Chapter 8 Retirement Plans, Pensions, and Annuities

Question 1

Qualified Retirement Plan

Answer 1

Is a generic term that includes such plans as 401(k), 403(b), simplified employee pensions (SEPs), and pension plans. These plans are “qualified” because of the favorable tax advantages they offer.

Question 2

Form 1099-R

Answer 2

File Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts) for each person to whom you have made a designated distribution or are treated as having made a distribution of $10 or more from:

Profit-sharing or retirement plans.
Any individual retirement arrangements (IRAs).
Annuities, pensions, insurance contracts, survivor income benefit plans.
Permanent and total disability payments under life insurance contracts.
Charitable gift annuities, etc.

Question 3

Annuity

Answer 3

An annuity is a financial product that pays out a fixed stream of payments to an individual, and these financial products are primarily used as an income stream for retirees. Annuities are contracts issued and distributed (or sold) by financial institutions, which invest funds from individuals. They help individuals address the risk or outliving their savings. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.

Question 4

Annuity starting date

Answer 4

is either the first day of the first period for which a taxpayer receives an annuity payment under the plan (or annuity contract) or the date on which the obligation under the plan (or annuity contract) becomes fixed, whichever is later.

Question 5

Corrective Distribution

Answer 5

Is made to undo an excess contribution, which can result from contributing more to a plan than is allowed. For instance, an employee makes a contribution to his or her plan based on anticipated earnings of $40,000. However, the employee earns only $35,000. The employee makes a corrective distribution to reduce the excess contribution.

Question 6

Lump-sum distribution

Answer 6

is a distribution in a tax year consisting of a plan participant’s entire balance from all of the employer’s qualified plans of one kind (e.g all profit sharing plans).

Question 7

Qualified Distributions

Answer 7

A qualified distribution from a designated Roth account is excludable from gross income. A qualified distribution is one that occurs at least five years after the year of the employee’s first designated Roth contribution (counting the first year as part of the five) and is made:

On or after attainment of age 59½,
On account of the employee’s disability, or
On or after the employee’s death.

Question 8

Required minimum distributions (RMDs)

Answer 8

are amounts calculated to distribute the entire amount of an employee’s interest in a plan or an account owner’s IRA over his or her lifetime.

Question 9

Rollover

Answer 9

Is a transfer of funds between one retirement plan or IRA to another retirement plan or IRA. The rollover may occur in one of two ways:’

1. Direct transfer pf funds between plan trustees or custodians within 60 days, known as a direct rollover or a trustee-to-trustee transfer or
2. Distribution of the funds from one plan to the taxpayer, following by depositing the funds into the new plan or IRA by the taxpayer within 60 days, known as an indirect rollover.