RPF M1 U5 When Can People Take Money Out

Question 1

Who decides when money can come out of a retirement plan?

Answer 1

Plan fiduciaries, such as the plan trustee, have a duty to protect plan assets for participants.

Question 2

When are participants allowed to withdraw money?

Answer 2

Participants can withdraw money upon reaching normal retirement age, termination of employment, disability, or death.

Question 3

What forms of payments are made from retirement plan accounts?

Answer 3

Payments can be made as lump sums, partial distributions, annuities, installment payments, or rollovers.

Question 4

How are payments taxed?

Answer 4

Distributions are subject to income tax, and early withdrawals may incur an additional 10% tax penalty.

Question 5

What is an annuity?

Answer 5

A series of periodic payments that continues for the lifetime of the recipient.

Question 6

What is a distributable event?

Answer 6

An event that permits a participant to withdraw assets from a plan.

Question 7

What is a Domestic Relations Order (DRO)?

Answer 7

A state judgment relating to child support, alimony, or marital property rights that may entitle an ex-spouse to benefits.

Question 8

What is a Hardship Event?

Answer 8

A distribution due to an immediate and heavy financial need.

Question 9

What is an In-service Withdrawal?

Answer 9

A withdrawal of vested money from a qualified plan to an employee who is still actively employed.

Question 10

What is a Qualified Domestic Relations Order (QDRO)?

Answer 10

A DRO that meets IRS requirements and assigns benefits to an alternate payee.

Question 11

What is a loan in the context of a retirement plan?

Answer 11

A withdrawal from a participant’s account that must be paid back.

Question 12

What is a lump sum distribution?

Answer 12

A one-time payment of all of the participant’s assets.

Question 13

What is Normal Retirement Age (NRA)?

Answer 13

The age defined in the plan document at which a participant is entitled to full benefits.

Question 14

What is a rollover?

Answer 14

A method of transferring assets from one plan to another, allowing for continued tax-preferred treatment.

Question 15

What constitutes a termination of employment?

Answer 15

Voluntary leaving the company or being fired or laid off.

Question 16

What happens upon a participant’s death?

Answer 16

The beneficiary designation determines who receives the participant’s benefits.

Question 17

What is the significance of vesting?

Answer 17

Vesting determines which portion of a participant’s benefit is available for withdrawal.

Question 18

What is the tax consequence of early withdrawals?

Answer 18

Early withdrawals may incur a 10% additional income tax penalty.

Question 19

What are hardship withdrawals?

Answer 19

Withdrawals allowed for participants still working, subject to complex rules.

Question 20

What is the maximum amount for emergency distributions?

Answer 20

Up to $1,000 or 50% of the vested account balance, whichever is lesser.

Question 21

What is the maximum amount for Qualified Birth or Adoption expenses?

Answer 21

Participants may withdraw up to $5,000 for each child born or adopted.

Question 22

What is the effect of a plan termination?

Answer 22

All participants with account balances are entitled to a distribution.

Question 23

What is the official term for a tax penalty on early distributions?

Answer 23

The official term is additional income tax.

Question 24

When do premature distribution additional taxes apply?

Answer 24

They only apply to distributions that are not rolled over to another plan or IRA.

Question 25

Are there exceptions to the 10% additional income tax on early distributions?

Answer 25

Yes, exceptions are described in the Distributions module of RPF.

Question 26

What should Ingrid do to help Sanjay access his 401(k)?

Answer 26

She should work with 401(k) Recordkeepers and the TPA to review the plan document.

Question 27

What happens if Sanjay withdraws money from his 401(k) while still working?

Answer 27

He will have to pay tax on the amount he withdraws and may owe additional income tax if he is younger than 59.

Question 28

What information will Sanjay receive if he leaves the company?

Answer 28

He will receive information about rolling over his distribution to an IRA or another qualified plan.

Question 29

Are rollovers subject to regular or additional income tax?

Answer 29

No, rollovers are not subject to regular or additional income tax.

Question 30

What portion of his employer account is Sanjay entitled to?

Answer 30

He is only entitled to his vested portion, plus 100% of his employee deferral and rollover money.

Question 31

What should participants be encouraged to do with their retirement savings?

Answer 31

They should be encouraged to leave their money in a qualified plan or IRA rather than use it for personal expenses.

Question 32

Who decides when money can come out of a retirement plan?

Answer 32

The law places limits on withdrawals, and the employer defines restrictions in the plan document.

Question 33

When are participants allowed to withdraw money?

Answer 33

Participants can withdraw money at normal retirement age, termination of the plan, or in cases of death, disability, and termination of employment.

Question 34

What forms of payments are made from retirement plan accounts?

Answer 34

Payments may be made as lump sums, partial payments, installments, or annuities.

Question 35

How are payments taxed?

Answer 35

Payments prior to age 59½ are subject to an additional income tax of 10%. Pre-tax contributions will be subject to income tax when distributed.

Question 36

Where can I find more information on retirement plan distributions?

Answer 36

For more information, visit the IRS website for various resources on retirement plan distributions.