1. Experience the Gold Standard
Distribution Issues
2014

2. Agenda DISTRIBUTION CASE STUDIES Hardship distributions RMDs
Determining amount available
RMDs
Required beginning date
Missed RMDs
Beneficiary issues
© Goldleaf Partners

3. Hardship Distributions
Case Study #1
Facts:
April requests a hardship distribution from her 401(k) plan to pay for medical expenses in the amount of $14,000
She has both pre-tax and Roth deferrals in the plan, and has been contributing since 2007
The plan permits elective deferrals only to be taken for hardship reasons, under the safe harbor rules
April’s elective deferral balance is $22,000
Can April take the requested $14,000 from the plan?
What are the issues raised by her hardship request?
What other information is needed to answer these questions?
© Goldleaf Partners

4. Hardship Distributions
Aggregate amount of elective deferrals is available for hardship
Reduced by prior distributions of deferrals for hardship
Earnings are not included in amount available
May include earnings credited before 1989, if tracked properly
Recordkeeping issue: Plan must track amount available for hardship separately from normal plan accounting
Distribution is actually pro rata portion of deferrals and earnings, while amount available is deferrals only
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5. Hardship Distributions
Total deferral amount is available for hardship
Available amount determined by subtracting out earnings and prior hardship amounts
Distribution can be from either pre-tax or Roth account
Designated Roth deferrals are available for hardship, plan permitting
Must track hardship available amount
Actual distribution is pro rata portion of deferrals and earnings – affects taxation
Designated Roth contributions are after-tax, basis must continue to be tracked in the plan
Recordkeeping issue compounded further by distribution of non-qualified Roth dollars
© Goldleaf Partners

6. Hardship Distributions
Case Study #1
What other information is needed?
Amount of deferrals, not including earnings
Amount of prior hardship distributions, if any
Total deferral contributions – prior hardship = hardship available amount
© Goldleaf Partners

7. Hardship Distributions
What if records are not properly maintained?
Can a hardship distribution be processed without historical data?
How is available amount determined?
© Goldleaf Partners

8. Required Minimum Distributions
Case Study #2
Facts:
Joe requests a distribution of his account balance
He wants to rollover his balance to an IRA
Joe is 72 years old and still employed
He is not an owner of the business
Can Joe take a distribution?
Any concerns with completing a rollover to an IRA?
What other information is needed to answer these questions?
© Goldleaf Partners

9. Required Minimum Distributions
Participants are required to take a portion of their account balance each year upon their “required beginning date”
RBD is generally the later of April 1 following the year attained 70½, or April 1 following the year of retirement
Exception for more than 5% owners—RBD is always April 1 following 70½ year (cannot delay)
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10. Required Minimum Distributions
Participant will be 70½ this year, not an owner, still employed—can he take a distribution? Must he take an RMD?
What is the plan’s RBD?
Does the participant have a choice to start RMDs or delay?
Does he have another trigger for distribution?
Is there a difference between an RMD and in-service distribution?
Case Study #2
What other information is needed?
© Goldleaf Partners

11. Required Minimum Distributions
Case Study #3
Facts:
Bree started taking RMDs by 4/1 following her 70½ year
She is an owner of the business
At age 73 she sells her share of the business but continues to work there
Does this affect her RBD? Can she, or must she, stop taking RMDs?
© Goldleaf Partners

12. Required Minimum Distributions
Once RMDs begin, they must continue
RMDs begin for owner who later becomes a non-owner, can he stop taking RMDs?
Plan does not permit delayed RBD option, plan amends to add this option, can a participant who started RMDs stop now?
Employee has a choice to delay RMD or start RMD, chooses to start RMDs, can he change his mind later?
Participant separates from service, begins RMDs, and is later rehired, can he stop taking RMDs?
© Goldleaf Partners

13. Required Minimum Distributions
Case Study #4
Facts:
Jacob has his first RMD due by 4/1
Due to administrative error, the distribution does not get processed
It is now months later and the plan administrator has just realized the error
What are the consequences? Any option to correct the situation?
© Goldleaf Partners

14. IRS penalty for missed RMDs
Assessed against participant or beneficiary
50% of the amount required that was not distributed
RMD is still required to be taken or risk plan disqualification
Option to correct (avoid penalty)
Participant can request waiver of the penalty on IRS Form 5329
Plan can file under IRS’ VCP to waive penalties for all participants who missed RMDs (reduced fee of $500 for VCP)
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15. Beneficiary Issues Case Study #5 Facts:
Jeff named spouse (Ann) as beneficiary
Jeff and Ann divorce, Ann receives a portion of the account pursuant to a QDRO
They have no children
Jeff dies with no one named as a beneficiary
Who is the beneficiary? How are the assets distributed?
What is the availability of an inherited IRA to his sister, his intended beneficiary?
© Goldleaf Partners

16. The plan document defines beneficiary in the absence of one
Beneficiary Issues
The plan document defines beneficiary in the absence of one
If married at the time of death, the spouse will be the beneficiary unless consents to another named beneficiary
Beneficiary options vary based on the beneficiary’s relationship to the participant
Who is the beneficiary?
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17. Beneficiary Issues Death before RBD Death on or after RBD Spouse
How are the assets distributed?
Death before RBD
Death on or after RBD
Spouse
5-year rule
Life expectancy payments
Nonspouse
Nonperson (e.g., estate)
Nonperson
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18. Questions?
Thank you!
© Goldleaf Partners