IRA, Qualified Ret Plans, Pension, Annuities

Question 1

Distributions due to death

Answer 1

The surviving spouse can rollover into own account. Other beneficiaries must withdraw balance over a specified period. Distributions are taxable to beneficiary as income in respect of a decedent.

Question 2

Distribution of employer stock from qualified plan

Answer 2

If taxpayer distributes the entire account in a lump sum distribution and pays ordinary income tax on the stock basis (including employer matching), the capital gains rate applies to net unrealized appreciation (NUA) on the stock when it is later sold (regardless of actual holding period). The character of the gain on any further appreciation (above the NUA) after the distribution will depend on the actual holding period.

Question 3

Annuities

Answer 3

No deduction for contributions to a non-qualified annuity (funded with after-tax dollars), but amounts within the annuity accumulate free of tax until withdrawn. The tax treatment of a non-qualified annuity depends upon factors such as basis and annuitization. Annuitization is the process of converting an annuity into a series of periodic payments.

TIP: An annuity in a qualified plan or IRA will receive the same tax treatment afforded to those plans.

Question 4

Distribution from annuity

Answer 4

Prior to annuitization – Withdraw earnings first (ordinary income). Amount in excess of earnings (basis) is a return of capital.

After annuitization – Allocate a portion of each payment to income and a portion to basis according to the exclusion ratio. The exclusion ratio refers to the basis portion of each payment that is exempt from tax.

-Using a simplified method, figure the tax-free part of each annuity payment by dividing the cost by the total number of anticipated monthly payments.

Question 5

Rollover

Answer 5

The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan within 60 days.

Question 6

Distributions from qualified plan or IR

Answer 6

Distributions from a qualified plan (or IRA) minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Since most recipients have no cost basis, a distribution is generally fully taxable.