Distribution Rules

Question 1

Exception Early Withdrawal Penalty Qualified Plan and TSA

Answer 1

Death
Disability
SEPP after separation of service
Rule 55
QDRO
Medical in excess 10% AGI
Health insurance cost while unemployed (MUST file for unemployment)

Question 2

SEPP 72T

Answer 2

at least annual payments.
can't change amount longer of 5 years or 59 1/2
based on life expectancy of recipient
reasonable rate of interest 
reasonable mortality assumptions 

Can’t change at all
if do 10% on all payments

Can one time switch from annual calc to amortized (reduce payments)

Question 3

Qualified Optional Survivor Annuity

Answer 3

Required in Pension Plans along with a QJSA

If plans QJSA is less than 75% then the QOSA must be 75%

Can opt out with spousal consent must be 90 days prior to start date (PPA extends to 180 days)

Question 4

Qualified Pre-Retirement Survivor Annuity

Answer 4

an annuity for the life of the surviving spouse

payments are to begin no later than the month in which the participant would have reached the earliest retirement age

the actuarial equivalent of not less than half of the vested account balance on the date of death

Question 5

Rollover

Answer 5

distribution from a Qualified Plan or IRA 457 403b

-taxpayer subsequently contributes to another qualified plan or IRA within 60 days of receipt of the distribution
free of taxation if in 60 days

• QDRO may be rolled over
• surviving bene
• SIMPLE (after 2 years participation) to QP ok
• 457 to 457 only
• RMDs and hardship withdrawals can’t be rolled over
• No rollover for substantially equal periodic payment

you can rollover a portion of a plan
if allowed, can rollover part to a Roth and then treat as a conversion (amounts don’t count towards contribution limits

Question 6

Direct transfer

Answer 6

trustee to trustee only (not to participant)
no withholding
unlimited numbers can be made

Question 7

Required Minimum Distributions

Answer 7

• April 1 of the year following the year in which the participant (or owner of the IRA) attained age 70 1/2
• if you are still working when you are 70 1/2, you can defer the date unit April 1 following the year of actual retirement (if you are in a qualified plan, 403b, or 457….NOT for IRAs)
• that exception is not available if you are a >5% owner of the business

Question 8

RMD calculation

Answer 8

• divide the participant’s account balance as of the close of business on Dec 31 of the preceding year by an applicable divisor or distribution period
• divisor is determined by referencing the participant’s age, as of Dec 31 of the distribution year, in an IRS Table = The Uniform Lifetime Table
• If both 70 and 701/2 occur in the same year use 70 in table
• If 701/2 occurs with 71 use 71

Exception: participant’s spouse who is more than 10 years younger than the participant
actual joint life expediencies of the respective spouses may be used

50% Excise tax if failed to take!

Question 9

Charitable IRA Rollover

Answer 9

Can exclude $100,000 from gross income
Goes toward RMD

NO TAX DEDUCTION

Question 10

Stretch IRA

Answer 10

Traditional IRA that extends the tax deferral of earnings within the IRA beyond the lifetime of the person who originally established it

Question 11

Spousal Beneficiary- death before the RMDs

Answer 11

• can receive distributions over the surviving spouse’s life - start them when the decedent would have attained age 70 1/2
• can roll the balance into their own IRA and defer distributions until they reach age 70 1/2 - ONLY ALLOWED IF- the spouse is the sole beneficiary
• can elect the five year rule

Question 12

Spousal Beneficiary - death after the RMDs

Answer 12

• spouse can elect distributions on their own remaining life expectancy with distributions starting the year after death
• can roll over the plan balance into own IRA and defer distributions until they reach age 70 1/2

Question 13

Nonspouse Beneficiaries - death before RMDs

Answer 13

• the distribution period is the remaining life expectancy of the designated beneficiary!!!
• age of the beneficiary in the year following the year of the decedent’s death
• can also elect to distribute the entire account balance as a single lump sum
• installments 5 years

Question 14

Nonspouse Beneficiaries - death after RMDs

Answer 14

• must be distributed at least as rapidly as the longer of remaining life expectancy of the designated beneficiary or the owner’s life expectancy that would have been applicable for RMDs
• use beneficiary’s age in the year following the year of the death
• may still elect a single lump-sum distributions
• can rollover the money into an inherited IRA

Question 15

No Beneficiary

Answer 15

• RMD still calculated

- Dies before 70 1/2 - 5 year rule applies

Question 16

Trust as Beneficiary

Answer 16

• the trust must be irrevocable or become so on the participant’s death
• the beneficiaries from the trust must be identifiable from the trust instrument
• appropriate documentation must be provided to the plan administrator at or before a participant’s death

Question 17

Separate accounts as beneficiaries

Answer 17

• applicable distribution period is determined for each accounts
• each bene can use his own life expectancy if the account is established no later than —Dec 31 of the year following the participant’s death
• if a trust is the bene, the separate account treatment is not available and it has to be the age of the oldest beneficiary
• If multiple benes and separate accounts have not been established as of 9/30 RMD will be calculated off oldest child

-Charity is only bene…deemed to have no bene….distributions must be by 12/31 in 5th year following death.

Question 18

Pension Protection Act

Answer 18

PPA

requires that employer contributions made after Dec 31 2006 must vest as rapidly as a 3 year cliff vesting schedule or a 2-6 year graded vesting schedule
employee contributions must always be vested
at retirement age you are 100% vested

• if a qualified plan is terminated, the employee is 100% vested
• reduced premium to use PBGC if there are 25 or fewer employees
• not required to use PBGC for professional service employers (MD, attorney) with 25 or fewer employees

Key employees
- an officer of the employer having annual compensation

Question 19

QDRO

Answer 19

decree, order, or property settlement under state law relating to child support, alimony, or marital property

rights that assigns all or part of a participant’s plan benefits to an alternate payee

distributions are still subject to income tax but not a 10% early distribution penalty

a spouse can roll over the QDRO into her own IRA
applies to qualified plans and IRAs

Question 20

NUA

Answer 20

NUA = excess of the FMV of employer securities distributioned over the cost basis of the securities to the trust

NUA example: Bob gets a lump-sum distribution of 10,000 shares of XYZ stock valued at $1million. The value of the shares contributed over the years was $250,000. Six months later he sells the stock for 1,300,000

The basis = $250,000 - taxed as ordinary income at the time of the distribution
The NUA - $750,000 ($1 million - $250,000) The NUA is taxed as LTCG when the stock is sold
The extra $300,000 that was gained from the distribution to the time of selling of the stock is STCG (would have been LTCG if > 1 yr)

if the participant dies after the distribution, the NUA DOES NOT get a step up
it is treated as income
any additional appreciation of the stock, once removed from the plan, is eligible for a step up at the employees death to the FMV on the date of the participants death