Deck 31: Retirement Asset Distribution Planning

Question 1

Explain some of the changes to distribution options resulting with passage of the PPA.

Answer 1

The Pension Protection Act of 2006, make some changes in the plan distributions in large number of retirement plans. Such changes put effect on the defined benefit plans, and other put affect in the defined contribution plans.
PPA make changes in the mortality table, and rate of interest which is used to compute the minimum value of a lump-sum distribution which get paid from a Defined benefit plans. The main effect of these changes was to decrease the total value which would be paid under the prior law. The law need the use of the mortality table which is under the minimum funding rules for the individual employer defined benefit plans.
PPA make it clear that the qualified plan can give the distributions to an employee who have an age of 62, even the employee is working with the organization. The PPA give some directions to the Secretary of the Treasury to make amendments in the regulations which are related to the withdrawals of qualified plans, non-qualified deferred compensation plans, and deferred compensation plans.

Question 2

What factors are included in determining an employee's cost basis in a pension plan

Answer 2

Cost basis plays an important role in the distribution taxation under the plan. The person should know the main elements which constitute a cost basis of an employee. Section 72, of the Internal Revenue Code (IRC) gives the cost basis of an employee.
The cost basis contains the following:
1. The total of any amounts of the employee make contribution on an after the tax basis while the person get employed.
2. The aggregate of the insurance costs of employer reported the taxable income, but it is for the distributions which made under the policy. When the employee made the contributions, and the plan gives that the contribution of an employee can be used to pay the insurance cost.
3. The contributions (other) which are made by the employer, which get taxed to the employee. In this, the employer maintained a nonqualified plans, later it become a qualified plans.
4. The loans related to the qualified retirement plan to the participant which get treated as a taxable distributions.

Question 3

How are the pension distributions in the form of periodic payments taxed when the employee has no cost basis in the plan

Answer 3

When the retired employee gets the distribution in the periodic payments for, such payments will get taxed to the employees, and considered as an ordinary income with the annuity rules related to Section 72 of the IRC (Internal Revenue Code).
When the employee don't have a cost basis, the payments will get taxed, and consider as an ordinary income at the time of receiving. When the employee don't have a cost basis, the every part of the distribution will get considered as a tax-free recovery of a cost-basis.
When the payment get made on a non-lifetime basis, every payment will get multiplied with the fraction ratio in order to determine the value which is tax free, and the value which is taxable. The fraction numerator is considered as a total cost basis, and the denominator is the employees expected return which comes under the arrangement of the payment.

Question 4

How will the answer to the previous question change if the employee has a cost basis in the plan

Question 5

How are severance-of-employment benefits taxed

Question 6

Explain the taxation of disability benefits.

Question 7

Discuss how different individual objectives influence a retirement plan distribution strategy.

Question 8

Summarize the key considerations in the development of a retirement plan distribution strategy.

Question 9

Discuss the likely effect of the early distribution penalty tax on plan design.

Question 10

Describe various types of annuities.

Question 11

Compare and contrast a periodic payment option with an annuity distribution option.

Question 12

What challenges are present when liquidating assets in a defined contribution plan

Question 13

How does a laddered bond portfolio protect a fixed-income portfolio against liquidation risk

Question 14

Describe the favorable tax treatment afforded to net unrealized appreciation on employer securities held in a qualified plan.

Question 15

Can various payment options be combined Explain.

Question 16

How can a third-party annuity placement service be used by a qualified plan