better benefits

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Indianapolis. 317-236-2249 [email protected]. Robert L. Gauss. Partner. Indianapolis. 317-236-2133 gaus
build better benefits MAXIMIZE YOUR INVESTMENT

IN YOUR EMPLOYEES

with the

NATIONALLY

RECOGNIZED

EMPLOYEE BENEFITS

TEAM.

KEY CONTACTS Audra J. Ferguson-Allen

Partner Indianapolis 317-236-2249 [email protected]

icemiller.com

Robert L. Gauss

Partner Indianapolis 317-236-2133 [email protected]

Melissa Proffitt

Office Managing Partner Indianapolis 317-236-2470 [email protected]

Ice on Fire

DISTRIBUTION RULES FOR DEFINED CONTRIBUTION RETIREMENT PLANS QUICK REFERENCE GUIDE STEP #1: Has there been a Distributable Event?

STEP #2: What form of payment is requested?

A distribution is only permitted upon a Distributable Event, as defined by the plan. The Internal Revenue Code permits distributions from a defined contribution plan only upon certain events, which generally include:

The form of payment determines the tax withholding of the distribution and who can receive it. The plan provides what form of payments are permitted. Forms of payment that are Eligible Rollover Distributions may be rolled to another qualified plan or IRA to continue the tax-deferred treatment of the distribution.

401(k)/403(b) Plans: • Severance from employment • Age 59½ • Disability • Death • Financial hardship

457(b) Plans: • Severance from employment • Age 70½ • Death • Unforeseeable emergency

Money Purchase Plans: • Severance from employment • Age 62 • Death • Disability

Profit Sharing Plans: • Severance from employment • A fixed number of years • Attainment of stated age • Occurrence of event such as layoff, illness, disability, retirement, or death

Eligible Rollover Distributions:

NOT Eligible Rollover Distributions:



MOST lump sum payments



Annuity payments



Installment payments scheduled for less than 10 years



Installment payments scheduled for 10 years or longer



Mandatory cash-outs of small account balances



Required minimum distributions



Financial hardship distributions

A plan may also provide that rollover contributions received by the plan – and separately tracked – may be distributed at any time.

STEP #3: Who should receive the payment? IF

Eligible Rollover Distribution,

THEN

the plan, at the direction of the distributee, may either

IF



pay the distribution in cash to the distributee, or



pay the distribution in a direct rollover to a recipient qualified plan or IRA that agrees to accept the contribution.

NOT Eligible Rollover Distribution,

THEN the plan must pay the distribution in cash to the distributee. It cannot be paid in a direct rollover.

STEP #4: How should the payment be taxed? All distributions are reported to the IRS on Form 1099-R. Eligible Rollover Distributions: •

Direct rollover – no withholding



All other payments – 20% mandatory withholding (cannot be waived)

NOTE: If entire distribution is rolled over to qualified plan or IRA within 60 days, not taxable to distributee

NOT Eligible Rollover Distributions: •

Periodic payments – withholding as if distributee is married with three exemptions



Non-periodic payments – 10% withholding



Distributee may elect no withholding or additional withholding

These materials are intended for general information purposes only and do not constitute legal advice. The materials should not be used or relied upon as a substitute for a review of applicable statutes, regulations, rulings and court decisions. The reader should consult legal counsel to determine how laws apply to specific situations. These materials were prepared in January 2018, and, consequently, will not reflect changes in law subsequent to that date. Attorney Advertising Material | © 2018 Ice Miller LLP.