Chapter 8
QUALIFIED PLANS: DISTRIBUTIONS AND LOANS
LEARNING OBJECTIVES:
A. Have a basic understanding of qualified plan distributions and loans
B. Identify key plan provisions regarding spousal benefits and qualified
domestic relations orders (QDROs)
C. Understand provisions relating to defined benefit and defined
contribution plan distributions
D. Have a basic understanding of tax issues related to qualified plan
distributions, including premature withdrawal and minimum
distributions requirement penalties
E. Have a basic understanding of retirement plan rollovers
REVIEW:
This chapter covers distributions and loans from qualified plans. It begins with a
discussion about planning retirement distributions, which includes a good section
on questions to consider. The chapter continues by covering required spousal
benefits, including pre-retirement survivor annuities and joint and survivor
annuities. Next, the chapter covers a number of defined benefit and defined
contribution plan distribution provisions. The tax impact of plan distributions is
covered next, including coverage of nontaxable and taxable amounts, taxation of
annuity payments, lump sum distributions, taxation of death benefits and federal
estate tax relative to plan distributions. Loans are then briefly covered, followed
by information on qualified domestic relations orders (QDROs). Penalty taxes are
considered, with coverage of the early distribution penalty, minimum distribution
requirements and the penalty for not meeting those requirements. After this, the
chapter covers retirement plan rollovers by discussing when rollovers are used,
tax treatment of rollovers, and alternatives to rollovers.
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CHAPTER OUTLINE:
A. Planning Retirement Distributions
B. Plan Provisions–Required Spousal Benefits
1. Qualified Pre-Retirement Survivor Annuity
2. Qualified Joint and Survivor Annuity
C. Plan Provisions–Other Benefit Options
1. Defined Benefit Plan Distribution Provisions
2. Defined Contribution Plan Distribution Provisions
D. Tax Impact
1. Nontaxable and Taxable Amounts
2. Taxation of Annuity Payments
3. Lump Sum Distributions
4. Taxation of Death Benefits
5. Federal Estate Tax
E. Loans
F. Qualified Domestic Relations Orders (QDROs)
G. Penalty Taxes
1. Early Distribution Penalty
2. Minimum Distribution Requirements and Penalty
H. Retirement Plan Rollovers
1. When are Rollovers Used?
2. Tax Treatment of Rollovers
3. Alternatives to Rollovers
I. Where Can I find Out More About Retirement Plan Distributions?
J. Chapter Endnotes
FEATURED TOPICS:
Retirement plan distributions: planning, plan provisions, tax impact, minimum
distribution requirements and penalties
Required spousal benefits
Qualified Domestic Relations Orders (QDROs)
Retirement plan rollovers
FIGURES:
Figure 8.1 Uniform Lifetime Table
Chapter 8
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 62: Qualified plan rules and options
E. Loans from qualified plans
Topic 67: Distribution rules, alternatives, and taxation
A. Premature distributions
B. Election of distribution options
C. Required minimum distributions
D. Beneficiary considerations/Stretch IRAs
E. Qualified Domestic Relations Order (QDRO)
F. Taxation of distributions
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Have a basic understanding of qualified plan distributions and loans
2. Identify key plan provisions regarding spousal benefits and qualified
domestic relations orders (QDROs)
3. Understand provisions relating to defined benefit and defined
contribution plan distributions
4. Have a basic understanding of retirement plan rollovers
KEY WORDS:
retirement distributions, spousal benefits, qualified pre-retirement survivor
annuity, qualified joint and survivor annuity, grandfathered, federal estate tax,
loan, qualified domestic relations order (QDRO), early distribution, minimum
distribution
DISCUSSION:
1. Discuss reasons for making premature withdrawals from qualified
retirement plans along with reasons why the rules tax, and often
penalize these withdrawals.
2. Discuss required spousal benefit provisions, including QDROs. Include
potential hardships for either spouse as a result of these provisions.
Also discuss what would likely happen if these provisions were
withdrawn.
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QUESTIONS:
1. Which of the following are survivorship benefits for spouses required by
pension plans?
(1) qualified pre-retirement survivor lump sum
(2) qualified pre-retirement survivor annuity
(3) qualified joint and survivor annuity
(4) qualified joint and survivor lump sum
a.
b.
c.
d.
(1) only
(1) and (2) only
(2) and (3) only
(2) (3) and (4) only
Chapter 8, pp. 75, 76
2. Which of the following defined benefit plan distribution options is usually the
automatic form of benefit for an unmarried plan participant?
a.
b.
c.
d.
life annuity
joint and survivor annuity
period-certain annuity
lump sum distribution
Chapter 8, p. 76
3. What percentage of each annuity payment will normally be considered
taxable income to a plan participant who has no cost basis in the plan?
a.
b.
c.
d.
25%
50%
75%
100%
Chapter 8, p. 78
4. Which of the following are requirements (as set out in Code section
4975(d)(1)) which must be met before loans from a qualified plan may be
allowed?
(1) loans are available to all participants and beneficiaries on a reasonably
equivalent basis
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(2) loans are not made available to highly compensated employees in an
amount greater than for other employees
(3) loans bear reasonable rates of interest
(4) loans are adequately secured
a.
b.
c.
d.
(1) and (3) only
(1) (2) and (3) only
(2) (3) and (4) only
(1) (2) (3) and (4)
Chapter 8, p. 81
ANSWERS:
1. c
2. a
3. d
4. d