Retirement Planning- 5 Tax Treatment of Distributions of Various Types of Retirement Plans

Question 1

What does Net Unrealized Appreciation mean?

Answer 1

Net Unrealized Appreciation means to trade ordinary income taxation on retirement
assets for long-term capital gains treatment

Question 2

At what age must RMDs be taken?

Answer 2

Must be taken by April 1st of the year following the year
in which owner/participant turns 72.

No longer 70 1/2

Question 3

What is a beneficial strategy for retirement asset distribution under Internal Revenue Code 402(e)(4)

Answer 3

Net Unrealized Appreciation

Question 4

What are the various methods for calculating RMDs?

Answer 4

Simplified calculation using the Uniform Table
– New tables took effect in 2022

and

Joint Life Expectancy Table

Question 5

What kind of accounts does Net Unrealized Appreciation apply to?

Answer 5

Applies to employer securities held in a qualified
retirement plan (ESOP, pension, 401K, etc.)

Question 6

Taking Withdrawals from
Retirement Accounts
may be subject to early withdrawal penalty unless?

Answer 6

Over age 59 ½
* Disabled
* Deceased (and distributed to a beneficiary)
* Paying for health insurance premiums for the unemployed
* College expenses for IRA owner or a dependent
* First-time homebuyer (subject to limits)
* Medical expenses >7.5% of AGI
* Qualified Birth or Adoption distribution
* For qualified plans only: Separation from service after age 55
* Substantially equal periodic payments
6

Question 7

True or False: Net Unrealized Appreciation must elect lump sum, in-kind distribution from plan (total
distribution of all assets in single calendar year)

Answer 7

True

Question 8

What is the formula to calculate RMDs?

Answer 8

Year End Account Value = RMD
________________________
Table Factor

Question 9

True or False: Premature distribution penalty rules for qualified plans still
apply to Net Unrealized Appreciation

Answer 9

False: Premature distribution penalty rules for qualified plans still apply BUT only to original basis

Question 10

What 2 years were RMDs waived?

Answer 10

2009
2020-COVID

Question 11

True or False: There is no step up of basis on NUA portion at death

Answer 11

True

Question 12

What does IRS Code Section 72(t): substantially equal periodic payments entail?

Answer 12

Provide access to qualified accounts prior to age 59 1/2
– IRAs
– Qualified plans (if allowed)

Question 13

Depict the RMD Decision Tree

Answer 13

Question 14

The IRS Code Section 72 (t) distribution must be taken for the longer of ______ years or until
age 59 ½?

Answer 14

5 years

Question 15

What is the tax treatment of Net Unrealized Appreciation?

Answer 15

Question 16

What are 3 methods to calculate 72T payments?

Answer 16

Annuitization
Amortization
Life expectancy

Question 17

What is annuitization in the context of Rule 72 (t)?

Answer 17

Annuitization is the process that converts the money you’ve invested in an annuity into regular payments as part of your retirement plan. You can choose to spread the annuity payout over a specific period of time or across the rest of your lifetime.

The annuity method calculates a minimum SEPP withdrawal that remains fixed over the five-year period. It works by factoring your total account balance, an annuity factor provided by the IRS, the federal mid-term interest rate and the life expectancy of the owner of the account.

Question 18

Are Traditional IRAs deductible or non-deductible?

Answer 18

deductible

Question 19

What is ammortization in retirement planning?

Answer 19

An amortization policy is defined as the rules and processes that determine the length of time and the structure of payments required to systematically eliminate a funding shortfall, known as the unfunded actuarial accrued liability (UAAL).

Question 20

Are Roth IRAs deductible or non-deductible?

Answer 20

non-deductible

Question 21

Are withdrawals from Traditional IRAs taable or tax-free?

Answer 21

taxable

Question 22

Are withdrawals from Roth IRAs taxable or tax-free?

Answer 22

tax-free

Question 23

Are there lifeline RMDs in Traditional IRAs?

Answer 23

Yes

Question 24

What is life expectancy?

Answer 24

The IRS publishes an annual table of life expectancy in which the account owner’s age corresponds to a life expectancy factor. The IRS revises this table every year, and the table is used to determine the RMD as the account balance of the owner is divided by the life expectancy factor from this table.

Question 25

Are there lifeline RMDs in Roth IRAs?

Answer 25

No

Question 26

Are there income limits for Traditional IRAs?

Answer 26

Only for deductibility

Question 27

Are there income limits for Roth IRAs?

Answer 27

Yes

Question 28

What is the contribution limit for Traditional IRAs and Roth IRAs?

Answer 28

2023: $6,500 (+1k catch-up)

Question 30

Are there RMDs after death for Traditional and Roth IRAs?

Answer 30

Yes

Question 31

Make the RMD calculations from IRA balance on 12/31 of the preceding tax year.

Answer 31

Make the RMD calculations from IRA balance on 12/31 of the preceding tax year.

Question 32

Are there Early Withdrawal Penalties for Traditional and Roth IRAs?

Answer 32

Yes

Question 33

What is amortization in the context of Rule 72(t)

Answer 33

-The amortization method determines yearly payment amounts by amortizing the balance of an IRA owner’s account over single or joint life expectancy
-develops the largest and most reasonable amount an individual can remove, and the amount is fixed annually
-To determine the annual amortization payment, select the appropriate life expectancy factor and federal mid-term rate, a special rate the IRS sets for various tax purposes.

Question 34

What is the Life-Expectancy Method?

Answer 34

It is a way of calculating individual retirement account (IRA) distribution payments by dividing the balance or total value of a retirement account by the policyholder’s anticipated length of life. This method is used to calculate RMD amounts from accounts such as traditonal IRAs and 401(k)s.

Question 35

What are the two types of Life-Expectancy Method?

Answer 35

the term-certain method and the recalculation method.

Question 36

What is the term-certain method?

Answer 36

This method includes distribution or withdrawal from the retirement account is based on life expectancy at the time of the first withdrawal. With each following year, the account is steadily depleted as life expectancy reduces by one year. The retirement account will eventually be empty once you reach your life expectancy age.

Question 37

What is the recalculation method?

Answer 37

This method recalculates life expectancy every year to offset the risk of outliving annuity payments. With this method you are withdrawing as little as possible amounts.