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Retirement Planning > Plan Distributions > Flashcards

Plan Distributions Flashcards

1
Q

How are qualified plan distributions normally taxed?

A

Ordinary income

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2
Q

What is a lump-sum distribution?

A

A distribution from a qualified plan (usually DC plan) of a participant’s entire interest that occurs within one year.

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3
Q

What are the 3 conditions to be met for a distribution to meet favorable tax treatment?

A
  1. The distribution must represent the entire amount of the EEs benefit
  2. An election must be made by the participant within one year of of the distribution
  3. The distribution has to be for DAD and separation.
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4
Q

What is the special tax treatment obtained for lump-sum distributions?

A

NUA, 10-year forward averaging, capital gains treatment on pre-1974 contributions

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5
Q

What are hardship withdrawals?

A

My disastrously faulty emergency fund

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6
Q

What plans usually offer some form of in-service withdrawals?

A

Pension plans (Be my cash target)

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7
Q

What is a pension annuity?

A

A set periodic payment of a pension, of which a portion or even all may be taxable depending on the EE contributions.

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8
Q

What are the plans that are required to provide QPSAs and QSJAs?

A

Be My Cash Target.

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9
Q

What is important about a direct transfer for qualified plans and a SIMPLE 401(k)?

A

Prevents the 20% mandatory withholding rule

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10
Q

What can a qualified plan rollover to?

A

Another qualified plan, 403(b), 457, or IRA

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11
Q

What can a 403(b) rollover to?

A

A qualified plan, 403(b), 457, or IRA

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12
Q

What can a 457 rollover to?

A

A qualified plan, 403(b), 457, or IRA

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13
Q

What can a QDRO rollover to?

A

A qualified plan, 403(b), 457, or IRA

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14
Q

What can a SIMPLE IRA (after 2 years) rollover to?

A

A qualified plan, 403(b), 457, or IRA

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15
Q

What can a SIMPLE IRA (before 2 years) rollover to?

A

Another SIMPLE IRA

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16
Q

What can a 457 plan (nongovernmental) rollover to?

A

457

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17
Q

What can after-tax contributions to a qualified plan or 403(b) rollover to?

A

An IRA, 403(b), or a direct transfer to a DC or DB plan

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18
Q

What can after-tax contributions IRA rollover to?

A

An IRA

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19
Q

If an ESOP, stock bonus plan, 401(k) distributes stock to the EE brokerage account, the former EE pays ordinary income tax and receives the NUA amount, but then subsequently dies before selling the stock, how is the basis calculated for the beneficiary?

A

FMV - NUA amount = new basis.

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20
Q

What is the Required Beginning Date (RBD)?

A

April 1st of the year following the 72nd birthday - also known as the trigger year.

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21
Q

After the trigger year, when must RMDs be distributed by?

A

Dec 31st

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22
Q

For EEs with a 403(b), qualified plan or governmental 457, what is the special RMD rule if the EE works beyond 72?

A

They can defer until April 1st of the year after they actually retire.

23
Q

What is the exception to the “working beyond 72” rule?

A

If the participant is greater than 5% owner or family member of the business sponsoring the plan

24
Q

How is the 50% excise tax on underpayment of RMDs applied?

A

50% fine of the amount left to pay to meet the RMD that will be applied to the next 1040.

25
Q

What is table III?

A

The IRS table which determines the applicable divisor for minimum distributions

26
Q

What is the exception to using the table III?

A

If the beneficiary of the participant is a spouse that is more than 10 years younger.

27
Q

What are the three tables used for RMDs?

A

3, 2, 1 takeoff!
Table 3: Uniform lifetime (for the owner)
Table 2: joint & last survivor (10-yr+ younger spouse)
Table 1: single life exp (use by beneficiaries)

28
Q

What is the RMD that must be taken in the trigger year?

A

$0 because the participant has until April 1st of the following year to take the RMD.

29
Q

What are the exceptions to the EWP from qualified or 403(b) plans?

A

Death
Age 59 1/2
Disability
Medical above 7.5%
Separation of service after age 55
QDRO

30
Q

What retirement accounts can offer loans?

A

qualified plans only - no IRA-funded plans

31
Q

What are the rules for retirement plan loans?

A

Must be paid back, w / interest, in 5 years.
Must be paid back in equal installments, quarterly
If EE terminates employment, the loan must be paid back immediately or considered distributed

32
Q

What are the loan dollar limits?

A

0-10,000 = vested amount
10,001 - 20,000 = 10,000
20,001 - 100,000 = 50% of vested amount
100,000+ = $50,000 cap

33
Q

What is the loan reduction rule?

A

The maximum amount a participant can borrow is reduced by the highest plan loan balance held in the last 12 months preceding the requested loan.

34
Q

What is a qualified plan loan offset (QPLO)?

A

The IRA or new ER plan where default loan repayment money is placed after the EE terminates or the ER plan terminates while with an an outstanding loan

35
Q

What are the 5 types of individuals who qualify as eligible designated beneficiaries (EDB)? (Mrs TD MCDonald)

A

The surviving spouse (Mrs)
People not more than 10 years younger than the deceased (T-ten years)
A disabled person (D-disabled)
A minor child (M-minor)
A chronically ill person (C-chronically)

36
Q

What can a designated beneficiary (or more simply, a non-eligible designated beneficiary), do with an inherited retirement account before RBD?

A

10-year stretch rule

37
Q

What can a beneficiary do with an inherited retirement account before RMB?

A

5-year stretch rule. This is usually an estate, trust or charity.

38
Q

What is the date used to determine a beneficiary of a retirement plan?

A

Sept 30 in the year following the death of the plan owner.

39
Q

What can the participant spouse do with an inherited retirement account when the owner dies before RMB?

A

Receive the account as an inherited IRA. She can take distributions immediately without being subject to the 10% EWP or take RMDs when her husband would have been 72 using table 1, based on her age, not her husband.

She can also move it completely into her own ER plan or IRA and just use her age, but then could be subject to the EWP.

Elect the 5-year rule if plan allows lump-distribution

40
Q

What can the participant spouse do with an inherited retirement account when the owner dies on or after RMB?

A

Roll the money over into her own name and defer distributions until she turns 72

Can also move the money into an inherited IRA and either base RMDs on her own life using table I or use the deceased owner’s age.

41
Q

For a nonspouse EDB, what are the options when the account owner dies prior to RBD?

A

The distribution period is the life expectancy of the EDB. RMDs start the year after the death of the owner.

Can also elect lump-sum payment or installments (5-year rule) if the plan allows.

42
Q

For a nonspouse EDB, what are the options when the account owner dies on or after the RBD?

A

It depends on the age of the EDB. Distributions must occur at least as fast as they would have if it were still the owner. If the EDB is older, use the owner’s age. If younger, use the EDB age.

43
Q

What is the one move all beneficiaries can do with a death benefit retirement account before or after RBD?

A

Roll it, via direct transfer, into an inherited IRA. No other funds can be added.

44
Q

What are the three types of beneficiaries?

A

-Eligible designated beneficiaries
-Designated beneficiaries
-Beneficiaries (charity, estate, trust)

45
Q

What can a designated beneficiary (or more simply, a non-eligible designated beneficiary), do with an inherited retirement account on or after RBD?

A

10-year rule or possibly remaining distribution of dependent, reduced by one each year.

46
Q

What can a beneficiary do with an inherited retirement account on or after RMB?

A

Remaining distribution period of decedent, reduced by one each year.

47
Q

What is a qualified joint survivor annuity (QJSA)?

A

It is an annuity for the life of the participant, with a survivor annuity for the life of her spouse, that is not less than 50% or more than 100% of the participants annuity

48
Q

What is a qualified preretirement survivor annuity (QPSA)?

A

A survivor spouse annuity in the case that the participant dies before retirement, that starts the month after the participant would have started collecting retirement in the plan.

49
Q

To get NUA tax treatment, what must the participant do?

A

Elect to take NUA and a lump-sum distribution.

50
Q

How long does a spouse have to wait before a QPSA or QJSA applies to them?

A

At least 1 year, but usually up to 10 years

51
Q

What is the tax and penalty ramifications for a QDRO/DRO for the ordered spouse and the receiving spouse?

A

Ordered spouse - nothing, because it is court ordered.

Receiving spouse - income tax on qualified accounts, 10% on the non-qualified accounts

52
Q

When it comes to hardship withdrawals, what is the money that can be withdrawn?

A

Only EE contributions - no ER contributions.

53
Q

What type of retirement plan does the 20% withholding rule not apply to?

A

Rollovers out of IRAs

Retirement Planning (8 decks)

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