answer 12

Assets rolled over to another qualified plan or IRA and loan must be repaid to new plan by due date for federal return

Question 13

QDRO taxation

Answer 13

Lump sum distribution to former spouse 20% withheld and tax paid by receiving spouse
Lump sum distribution for child 20% withheld and tax paid by participant

Question 14

Combined rollover with pre-tax and after tax funds

Answer 14

pre-tax funds allocated to direct rollover and after tax funds allocated to indirect rollover

Question 15

Distribution of life insurance

Answer 15

Cost of term coverage is taxable to participant each year and creates basis
at separation from service the policy must lapse or be distributed and taxed as ordinary income
FMV - adjusted basis = taxable value

Question 16

Qualified birth or adoption distribution

Answer 16

up to $5,000 no penalty

Question 17

Medical expense distibutions

Answer 17

In excess of 7.5% AGI

Question 18

SEPP

Answer 18

Last at least for the longer of 5 years or until 59 1/2
MRD method
Fixed Annuitization method
Fixed Amortization method

Question 19

Age 55 exception

Answer 19

Distribution is made after separation from service after age 55

Question 20

Roth 401k RMD

Answer 20

Are subject to RMD rules

Question 21

403b RMD

Answer 21

can be aggregated

Question 22

401k RMD

Answer 22

can not be aggregated
if still working can delay until april 1 of year after terminate employment unless 5% owner