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CFP Retirement & Income Planning > Distributions From Qualified Plans & IRAs > Flashcards

Distributions From Qualified Plans & IRAs Flashcards

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1
Q

Distributions from Pension Plan: During Service with Employer

A

No in-service w/d’s under age 59.5

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2
Q

Distributions from Pension Plan: At participant’s death

A

Distributed to Bene

Or

Participant’s estate

Qualified Preretirement Survivor Annuity (QPSA)
- annuity payable to surviving spouse if participant dies before normal retirement age

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3
Q

Distributions from Pension Plan: At participant’s Disability

A

Distributed to participant

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4
Q

Distributions from Pension Plan: Terminate service before normal retire age

A

Lump Sum

Rollover plan to IRA or other qualified plan

Leave assets in plan
- Value must be > $5,000

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5
Q

Distributions from Profit Sharing Plan: In-Service?

A

Can do in-service w/d’s after 2 years of participation in plan

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6
Q

Distributions from Profit Sharing Plan: At termination of service

A

Lump Sum

Rollover to IRA or other qualified plan

Purchase annuity

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7
Q

Taxation of Distributions from Qualified Plans

A

20% income tax withholding

QDRO do NOT have income tax if rolled over to IRA

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8
Q

Rollover to IRA: What do you lose?

A

ERISA Protection

10-year forward averaging

NUA and Pre-1974 capital gain treatment

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9
Q

Loans from Qualified Plan

A

Lesser of:
$50,000 or
1/2 vested account balance

Exception: if vested balance is <$20k, the max loan is lesser of:
$10,000 or vested balance

Both scenarios are Reduced by highest outstanding loan balance w/in previous 12 month period

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10
Q

SECURE Act 2.0 Loan Provision

A

Allowed by anyone in qualified Disaster Area

Loan limit is Lesser of:

$100,000

Or

1/2 vested account balance

Reduced by highest outstanding loan balance in previous 12 month period

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11
Q

Plan Loan Repayment

A

Five Years
(up to 30 yrs if used to buy principal residence)

Substantially level amortization require over term

Payments must be at least quarterly

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12
Q

Failure to Repay Plan Loan

A

Considers value of loan as taxable distribution, and 10% early penalty if under 59.5

Termination from ER causes entire loan to become due

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13
Q

10% Early W/D Exceptions

A

Death, Disability

Substantially equal periodic payments (section 72t)

Medical payments excess 7.5% AGI

Federal Tax Levy

$5,000 per taxpayer for birth/adoption

Terminal illness

Up to aggregate amount of $22,000 in qualified disaster

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14
Q

10% early w/d exceptions: Qualified Plans only

A

Separation from service at age 55 or after

Separation at age 50 or with 25 years of service for safety officers, firemen, correction officers

QDRO

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15
Q

10% early w/d exceptions: IRA only

A

Higher education costs

Health insurance for unemployed

First time home purchase up to $10,000

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16
Q

Substantially Equal Periodic Payments Requirements (Prior to 59.5)

A

Made at least Annually

For life expectancy of participant or joint lives of him and designated bene

After separation of service

Must run for greater of 5 years or # years until reach age 59.5

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17
Q

Substantially Equal Periodic Payments: 3 Methods of Calculation

A

RMD Method (smallest payment amount)

Fixed Amortization:
- payments calculated over single or joint life expectancy w/ reasonable interest rate

Fixed Annuitization:
- Calculated using annuity factor (w/ reasonable interest rate & mortality table)

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18
Q

RMD Rules if still employed by Employer

A

Participant that’s still employed by plan sponsor can delay 1st RMD until April 1st of year after terminating employment (a >5% owner can’t do it)

Does NOT apply to SEP’s or SIMPLE IRAs

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19
Q

Distributions are based on Bene Type: Eligible Designated Bene

A

Eligible to STRETCH distributions over life expectancy of bene, starting in year following year of death

Surviving Spouse (can roll into their own IRA)

Child of IRA owner who’s not age of majority (21)

Disabled or chronically ill person

Any other person who’s not more than 10 years younger than the EE or IRA owner

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20
Q

Distributions based on Bene type: Designated Bene

A

Any person that’s not an Eligible Designated Bene

Can NOT stretch

Balance must be paid out within 10 years

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21
Q

Distributions based on Bene type: Non-Designated Benes Types

A

Estate, Charity, Trusts

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22
Q

Distributions based on Bene type: Non-Designated Benes if Died AFTER RMD

A

Use owner’s age as of birthday in year of death

Reduce beginning life expectancy by 1 for each subsequent year

Can take owner’s RMD for year of death

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23
Q

Distributions based on Bene type: Non-Designated Benes if Died BEFORE RMD

A

Take entire balance by end of 5th year following year of death

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24
Q

IRA Excess Contribution

A

Subject to 6% excise tax for each year the excess remains in account

Avoid it by withdrawing excess contribution and its earnings before April 15th of following tax year, plus extensions

SECURE 2.0 waives 10% early w/d penalty for corrective distributions made within correction window

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25
Q

Traditional IRA: Active Participant Status for Deductions

A

Limits deductibility of IRA contributions for AGI (above line)

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26
Q

Traditional IRA Deductibility: What defines an Active Participant?

A

DB Plan: Participates or meets eligibility of plan

DC Plan:

Receives a contribution to the plan on his behalf for the year (including forfeitures)

or Defers comp to a CODA plan

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27
Q

Traditional IRA Deduction AGI Phaseout

A

If active participant:
Single = $73k - $83k

MFJ = $116k - $136k

If one is active but spouse is NOT:

Not active = $218k - $228k

Active Spouse= $116 - $136k

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28
Q

Traditional IRA Deduction Ex: Age 38, active participant, AGI is $80k and makes max contribution to IRA. What’s his deduction amount?

A

Reduction amount:
6,500 x (80k - 73k /10k)

  • The $10k is the difference of total range of phaseout
  • Use the lower end of phaseout range, being $73k

= $4,550 reduction amount

Deduction amount = $6,500 - $4,550 = $1,950

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29
Q

Recharacterized Contributions IRAs

A

Change contributions for the year from one type to another (Roth to Traditional & vice versa)

Must be done by due date of return (including extensions)

Can NO longer Recharacterize a Roth conversion after TCJA 2017

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30
Q

Non-Qualified withdrawal Roth IRA: Taxation? 10% Penalty?

A

Contributions: Not taxed, no 10% penalty

Conversions: Not taxed, 10% penalty if w/in 5 years of conversion

Earnings: Yes Taxed, Yes 10% penalty if no exception applies

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31
Q

What Investments are allowed in an IRA?

A

Cash
Stocks/bonds
Options
U.S. Gold, Silver, Platinum coins. (U.S. Only)

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32
Q

What investments are NOT allowed in an IRA?

A

Life Insurance
Collectibles
Other coins (Maple Leaf, Pandas, Non-U.S. coins)

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33
Q

SEP Characteristics

A

Small Biz Retirement plan

NOT a Qualified Plan

Can be established as late as the extended due date of the income tax return

Established utilizing Traditional IRA accounts

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34
Q

SEP Eligibility Requirements

A

ER must provide benefits to all EE’s who meet:

21 or older

and

Performed services for 3 of last 5 years

and

Received comp of at least $750 during the year

35
Q

SEP Contributions: Who funds them?

A

Employer funded only

36
Q

SEP Contributions: Are they Discretionary?

A

Contributions are Discretionary

Must be made to all EE’s eligible during the year, even if dead or no longer employed at time of contribution

Can utilize pro-rata, flat dollar, and SS integration

SECURE act 2.0 allows for Roth contributions (made pre tax & essentially converted to Roth) and amount is taxable to EE

37
Q

SEP Contribution Limits?

A

Lesser of:

25% of EE’s comp

or

$66,000 (2023)

38
Q

Self-Employed Non-contributory Contributions: Self-Employed Contribution Rate Formula?

A

(Contribution rate to other participants / 1 + contribution rate to other participants)

= Self-Employed contribution rate

39
Q

SEP Vesting Rules

A

EE’s are 100% Vested at all times, including the employer contributions

40
Q

SIMPLEs Characteristics

A

Retirement plan for small employers

Can be SIMPLE IRA or SIMPLE 401k

Easy to establish and maintain

Similar tax advantages to qualified plans

EE elective deferral contributions

SECURE act 2.0 allows for Roth contributions for ER and EE (made pre tax & essentially converted to Roth) and amount is taxable to EE

41
Q

SIMPLEs Establishment Rules

A

Only by small ERs

Small ER is 100 or less EE’s who each earned at least $5,000 comp in preceding calendar year

Must be Calendar year plan

Provide EE’s w/ 60-day period to elect deferral

ER can NOT also maintain a Qualified Plan

42
Q

SIMPLEs EE Eligibility Rules

A

EE earned at least $5,000 in any 2 preceding years from the employer

and is expected to earn $5,000 in current year

43
Q

SIMPLEs Vesting

A

EE’s are 100% vested in their contributions to either a SIMPLE IRA or SIMPLE 401k

and 100% vested of ER contributions if it’s a SIMPLE IRA

44
Q

SIMPLEs Contribution Limits for EE’s?

A

$15,500 + $3,500 catch-up

45
Q

SIMPLE Contribution Limits for Employers?

A

Matching contributions up to 3% of comp

or

2% Non-elective ER contributions (2% of comp to each eligible EE)

46
Q

SIMPLE Contributions: Are Employee deferral contributions subject to Payroll Taxes?

A

YES

47
Q

SIMPLE IRA Early withdrawal Penalty and Rules

A

25% rather than 10%

Applied if withdrawal happens within first 2 years of EE’s participation in the plan

48
Q

SIMPLE 401k: Can you take Loans?

A

YES, loans are allowed

49
Q

SIMPLE 401k characteristics

A

Similar to SIMPLE IRAs

Very few established

Covered Comp rules apply

50
Q

403b or Tax Sheltered Annuities (TSAs)

A

Retirement Plan for:

Public schools

Education organizations

Tax-Exempt organizations under IRC Section 501(c)(3)

51
Q

403b: When does ERISA apply?

A

If the 501(c)(3) organization has an EE benefit pension plan

Exception:

Does NOT apply if the ER involvement is minimal
- Such as ER only provides salary reduction agreement

52
Q

What type of 403b plans does ERISA NOT apply?

A

Government 403(b)s

Church Related 403(b)s

53
Q

403b: What tests must the plan meet when ERISA applies?

A

Nondiscrimination test

Matching contributions must satisfy ACP test

54
Q

403b: What Distribution options must the plan follow when ERISA applies?

A

Preretirement Joint and Survivor Annuity

Qualified Joint and Survivor (QJSA)

55
Q

403b Eligibility

A

May require EE’s to be:

age 21

AND

have 1 year of service

56
Q

403b: 15-Year Catch-Up Contributions

A

Allows up to a lifetime max of $15,000 of additional deferral
(max $3,000 additional per year)

57
Q

403b: 15-Year Catch-Up Contributions Eligibility

A

Participant must have completed 15 years of service with employer

AND

Have Unused Deferral

58
Q

403b: 15-Year Catch-Up Contributions: Which Organizations does it apply to?

A

Only applies to HER organizations

Health
Education
Religious

59
Q

What could the Max Deferral contribution be for a 403b in 2023?

A

$22,500
+
$7,500 catch up
+
$3,000 15-year catch up

= Possibly $33,000

60
Q

403b: What can they invest in? What can they NOT invest in?

A

Insurance Annuity contract

Mutual Funds

Can NOT hold individual Stocks or ETFs, REITs

61
Q

457 Plan: Is it Qualified or Non-qualified?

A

Non-Qualified Deferred Comp Plan

62
Q

Public 457(b) Plans: Who’s the Employer/Sponsor?

A

Government

63
Q

Public 457(b) Plans: How/Are the assets protected?

A

Protected by a Trust

64
Q

Public 457(b) Plans: Contribution Limit?

A

$22,500

65
Q

Public 457(b) Plans: Who can Participate?

A

All Employees

66
Q

Public 457(b) Plans: Is a Catch-Up Available for 50 and older?

A

YES

67
Q

Public 457(b) Plans: What other plans can you Rollover to?

A

401k
403b
457b
IRAs

68
Q

Private 457(b) Plans: Who is the Employer/Sponsor?

A

Tax-Exempt 501(c) organizations

69
Q

Private 457(b) Plans: How/Are the assets protected in the plan?

A

NOT Protected

70
Q

Private 457(b) Plans: Contribution Limits?

A

$22,500

71
Q

Private 457(b) Plans: Who can Participate?

A

Tax-Exempt Organization:

  • Key Management
  • Highly Compensated (HC)

Churches:

  • All Employees
72
Q

Private 457(b) Plans: Catch-Up Available for 50 and older?

A

NO

73
Q

Private 457(b) Plans: What other plans can you Rollover to?

A

Only to other Private 457b Plans

74
Q

457 Plan: Special Catch Up, When does it apply?

A

3 years prior to Normal Retirement Age

Can defer an additional $22,500 to the 457(b) plan
- limited to prior unused deferral amounts

75
Q

457 Plan: Special Catch Up, Are Public & Private Eligible?

A

Both Public and Private are eligible

76
Q

457 Plan: Special Catch Up, Max possible contribution for 2023?

A

$22,500 normal deferral
+
$22,500 special catch-up

=$45,000

(Can NOT include age 50 and over catch-up when determining 3-year catch-up)

77
Q

457(f) Plans: Who Sponsors/What Employer type?

A

Governmental &
Tax-Exempt 501c

78
Q

457(f) Plans: Are assets protected?

A

Not protected by Trust

79
Q

457(f) Plans: Contribution Limits?

A

No Limit

80
Q

457(f) Plans: Who Participates?

A

Key Management and HC

81
Q

457(f) Plans: Catch-Up?

A

NO catch-up

82
Q

457(f) Plans: Rollovers Allowed?

A

NO

83
Q
A

CFP Retirement & Income Planning (4 decks)

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