Distribution Of Qualified Plans

Question 1

Pension Plan in-service distributions

Answer 1

allowed after age 59 1/2

Question 2

Profit sharing plan in-service distributions

Answer 2

in-service withdraws allowed after 2 years

Question 3

In a pension plan If termination occurs before the normal retirement age, a participant can opt to

Answer 3

take a lump sum

Question 4

3 options for handling lump sums in pension plans

Answer 4

1. rollover into IRA
2. leave assets where they are if greaterthan 5k
3. EE can purchase a QPSA (qualified pre-retirement spousal annuity)

Question 5

What does a QPSA - Qualified Pre Retirement Spousal Annuity do?

Answer 5

provide annuity retirement benefit to surviving spouse if the participant dies before NRA

Question 6

In a pension plan, if termination occurs at Normal Retirement Age, the Participant has 3 options

Answer 6

1. take a lump sum roll into IRA
2. waive QPSA, and convert the pension plan to a single life annuity
3. choose a QJSA - Qualified joint survive annuity

Question 7

What does a QJSA do

Answer 7

pays an annuity to a spouse as long as one is still surviving

Question 8

profit sharing 401k plans allow

Answer 8

loans

Question 9

In a profit-sharing plan, when terminated an EE has 4 options

Answer 9

1. lump-sum distribution
2. roll over funds to an IRA
3. purchase an annuity
4. take incremental distributions

Question 10

Taxing on Distributions

Answer 10

taxed as ordinary income (income tax)
exempt from payroll tax

Question 11

Taxes on distributions are exempt when

Answer 11

1. rolled into IRA
2. put into an annuity
3. is a specific lump sum dist
4. is a QDRO-qualified domestic relations order

Question 12

Advantages of rolling over into IRA

Answer 12

dist from one qualified plan to another has no 20% withholding for taxes

Question 13

Disadvantages of rolling over into an IRA

Answer 13

loss of erisa protection
loss of net unrealized appreciation

Question 14

direct rollover into IRA is

Answer 14

distribution from one qualified plan to an IRA - no 20% withholding

Question 15

indirect rollover into IRA is

Answer 15

distribution from a qualified plan made to a participant to deposit within 60 days - 20% withholding is mandatory

Question 16

Types of distributions

Answer 16

1. net unrealized appreciation
2. in plan Roth rollover
3. traditional IRA converted to Roth IRA (back door Roth)
4. distribution as an annuity
5. QDRO

Question 17

How many rollovers are permitted a year?

Answer 17

one

Question 18

Net Unrealized Appreciation Distribution

Answer 18

• if a 20k stock grows to 100k at retirement, the unrealized gain of 80k is taxed as long term cap while the 20k is taxed as income.
• benefit - avoid income tax on gains (long term cap tax is less)

Question 19

In plan Roth Rollover Distribution

Answer 19

• allows participant to transfer funds from qualified plan to a roth acct
• benefit - pay tax once, acct grows without tax, can distribute without tax
• best used when taking a gap yr or expecting reduction in income

Question 20

Trad IRA convert t o ROTH (Back Door Roth) Distribution

Answer 20

• used for indiv. with higher income, if they foresee tax brackets changing for the worst.
• useful to those who have income that’s too high to qualify for a Roth
• executed by depositing $ that you already paid tax on into a traditional IRA and then transferring that to a Roth IRA

Question 21

Annuity Distribution

Answer 21

removes the risk of running out of funds when reaching retirement.
- is a regular annual or monthly distribution that is intended to last until retirement

Question 22

QDRO Distribution

Answer 22

• applies only to contributions made after marriage
• a judge ordered the separation of assets between spouses if the marriage ends
• distributions are penalty and tax-free if deposited into IRA or qualified plan

Question 23

Plan Loans are when

Answer 23

a participant borrows from their plan and pays themself back after tac with interest (typically only allowed in 401k)

Question 24

The maximum loan amount is the lesser of

Answer 24

50,000 or 1/2 the vested plan balance

Question 25

If a plan has less than 20,000, then the maximum loan amount is the lesser of

Answer 25

10,000 or the vested account balance

Question 26

While a loan is outstanding

Answer 26

it is not invested in the market

Question 27

loan period length

Answer 27

5 yrs
Or 30 yrs (if invested in purchase of house)

Question 28

What is the penalty for taking a loan?

Answer 28

10% early withdraw fee

Question 29

Penalties for taking a loan can be waived IF

Answer 29

1. participant is > 591/2
2. participant dies/disabled
3. participant seperates from service after age 55
4. QDRO
5. loan is a div from ESOP
6. participant called to active duty
7. loan used for medical expenses > 7.5 % of AGI
8. participant is a public safety EE > age 50
9. loan used for birth/adoption

Question 30

72t Loan

Answer 30

• waived penalty for taking loan but income taxes are paid on the distributions.
• this plan offers equal payments periodically, once the distributions start they never stop.

Question 31

Birth and Adoption Loan

Answer 31

permits distributions of 5k per child per taxpayer
subsidizes cost of maternal/paternal care, distributions can be made up to 1 yr after birth or adoption

Question 32

Participants in a qualified plan are required to take minimum distributions by

Answer 32

april 1 of the year they turn 70 1/2
(ensures participants pay taxes)

Question 33

Calculate Req Min Distribution

Answer 33

fair market value / distribution factor
- distribution factor is based on actuarial determined life expectancy and using tables

Question 34

What table do you use if spouses are > 10 yrs apart

Answer 34

joint and survivor table

Question 35

what table do you use to find dist. factor

Answer 35

uniform life table / single life table