Chapter 6: Distributions

Question 1

What is NUA?

Answer 1

Net Unrealized Appreciation Must be a lump sum distribution

Question 2

How is NUA taxed?

Answer 2

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

Question 3

What is the NUA at death?

Answer 3

Basis would be the FMV at Death minus the NUA

Question 4

What is the required beginning Date?

Answer 4

Trigger year when a client turns 72 In the first year, year have until Apr 1 of the following year

Question 5

What is the penalty when you don’t take the RMD?

Answer 5

50% excise tax on the difference between the RMD and what you took out

Question 6

What are the three RMD Tables?

Answer 6

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)

Question 7

What are exceptions to penalty for a traditional IRA?

Answer 7

Death Disability Divorce Insurance Reservist Substantially equal periodic payments Medical expenses above 10% Education Annuitized

Question 8

What is the Separation from service rule?

Answer 8

After age 55 you can take money out of a qualified plan without a penalty if you leave a job

Question 9

What are the rules around retirement plan loans?

Answer 9

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

Question 10

What is an eligible designated beneficiary?

6.4

Answer 10

1. Spouse EDB
2. Not younger than deceased by 10 years
3. Disabled
4. Chronically ill
5. Minor child (until they aren’t a minor anymore)

Question 11

What are the three types of beneficiary?

6.4

Answer 11

1. Eligible Designated Beneficiary (EDB)
2. Designated Beneficiary (“non-eligible designated beneficiary”)
3. Beneficiear

Question 12

What can a spouse EDB do with an inherited acount?

6.4

Answer 12

• 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

Question 13

What can a designated beneficiary do with an inherited acount?

Answer 13

Must distribute the plan within 10 years.

Question 14

How do you determine the beneficiary category?

Answer 14

Two step process

1. On the date of death a list of eligible EDBs is deteremined
2. On sept 30 of the following year, the EDB is designated

Question 15

What happens to a EDP of a plan if their spouse dies before the RBD?

6.4

Answer 15

1. Distributions over spouses remaining single life expectancy begginging the year the decenden would have attained age 72
2. Rollover and tereat as own
3. Elect 5 year rule

Question 16

What are automatic survivor benefits?

Answer 16

• QPSA and QJSA
• Primarily for defined contribution and benefit plans
• Don’t apply to IRAs

Question 17

What are the QPSA rules?

6.4

Question 18

WHat is a QDRO?

Answer 18

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

Question 19

What type of plans DON’T allow loans?

Answer 19

No type of IRA funded plan

SEP, SIMPLE IRAs

Question 20

Which accounts require a 20% mandatory withholding on distributions?

Answer 20

Section 403(b), 401(k), 457

IRAs, SEP IRA, or SIMPLE IRA do not require the 20% withholding

Question 22

How is the RMD amount calculated?

Answer 22

Always based on the balance at the end of the previous year. Even if the first year distribution is delayed to April 1.

Question 23

Do distributions from a qualified retirement plan for education expenses have a 10% penalty?

Answer 23

Yes!

Only when pulling from an IRA is the penalty waived for higher eduction costs.

Question 24

A stretch IRA…

Answer 24

• 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.