Unit 4: Distributions Flashcards
What are the five options for plan distributions? (PLAID)
1) Do nothing/ RMD not due until 72
2) Lump sum
3) Annuity- Plan buys an Annuity from Insurance Co that distributes payments.
4) Installments- Periodic, regular distribution of funds
5) Partial Lump Sum
What are the downsides to buying in annuity inside of the 401(k)?
Unable to access lump sum distributions for emergencies and cannot choose investment options
What 3 types of qualified plans are required to offer annuities?
 Money purchase plans, 403 B’s & defined benefit plans
Most 401(k) plans offer annuity option true or false
False
What is a QJSA?
Qualified joint and survivor annuity
When a 401k offers an annuity the law requires it to offer a QJSA?, True or False.
True
QJSAs payments must extend the following two benefits:
100% for the life of the participant & upon Part. death. a range of 50%-100% for the life of the survivor,
If I Participant is married are they allowed to elect a single life QJSA?
Only with a waiver from the spouse
Most participants 401(k) accounts are exempt from QJSA rules but only if: (3 exemptions: 1 is referring to money sources)
1) spouse is entitled to entire death benefit (unless they deferred to another beneficiary.)
2)Participant does not elect an annuity.
3)distribution cannot be from money purchase plan assets that were rolled into 401(k).
What is a lump sum distribution? Two answers
 1) A distribution of the full balance for income purposes with applicable taxes assessed or
2) rollover of the full balance into IRA for continued investment in tax shelter
What are the two types of rollovers?
1) direct rollover
2) 60 day rollover
What happens with the 1099R if a participant chooses a direct rollover?
The participant receives a 1099R but no taxable event occurs as 100% of the rollover is transferred into the IRA or other QP
What happens with a 60 day roll over?
The participant receives a check less 20% which is withheld for taxes. The participant is part of the rollover is responsible for funding the full amount of the rollover. The 20% with out for taxes is refunded to the Participant when they file taxes.
What are the seven qualified reasons to request a hardship distribution?
(4 home & 3 others)
Medical expenses
Cost for principal residence purchase
Payments for post secondary education
Payments to prevent eviction
Burial expenses
Repair to principal residence
Expenses incurred due to declared disaster
What are the rules that pertain to the principal residence purchase for a hardship distribution?
The funds cannot be used for a renovation
Cannot be used for a vacation home
What are the rules that apply to preventing evictions with a hardship distribution?
Only for principal residence
Only to prevent foreclosure of the principal residence
Regarding the hardship distribution rules towards secondary education expenses:
1) What can be covered?
2) Who can be covered?
May include room and board, fees, educational costs
May be used for the benefit of an employee, spouse, dependents or primary beneficiary
Hardship Burial expenses can be used for a spouse dependent or primary beneficiary of an account holder true or false
True
Under hardship distribution rules, the repair to a primary residence maybe used under what IRS code
IRC 165
What are the three rules that apply to all applications for hardship distributions?
Distribution cannot exceed amount of need (plus taxes)
All other available distributions (not including loans) have been taken
Employee certifies hardship cannot be resolved any other way and the employer does not have information to the contrary
Concerning the 4 rules for birth in adoption distributions:
1) What is the max amount and time
Limit for the request?
2) What sources can be accessed? And what are the tax treatment of the distribution?
3) When can repayment be made?
Can be made ione year after birth or adoption ( w/ limit $5000 per child)
Pretax sources taxed as normal income but not withheld from distribution
10% early withdrawal penalty’s do not apply
Does allow repayment with no time limit
What are the conditions that require RMDs to begin? 2 answers
What 2 are exempt?
Participants age 72 after 2020 (70 1/2 years of age before)
An NHCE who achieved age 72 and is not employed (NHCE)
5% owner even if still employed
Who is exempt?
NHCEs that are still working
Any Owners less than 5% who are still working
What are the rules around the first RMD?
1) When must they begin at the latest?
2) How are the RMD amounts determined?
A) Single
B) Married
The first RMD needs to be taken no later than April 1 of the year after turning age 72
Single participants use just one table
Married participants who have more than 10 years between ages, use RMD table called: “joint life expectancy”
What are the penalties for any late RMD distributions?
The penalty is 50% of the amount that should’ve been distributed plus income taxes
When are all RMD’s after the first RMD required to be taken?
December 31
It’s possible to have two RMDS required in your first year correct?
That is correct, especially if it was pushed out to the April 30 deadline for the first year’s distribution.
When the death of a participant occurs what are the three options a beneficiary has related to RMD’s?
Distribute full amount by end of the 10th year
An annuity distribution must be set up by end of year in which the death occurred over the life of the beneficiary
Roll over to qualified plan or IRA. Beneficiary must take RMDs according to deceased Participants RMD schedule.
A plan must have stated procedures that must be followed when a domestic relations order is being processed?
And what tends to occur when a DRO process begins?
True.
And often the account is frozen by the plan administrator during the process
What are four items that a DRO must contain?
Name and last known mailing address of Participant or alternate PE
Name of the plan
Amount or percentage of Participant’s assets to be paid to Alternate payee
Number of payments, or the period to which the order applies
A QDRO must not do what four things?
Provide an option or benefit not prescribed by the plan
Provide for increased benefits (determined on the basis of actuarial values)
Pay benefits to an ex spouse that are required to be paid to another alternate payee under previous QDRO
Pay benefits to an alternate Payee via QJSA
To be a QDRO a DRO must be valid and consistent with the terms of the plan true or false
True
The QDRO will not specify when distributions can be made true or false?
False: The QDR will specify