Retirement Plan Distributions

Transcription

1 Retirement Plan Distributions What Every Participant Should Know IRS Employee Plans

2 2 Employee Plans Landing Page

3 3 Employee Plans Newsletters

4 Distribution Topics 2015 IRA one-rollover rule Pre and post-tax single distribution rule 10% early distribution tax Exceptions Distributions after death Required minimum distributions 4

5 IRA One Rollover Rule 1 of 3 Bobrow v Commissioner v Pub 590 Announcements , One rollover per 12-month period Effective for 2015 distributions Transition rule What if you have more than one rollover? 5

6 2014 Distribution from IRAs 1, 2, 3 IRA 1 - had a distribution in prior 12 months that was rolled over IRA 2 - no rollover prior 12 months IRA 3 - no rollover prior 12 months Which IRA may do a tax-free rollover? 6 retirement

7 2015 Distributions from IRAs 1, 2, 3 IRA 1 - had a distribution in prior 12 months that was rolled over IRA 2 - no rollover prior 12 months IRA 3 - no rollover prior 12 months Which IRA may do a tax-free rollover? 7 retirement

8 2016 Distributions from IRAs 1, 2, 3 IRA 1 had a distribution in prior 12 months that was rolled over IRA 2 - no rollover prior 12 months IRA 3 - no rollover prior 12 months Which IRA may do a tax-free rollover? 8 / retirement

9 IRA One Rollover Rule 2 of 3 One rollover allowed per spouse, per 12-month period Roth conversions exempt from rule 60 day rule Day one is day after the distribution Rollover by the end of day

10 IRA One Rollover Rule 3 of 3 What is a rollover? Trustee-to-trustee transfers and direct rollovers are not limited How to meet this new rollover rule 10

11 Single Distribution of Taxable and Nontaxable Amounts Notice , January 1, 2015 Applies to 401(a), 403(b), 457 plans Distribution goes to different places Single distribution includes both taxable and non-taxable, but: Direct rollover of taxable to IRA 1 Direct rollover of non-taxable to Roth IRA 11

12 $25K Account Balance $20K Pretax & $5K After-tax Example 1 One distribution of $25,000 balance Old rule Direct rollover to one account or distribute to employee New rule Direct rollover of $20,000 to IRA or plan, & Direct rollover of $5,000 to Roth IRA, or distribute $5,000 straight to employee 12

13 $25K Account Balance $20K Pretax & $5K After-tax Example 2 Distribution of $10,000 Pretax amount is 10k x 20k/25k = $8,000 Employee specifies: $7,000 to new employer s plan 7k<8k, so all pre-tax monies $3,000 directly to employee 1k pretax, 2k after-tax Form 1099-R for distribution 13

14 10% Tax Early Distributions Take it or leave it things to consider 10% early distribution additional tax Exceptions distribution after age 59 ½ separation from service age 55 substantially equal payments disability or death Publication 5036 (chart) 14

15 Plan & IRA Exceptions Differ Pub retirement

16 Special Situations 16 Required Minimum Distributions Still working at same employer Still working at a different employer Work beyond 70½ - separate from service on 12/31/xx When is RMD due? Started RMD, rehired Can I stop RMD? Retire again on 12/31/xx. When is RMD due? No longer 5% owner

17 Required Minimum Distributions Age 70 ½ RMD requirement Distributions after the account holder s death 50% tax on amounts not withdrawn 17

18 Distributions After Death Retirement Plan or IRA Who is a spouse? J&S or other annuity Distribution options after death take a lump sum distribution from plan transfer assets to your own IRA only available to spouse transfer assets to an inherited IRA transfer assets to estate 18

19 Lump Sum Distribution Options All the assets are distributed to the beneficiary No 10% early distribution tax, even if beneficiary is under 59½ The distribution is subject to: ordinary income tax mandatory 20% withholding 19

20 Designated Beneficiary is Spouse IRA in Spouse s Name Surviving spouse must be sole designated beneficiary IRA is treated as your own IRA Subject to 10% early distribution tax Eligible to convert to Roth IRA Must make deceased account holder s RMD for year of death After year of death, RMD based on surviving spouse s age 20

21 Designated Beneficiary, Any Individual Inherited IRA Jane Doe as beneficiary of John Doe Two payout options: Payments, based on single life expectancy of beneficiary, must begin by end of year after year of death, or All assets must be fully distributed by the end of the 5th year after year of death If original account holder over 70½, may pay based on deceased s life expectancy 21

22 Account Holder Death No Designated Beneficiary What if: designated beneficiary died prior to account holder s death? the beneficiary forms are lost? The deceased s account will become a part of the estate Estate is not an individual and has different distribution requirements 22

23 Beneficiary Not an Individual - Estate, Charity - Account owner dies on or after RBD Account balance can be distributed based on the life expectancy for owner s age at birthday during year of death Account owner dies before RBD Entire account balance must be distributed by the end of the 5th year after the year of the owner s death No distribution is required before 5th year 23

24 Designated Beneficiary Dies Doris, non-spouse dies after original account holder dies: Beneficiary s beneficiary able to take funds as an inherited IRA Payments must continue based on original beneficiary s life expectancy Doris, spouse dies her beneficiary can calculate RMDs using his age 24

25 Beneficiary Designations No rule against completing a new beneficiary form If you have multiple beneficiaries, spell out the percentage for each Naming contingent beneficiaries Roth conversion - Did you update beneficiary designations? Keep a copy of your beneficiary designations in a safe, easy-to-find place 25

26 Missed a Required Distribution In a plan EPCRS Rev. Proc In an IRA Form

27 THANKS FOR LISTENING For more on Distributions, visit: IRS.gov/retirement 27 RETIREMENT PLAN DISTRIBUTIONS WHAT EVERY PARTICIPANT SHOULD KNOW