RPF M3 U3 In-Service Withdrawals Flashcards
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What is an in-service withdrawal?
An in-service withdrawal is a distribution that takes place while a participant is still employed.
Under what circumstances might in-service withdrawals be allowed?
In-service withdrawals may be allowed if the participant has reached Normal Retirement Age (NRA), attained age 59½, has a birth or adoption event, completed certain service requirements, or if employer contributions have remained in the plan for a specified period of time.
How is the amount of an in-service withdrawal calculated?
The amount is calculated based on the sources eligible for distribution, considering vesting if applicable.
In what forms can in-service withdrawals be paid?
In-service withdrawals can be paid as a lump sum, partial distribution, installments, or annuity options.
What tax withholding applies to in-service withdrawals?
Distributions are included in gross income for the year received, with a mandatory 20% federal income tax withholding for distributions over $200 that are eligible for rollover.
What is the significance of age 59½ in relation to withdrawals?
Withdrawals taken before age 59½ incur an additional 10% tax for early distribution, unless exceptions apply.
What is Normal Retirement Age (NRA)?
NRA is the age defined in the plan document when participants must become fully vested in their account balances.
What are after-tax employee contributions?
After-tax employee contributions are contributions that can typically be withdrawn at any time and are always 100% vested.
What are rollover contributions?
Rollover contributions are funds transferred from an IRA or another qualified plan that may be withdrawn at any time.
What is the maximum distribution allowed for childbirth or adoption?
The maximum distribution allowed is $5,000 per birth or adoption.
What is the maximum distribution for qualified disaster distributions?
Participants may receive up to $22,000 for qualified disaster distributions.
What is the maximum distribution for domestic abuse victim distributions?
The lesser of $10,000 or 50% of the vested account balance may be distributed.
What is the maximum distribution for emergency distributions?
The lesser of $1,000 or 50% of the vested account balance may be distributed.
What is the maximum distribution for long-term care premium distributions?
The lesser of $2,500 or 10% of the vested account balance may be distributed.
What is the vesting schedule mentioned in the scenario?
The vesting schedule is a 5-year graded schedule: 20%, 40%, 60%, 80%, and 100%.
What must be considered before processing an in-service withdrawal?
It must be determined if the plan allows it, if the participant meets the requirements, and what sources are available for distribution.
What is required for a participant to withdraw employer contributions?
They must complete a fixed number of years of service or the contributions must have remained in the plan for a specified period.
What happens if a participant takes a distribution before age 59½?
They may incur a 10% additional tax unless an exception applies.
What types of contributions can be withdrawn at any time?
Certain money types, such as after-tax and rollover contributions, can be withdrawn at any time, if permitted by the plan.
What is included in the calculation for available withdrawals if vesting applies?
Only the vested amount is included in the calculation to determine how much is available.
In what forms can in-service withdrawals be paid?
The plan document specifies distribution options available in the plan (lump sum, partial distribution, installments, or annuity options).
What tax withholding applies to in-service withdrawals?
Distributions from qualified plans are included in gross income for the year in which the distribution is received. Taxation can be deferred by rolling over the distribution into an IRA or another qualified plan. The IRC imposes a mandatory 20% federal income tax withholding for any distribution over $200 that is eligible for rollover but paid directly to the participant.
