Module 5: Division and Tax Treatment of Retirement Plans Flashcards
A Qualified Domestic Relations Order (QDRO) permits:
A 401(k) to be transferred to an alternate payee
Which method of transferring IRAs will never be subject to income tax and penalties?
What is the maximum number of days an individual has to complete an IRA rollover?
60
When a distribution is paid from an IRA, the trustee must withhold what percentage of taxes?
0%
There is no withholding requirement for IRAs; the 20% withholding is for distributions from qualified plans.
When dividing an IRA due to a divorce, all of the following are true except:
A) The distribution will be considered taxable income.
B) The custodian is required to withhold 20% of the distribution amount.
C) The custodian is not required to withhold 20% of the distribution.
D) The 10% penalty for a distribution before age 59 ½ is not waived.
B) The custodian is required to withhold 20% of the distribution amount.
Joe and Barb, both age 52, are divorcing and have agreed to split Joe’s 401(k) equally. The value of the 401(k) is $200,000. Barb had the plan administrator transfer $80,000 to her IRA and distribute $20,000 directly to Barb.
Barb will pay ordinary income tax on $20,000, but will not pay a tax penalty.
Barb will pay income tax on the distribution, but no tax penalty because she qualified under IRC §72(t)(2)(C).
If a qualified retirement plan is being transferred to a non-participant spouse pursuant to a QDRO, payment of a tax penalty can be avoided if a distribution is taken by the:
Participant spouse as a one-time opportunity.
Evan has a medical savings account at work that he and his wife Kristen will split as part of the divorce. Which of the following actions must they take to divide this account?
They must provide a copy of the divorce decree to the administrator.
IRA rules apply to medical savings accounts; a copy of the divorce decree would be provided to the administrator.
What is the tax penalty for taking an early distribution from a retirement plan?
10%
Generally, a distribution made before a participant is age 59 ½ is an early distribution and subject to a 10% penalty.
When a distribution is paid from a qualified retirement plan, what is the percentage of taxes that the plan administrator must withhold?
20%
The Unemployment Compensation Amendment Act (UCA), which took effect in January 1993, states that any monies taken out of a qualified plan or tax-sheltered annuity are subject to 20% withholding.
What is the plan administrator required to do when participants ask for a distribution from a qualified plan?
Provide a direct rollover option to the participant.
The plan administrator is required to provide direct rollover options pursuant to The Unemployment Compensation Amendment of 1992.
Which method of transferring IRAs will never be subject to income tax and penalties?
Transfer the IRA assets to a new IRA in the name of the recipient spouse.
