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CFP Retirement & Income Planning > Distributions From Qualified Plans & IRAs > Flashcards

Distributions From Qualified Plans & IRAs Flashcards

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1
Q

Distributions from Pension Plan: During Service with Employer

A

No in-service w/d’s under age 59.5

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2
Q

Distributions from Pension Plan: At participant’s death

A

Distributed to Bene

Or

Participant’s estate

Qualified Preretirement Survivor Annuity (QPSA)
- annuity payable to surviving spouse if participant dies before normal retirement age

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3
Q

Distributions from Pension Plan: At participant’s Disability

A

Distributed to participant

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4
Q

Distributions from Pension Plan: Terminate service before normal retire age

A

Lump Sum

Rollover plan to IRA or other qualified plan

Leave assets in plan
- Value must be > $5,000

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5
Q

Distributions from Profit Sharing Plan: In-Service?

A

Can do in-service w/d’s after 2 years of participation in plan

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6
Q

Distributions from Profit Sharing Plan: At termination of service

A

Lump Sum

Rollover to IRA or other qualified plan

Purchase annuity

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7
Q

Taxation of Distributions from Qualified Plans

A

20% income tax withholding

QDRO do NOT have income tax if rolled over to IRA

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8
Q

Rollover to IRA: What do you lose?

A

ERISA Protection

10-year forward averaging

NUA and Pre-1974 capital gain treatment

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9
Q

Loans from Qualified Plan

A

Lesser of:
$50,000 or
1/2 vested account balance

Exception: if vested balance is <$20k, the max loan is lesser of:
$10,000 or vested balance

Both scenarios are Reduced by highest outstanding loan balance w/in previous 12 month period

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10
Q

SECURE Act 2.0 Loan Provision

A

Allowed by anyone in qualified Disaster Area

Loan limit is Lesser of:

$100,000

Or

1/2 vested account balance

Reduced by highest outstanding loan balance in previous 12 month period

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11
Q

Plan Loan Repayment

A

Five Years
(up to 30 yrs if used to buy principal residence)

Substantially level amortization require over term

Payments must be at least quarterly

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12
Q

Failure to Repay Plan Loan

A

Considers value of loan as taxable distribution, and 10% early penalty if under 59.5

Termination from ER causes entire loan to become due

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13
Q

10% Early W/D Exceptions

A

Death, Disability

Substantially equal periodic payments (section 72t)

Medical payments excess 7.5% AGI

Federal Tax Levy

$5,000 per taxpayer for birth/adoption

Terminal illness

Up to aggregate amount of $22,000 in qualified disaster

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14
Q

10% early w/d exceptions: Qualified Plans only

A

Separation from service at age 55 or after

Separation at age 50 or with 25 years of service for safety officers, firemen, correction officers

QDRO

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15
Q

10% early w/d exceptions: IRA only

A

Higher education costs

Health insurance for unemployed

First time home purchase up to $10,000

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16
Q

Substantially Equal Periodic Payments Requirements (Prior to 59.5)

A

Made at least Annually

For life expectancy of participant or joint lives of him and designated bene

After separation of service

Must run for greater of 5 years or # years until reach age 59.5

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17
Q

Substantially Equal Periodic Payments: 3 Methods of Calculation

A

RMD Method (smallest payment amount)

Fixed Amortization:
- payments calculated over single or joint life expectancy w/ reasonable interest rate

Fixed Annuitization:
- Calculated using annuity factor (w/ reasonable interest rate & mortality table)

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18
Q

RMD Rules if still employed by Employer

A

Participant that’s still employed by plan sponsor can delay 1st RMD until April 1st of year after terminating employment (a >5% owner can’t do it)

Does NOT apply to SEP’s or SIMPLE IRAs

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19
Q

Distributions are based on Bene Type: Eligible Designated Bene

A

Eligible to STRETCH distributions over life expectancy of bene, starting in year following year of death

Surviving Spouse (can roll into their own IRA)

Child of IRA owner who’s not age of majority (21)

Disabled or chronically ill person

Any other person who’s not more than 10 years younger than the EE or IRA owner

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20
Q

Distributions based on Bene type: Designated Bene

A

Any person that’s not an Eligible Designated Bene

Can NOT stretch

Balance must be paid out within 10 years

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21
Q

Distributions based on Bene type: Non-Designated Benes Types

A

Estate, Charity, Trusts

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22
Q

Distributions based on Bene type: Non-Designated Benes if Died AFTER RMD

A

Use owner’s age as of birthday in year of death

Reduce beginning life expectancy by 1 for each subsequent year

Can take owner’s RMD for year of death

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23
Q

Distributions based on Bene type: Non-Designated Benes if Died BEFORE RMD

A

Take entire balance by end of 5th year following year of death

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24
Q

IRA Excess Contribution

A

Subject to 6% excise tax for each year the excess remains in account

Avoid it by withdrawing excess contribution and its earnings before April 15th of following tax year, plus extensions

SECURE 2.0 waives 10% early w/d penalty for corrective distributions made within correction window

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25
Traditional IRA: Active Participant Status for Deductions
Limits deductibility of IRA contributions for AGI (above line)
26
Traditional IRA Deductibility: What defines an Active Participant?
DB Plan: Participates or meets eligibility of plan DC Plan: Receives a contribution to the plan on his behalf for the year (including forfeitures) or Defers comp to a CODA plan
27
Traditional IRA Deduction AGI Phaseout
If active participant: Single = $73k - $83k MFJ = $116k - $136k If one is active but spouse is NOT: Not active = $218k - $228k Active Spouse= $116 - $136k
28
Traditional IRA Deduction Ex: Age 38, active participant, AGI is $80k and makes max contribution to IRA. What's his deduction amount?
Reduction amount: 6,500 x (80k - 73k /10k) - The $10k is the difference of total range of phaseout - Use the lower end of phaseout range, being $73k = $4,550 reduction amount Deduction amount = $6,500 - $4,550 = $1,950
29
Recharacterized Contributions IRAs
Change contributions for the year from one type to another (Roth to Traditional & vice versa) Must be done by due date of return (including extensions) Can NO longer Recharacterize a Roth conversion after TCJA 2017
30
Non-Qualified withdrawal Roth IRA: Taxation? 10% Penalty?
Contributions: Not taxed, no 10% penalty Conversions: Not taxed, 10% penalty if w/in 5 years of conversion Earnings: Yes Taxed, Yes 10% penalty if no exception applies
31
What Investments are allowed in an IRA?
Cash Stocks/bonds Options U.S. Gold, Silver, Platinum coins. (U.S. Only)
32
What investments are NOT allowed in an IRA?
Life Insurance Collectibles Other coins (Maple Leaf, Pandas, Non-U.S. coins)
33
SEP Characteristics
Small Biz Retirement plan NOT a Qualified Plan Can be established as late as the extended due date of the income tax return Established utilizing Traditional IRA accounts
34
SEP Eligibility Requirements
ER must provide benefits to all EE's who meet: 21 or older and Performed services for 3 of last 5 years and Received comp of at least $750 during the year
35
SEP Contributions: Who funds them?
Employer funded only
36
SEP Contributions: Are they Discretionary?
Contributions are Discretionary Must be made to all EE's eligible during the year, even if dead or no longer employed at time of contribution Can utilize pro-rata, flat dollar, and SS integration SECURE act 2.0 allows for Roth contributions (made pre tax & essentially converted to Roth) and amount is taxable to EE
37
SEP Contribution Limits?
Lesser of: 25% of EE's comp or $66,000 (2023)
38
Self-Employed Non-contributory Contributions: Self-Employed Contribution Rate Formula?
(Contribution rate to other participants / 1 + contribution rate to other participants) = Self-Employed contribution rate
39
SEP Vesting Rules
EE's are 100% Vested at all times, including the employer contributions
40
SIMPLEs Characteristics
Retirement plan for small employers Can be SIMPLE IRA or SIMPLE 401k Easy to establish and maintain Similar tax advantages to qualified plans EE elective deferral contributions SECURE act 2.0 allows for Roth contributions for ER and EE (made pre tax & essentially converted to Roth) and amount is taxable to EE
41
SIMPLEs Establishment Rules
Only by small ERs Small ER is 100 or less EE's who each earned at least $5,000 comp in preceding calendar year Must be Calendar year plan Provide EE's w/ 60-day period to elect deferral ER can NOT also maintain a Qualified Plan
42
SIMPLEs EE Eligibility Rules
EE earned at least $5,000 in any 2 preceding years from the employer and is expected to earn $5,000 in current year
43
SIMPLEs Vesting
EE's are 100% vested in their contributions to either a SIMPLE IRA or SIMPLE 401k and 100% vested of ER contributions if it's a SIMPLE IRA
44
SIMPLEs Contribution Limits for EE's?
$15,500 + $3,500 catch-up
45
SIMPLE Contribution Limits for Employers?
Matching contributions up to 3% of comp or 2% Non-elective ER contributions (2% of comp to each eligible EE)
46
SIMPLE Contributions: Are Employee deferral contributions subject to Payroll Taxes?
YES
47
SIMPLE IRA Early withdrawal Penalty and Rules
25% rather than 10% Applied if withdrawal happens within first 2 years of EE's participation in the plan
48
SIMPLE 401k: Can you take Loans?
YES, loans are allowed
49
SIMPLE 401k characteristics
Similar to SIMPLE IRAs Very few established Covered Comp rules apply
50
403b or Tax Sheltered Annuities (TSAs)
Retirement Plan for: Public schools Education organizations Tax-Exempt organizations under IRC Section 501(c)(3)
51
403b: When does ERISA apply?
If the 501(c)(3) organization has an EE benefit pension plan Exception: Does NOT apply if the ER involvement is minimal - Such as ER only provides salary reduction agreement
52
What type of 403b plans does ERISA NOT apply?
Government 403(b)s Church Related 403(b)s
53
403b: What tests must the plan meet when ERISA applies?
Nondiscrimination test Matching contributions must satisfy ACP test
54
403b: What Distribution options must the plan follow when ERISA applies?
Preretirement Joint and Survivor Annuity Qualified Joint and Survivor (QJSA)
55
403b Eligibility
May require EE's to be: age 21 AND have 1 year of service
56
403b: 15-Year Catch-Up Contributions
Allows up to a lifetime max of $15,000 of additional deferral (max $3,000 additional per year)
57
403b: 15-Year Catch-Up Contributions Eligibility
Participant must have completed 15 years of service with employer AND Have Unused Deferral
58
403b: 15-Year Catch-Up Contributions: Which Organizations does it apply to?
Only applies to HER organizations Health Education Religious
59
What could the Max Deferral contribution be for a 403b in 2023?
$22,500 + $7,500 catch up + $3,000 15-year catch up = Possibly $33,000
60
403b: What can they invest in? What can they NOT invest in?
Insurance Annuity contract Mutual Funds Can NOT hold individual Stocks or ETFs, REITs
61
457 Plan: Is it Qualified or Non-qualified?
Non-Qualified Deferred Comp Plan
62
Public 457(b) Plans: Who's the Employer/Sponsor?
Government
63
Public 457(b) Plans: How/Are the assets protected?
Protected by a Trust
64
Public 457(b) Plans: Contribution Limit?
$22,500
65
Public 457(b) Plans: Who can Participate?
All Employees
66
Public 457(b) Plans: Is a Catch-Up Available for 50 and older?
YES
67
Public 457(b) Plans: What other plans can you Rollover to?
401k 403b 457b IRAs
68
Private 457(b) Plans: Who is the Employer/Sponsor?
Tax-Exempt 501(c) organizations
69
Private 457(b) Plans: How/Are the assets protected in the plan?
NOT Protected
70
Private 457(b) Plans: Contribution Limits?
$22,500
71
Private 457(b) Plans: Who can Participate?
Tax-Exempt Organization: - Key Management - Highly Compensated (HC) Churches: - All Employees
72
Private 457(b) Plans: Catch-Up Available for 50 and older?
NO
73
Private 457(b) Plans: What other plans can you Rollover to?
Only to other Private 457b Plans
74
457 Plan: Special Catch Up, When does it apply?
3 years prior to Normal Retirement Age Can defer an additional $22,500 to the 457(b) plan - limited to prior unused deferral amounts
75
457 Plan: Special Catch Up, Are Public & Private Eligible?
Both Public and Private are eligible
76
457 Plan: Special Catch Up, Max possible contribution for 2023?
$22,500 normal deferral + $22,500 special catch-up =$45,000 (Can NOT include age 50 and over catch-up when determining 3-year catch-up)
77
457(f) Plans: Who Sponsors/What Employer type?
Governmental & Tax-Exempt 501c
78
457(f) Plans: Are assets protected?
Not protected by Trust
79
457(f) Plans: Contribution Limits?
No Limit
80
457(f) Plans: Who Participates?
Key Management and HC
81
457(f) Plans: Catch-Up?
NO catch-up
82
457(f) Plans: Rollovers Allowed?
NO
83

CFP Retirement & Income Planning (4 decks)

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