What is NUA?
Net Unrealized Appreciation Must be a lump sum distribution
How is NUA taxed?
NUA is taxed as LTCG Basis is taxed as ordinary income Basis is value of stock at contribution Any additional gain past distribution is taxed as LTCG or STCG
What is the NUA at death?
Basis would be the FMV at Death minus the NUA
What is the required beginning Date?
Trigger year when a client turns 72 In the first year, year have until Apr 1 of the following year
What is the penalty when you don’t take the RMD?
50% excise tax on the difference between the RMD and what you took out
What are the three RMD Tables?
Table 1: Single Life Expectancy (when account holder dies) Table 2: Joint Life and Last Survivor Expectancy (spouse is more than 10 years younger) Table 3: Uniform Lifetime (most common)
What are exceptions to penalty for a traditional IRA?
Death Disability Divorce Insurance Reservist Substantially equal periodic payments Medical expenses above 10% Education Annuitized
What is the Separation from service rule?
After age 55 you can take money out of a qualified plan without a penalty if you leave a job
What are the rules around retirement plan loans?
You can take a loan only on what you invested into the plan Less than
- $10k- you can take entire balance
- $10k-$20k - can take $10k
- $20k-$100k - half of vested balance
- $100k+ – can take a max of $50k
- Loan must be repaid within 5 years (unless for a home)
- If a prior loan was taken, you reduce the max that you can take out by the highest balance of the prior loan over the last year
What is an eligible designated beneficiary?
6.4
- Spouse EDB
- Not younger than deceased by 10 years
- Disabled
- Chronically ill
- Minor child (until they aren’t a minor anymore)
What are the three types of beneficiary?
6.4
- Eligible Designated Beneficiary (EDB)
- Designated Beneficiary (“non-eligible designated beneficiary”)
- Beneficiear
What can a spouse EDB do with an inherited acount?
6.4
- Only a spouse EDB can move the money into their own account and act like the decedent never existed
- Only a spouse EDB can delay any RMD until the decedent would have been 72
- Only a spouse EDB can recalculate their life expectancy every year
What can a designated beneficiary do with an inherited acount?
Must distribute the plan within 10 years.
How do you determine the beneficiary category?
Two step process
- On the date of death a list of eligible EDBs is deteremined
- On sept 30 of the following year, the EDB is designated
What happens to a EDP of a plan if their spouse dies before the RBD?
6.4
- Distributions over spouses remaining single life expectancy begginging the year the decenden would have attained age 72
- Rollover and tereat as own
- Elect 5 year rule
What are automatic survivor benefits?
- QPSA and QJSA
- Primarily for defined contribution and benefit plans
- Don’t apply to IRAs
What are the QPSA rules?
6.4
WHat is a QDRO?
When you get divorced and a plan must be split. Benefits are assigned to the spouse or a child.
- Not subject to 10% premature distribution penalty
- May rollover into own IRA
What type of plans DON’T allow loans?
No type of IRA funded plan
SEP, SIMPLE IRAs
Which accounts require a 20% mandatory withholding on distributions?
Section 403(b), 401(k), 457
IRAs, SEP IRA, or SIMPLE IRA do not require the 20% withholding
How is the RMD amount calculated?
Always based on the balance at the end of the previous year. Even if the first year distribution is delayed to April 1.
Do distributions from a qualified retirement plan for education expenses have a 10% penalty?
Yes!
Only when pulling from an IRA is the penalty waived for higher eduction costs.
A stretch IRA…
- is the informal name for intentionally leaving money in an IRA over an extended time after the death of the original account owner.
- extends or stretches the period of tax-deferred earnings within an IRA beyond the lifetime of the original owner.
- allows the IRA owner’s beneficiary to name his own beneficiary upon the owner’s death.
