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Distributions - misc

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IRS Addresses Tax and Reporting Consequences of Failure to Cash a Qualified Plan Distribution Check

"Allowing individuals to delay income by simply ignoring a distribution check would give them unfettered discretion to delay their taxable income, a consequence that the IRS has clearly denied elsewhere ... And allowing individuals’ handling of distribution checks -- beyond the control and typically beyond the knowledge of the plan administrator -- to alter the tax withholding and reporting obligations of the plan administrator would invite chaos. If there is anything curious about the ruling, it is why the IRS thought the ruling was needed now."

(Thomson Reuters / EBIA)
[Official Guidance] Text of IRS Rev. Rul. 2019-19: Failure to Cash a Distribution Check from a Qualified Retirement Plan (PDF)

"Under Section 402(a), the amount of the designated distribution is actually distributed from Plan X to Individual A in 2019. Because Individual A has no investment in the contract within the meaning of Section 72 and no exception to Section 402(a) applies, the amount of the designated distribution is includible in her gross income in 2019. Individual A's failure to cash the distribution check she received in 2019 does not permit her to exclude the amount of the designated distribution from her gross income in that year under Section 402(a)."

(Internal Revenue Service [IRS])
Can a Pre-Tax 401(k) Account Be Converted to a Roth Account?

"There are Roth conversions and Roth transfers. Conversions are only permitted when a participant otherwise has a reason to take money out of the plan. That could be on termination of employment or attainment of age 59-1/2. Transfers, on the other hand, are not restricted to those types of events, so any participant can take advantage of them."

Have an IRA or 401(k)? The New SECURE Act Will Change Your Estate Planning

"Under the previous rules, we could ‘stretch’ IRA distributions to non-spouse beneficiaries, which allowed for a potentially significant income tax savings to the children of IRA owners. ... Coupled with the fact that inherited IRAs are subject to the claims of the beneficiary’s creditors, many IRA owners created ‘IRA Conduit Trusts’ or other mechanisms to make sure beneficiaries could take only the Required Minimum Distributions and assets in the IRA would be protected. SECURE changes that paradigm."

Better Budgeting with 'Actuarial Budget Buckets'
"When selecting assumptions for future increases in your recurring expenses, it may be reasonable to assume, for example, that: [1] your current recurring essential non-health expenses will increase by assumed inflation in the future; [2] your current recurring essential health expenses will increase by a rate greater than assumed inflation; and [3] your current recurring discretionary expenses will increase by a rate lower than assumed inflation." (Ken Steiner, FSA Retired)
[Opinion] Three Policy Ideas for Turning Individual Account Balances Into Retirement Security (PDF)
"Crafting the ideal retirement spending program requires an alchemistic blend of the retiree's life expectancy, future investment returns, inflation, emergency spending needs, bequest motives, and ever-changing tax law and Social Security benefits. Annuities would be an obvious solution for many, but few retirees are willing to turn over a large sum of money for a seemingly small monthly payment.... [T]hree relatively new and promising ideas [are]: a voluntary Social Security buy-in; tontine -- a kind of mortality risk sharing pool; and a new kind of Treasury bond called a SeLFIE." (K&L Gates, via Benefits Law Journal)
[Guidance Overview] IRS Issue Snapshot: Hardship Distributions from 401(k) Plans
"This Snapshot examines the criteria for hardship distributions. Different restrictions apply to hardship distributions made from elective deferrals that were contributed prior to 1989. A discussion of those rules is beyond the scope of this Snapshot. The Bipartisan Budget Act of 2018 made several changes to the requirements for hardship distributions from 401(k) plans. Those changes are summarized[.]" (Internal Revenue Service [IRS])
Debt Close to Retirement and Its Implications for Retirement Well-Being
"The most financially-knowledgeable older adults are the least likely to report that they hold too much debt or that they are financially fragile. Older people with higher incomes and more education people tend to hold long-term debt, such as mortgages, while those with lower incomes and less education tend to carry high-cost debt, such as payday loans." (TIAA Institute)
[Opinion] Establishing Dedicated Asset Reserves to Fund Different Types of Retirement Expenses
"[The authors believe] that it would be beneficial for these two types of expenses to be further segmented into recurring and non-recurring core/adaptive expenses, and [also] believe using present values to develop the required reserves for these expense categories (and other expected expenses) is superior to using variations of the 4% Rule proposed by [Michael Kitces]." (Ken Steiner, FSA Retired)
Segmenting Retirement Expenses Into Core vs. Adaptive Buckets
"[W]hat defines more flexible 'discretionary' spending to fund wants (rather than needs) isn't just a function of certain categories of expenses, or funding solely the expenses necessary to ensure base-level safety and survival needs. Instead, retirees can upgrade their lifestyle across any number of traditionally 'essential' spending categories as well ... as long as there's a clear resource bucket to show how long that spending can be sustained, and when the retiree really may have to adapt!" (Nerd's Eye View)
[Official Guidance] Text of IRS Proposed Regs: Withholding on Certain Distributions under Section 3405(a) and (b)
15 pages. "[S]takeholders have requested clarification regarding the application of Notice 87-7 and section 3405(e)(13)(A) in the following situations: [1] The payee provides the payor with an Army Post Office (APO), Fleet Post Office (FPO), or Diplomatic Post Office (DPO) address. [2] The payee provides the payor with a residence address located within the United States but provides payment instructions that request delivery of the designated distribution to a financial institution or other person located outside of the United States. The proposed regulation includes rules that would address these situations[.]" (Internal Revenue Service [IRS])
Forecasting Future Investment Returns
"Research has shown that the current level of equity market P/E ratios appears to be a more important factor in predicting future equity returns than historical return data.... If you or your financial advisor are using a Monte Carlo model to help you develop your spending budget ... make sure that expected equity returns assumed in the model are consistent with today's market P/E ratio and are not based solely on historical averages." (Ken Steiner, FSA Retired)
Crunching the Numbers on Pension Lump Sums, Part 2
"For a retiree, or someone close to retirement, the decision to take a lump sum or a life annuity form of payment from a pension plan is a classic example of ... the decision of how much of one's assets should be allocated to the less-risky floor portfolio to fund essential expenses and how much should be allocated to the more-risky upside portfolio to fund non-essential expenses." (Ken Steiner, FSA Retired)
Investing for Income in Retirement
"[1] Set aside 12 months' worth of expenses, after accounting for other non-portfolio income sources, in a liquid cash account ... [2] Keep an additional two to four years' worth of expenses in short-term bonds or bond funds in case of a market downturn.... [3] [C]onsider investing the remainder of your portfolio in assets that have greater potential for investment income and growth ... [4] [A] total return approach allows you to harvest some of your portfolio's gains -- including price appreciation -- for income as needed." (Charles Schwab)
Combining the IRA Rollover Rules for Surviving Spouses with the Separate Account Rules
"If an IRA account has multiple beneficiaries, and that account is not split by December 31st of the year after death, then all beneficiaries are stuck using the life expectancy of the oldest among them. That treatment lasts until the account is emptied. For non-spouse beneficiaries, all post-death beneficiary Required Minimum Distributions (RMDs) must also begin by December 31st of the year after death. On the other hand, spousal beneficiaries can roll over inherited amounts to their own IRA accounts, essentially changing when RMDs begin. Spouses also get favorable treatment when calculating those RMDs." (Slott Report)
Generating Income During Retirement
"After you've determined a reasonable portfolio withdrawal rate ... [1] Set aside a cash cushion ... [2] Manage your retirement portfolio sensibly ... [3] Boost your potential returns by investing tax-efficiently ... [T]he next question is: Where should the money come from? ... Dividends and interest versus selling shares.... Bonds maturing in the coming year.... Which investments should you sell? ... Required minimum distributions.... Tax bracket ramifications.... Securities held for slightly less than a year." (Charles Schwab)
How to Manage Withdrawals When You Retire During a Bear Market
"[T]hree different strategies ... that can allow you to still retire when you want to without the market fluctuations (or downturn) affecting your plans or causing you to run out of money sooner than you originally projected ... [1] The bucket strategy ... [2] Essential vs. discretionary ... [3] Structured systematic withdrawals." (Financial Finesse)
[Official Guidance] Text of 2018 IRS Publication 575: Pension and Annuity Income (PDF)
49 pages; Feb. 26, 2019. "What's New: Extended rollover period for qualified plan loan offsets in 2018 or later. For distributions made in tax years beginning after December 31, 2017, you have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to roll over a qualified plan loan offset amount." (Internal Revenue Service [IRS])
Winning the Retirement Game: Be Flexible and Have a Plan
"Our inability to predict the future ... hasn't stopped individuals from coming up with approaches that they believe can 'safely' be used to spend down retirement savings which are significantly invested in risky assets. The 4% Rule is a classic example of such an approach.... [Dynamic approaches] require periodic (typically annual) 'actuarial valuations' to keep spending on track and consistent with a retiree's spending goals.... [R]eturns on risky assets will fluctuate from year to year and these fluctuations may increase or decrease how much we can afford to spend." (Ken Steiner, FSA Retired)
[Guidance Overview] Implementing the New Hardship Withdrawal Regs
"[W]ith respect to discretionary provisions: [1] Should the plan delete the six-month suspension provisions for hardship withdrawals issued before January 1, 2020? ... [2] Should the plan continue to require a participant to obtain all available plan loans before granting a hardship withdrawal? ... [3] Should the plan expand the portion of a participant's account from which hardship withdrawals can be made? ... [4] When should the changes to the list of safe harbor expenses be effective?" (Thompson Coburn)
Hardship Distributions and Recent IRS Changes
"Under the new rules, a plan sponsor can accept a written statement from the participant where they certify there is a financial need.... [Other changes include:] [1] No plan loan requirement -- although [this change] is not mandatory ... [2] Allow for further contributions ... This mandatory rule is effective January 1, 2020 but can be applied earlier. [3] Investment earnings distribution ... 403(b) plans still prohibit investment earnings to be counted for hardship withdrawals." (PlanPILOT)
'Gap Analysis' for IRA Beneficiaries
"The gap period begins on the date of death of an IRA owner and ends on September 30 of the following year. A significant amount of planning activity can, and should, take place within this window, including: [1] Post-death distributions (i.e. 'cash-outs') ... [2] Account splitting ... [3] Disclaimers." (Slott Report)
[Official Guidance] Text of 2018 Instructions for IRS Form 8915B: Qualified 2017 Disaster Retirement Plan Distributions and Repayments (PDF)
"File 2018 Form 8915B if any of the following apply. [1] You received a qualified 2017 disaster distribution from an eligible retirement plan in 2018. [2] You received a qualified 2017 disaster distribution in 2017 that you are including in income in equal amounts over 3 years. [3] You made a repayment of a qualified 2017 disaster distribution in 2018." (Internal Revenue Service [IRS])
Actuarial Approach for Retiree Spending and Pension Funding Use the Same Basic Actuarial Principles
"These basic actuarial principles include: [1] Making deterministic assumptions about the future; [2] Reflecting the time value of money; [3] Reflecting the concept of probabilities; [4] Reflecting mortality; [5] Use of actuarial present values; [6] Use of a generalized individual model that compares the present value of assets with the present value of liabilities; [7] Periodic gain/loss adjustment to reflect experience different from assumptions (annual valuations), and [8] Conservatism." (Ken Steiner, FSA Retired)
[Official Guidance] Text of 2018 IRS Publication 575: Pension and Annuity Income (PDF)
49 pages. "What's New: Extended rollover period for qualified plan loan offsets in 2018 or later. For distributions made in tax years beginning after December 31, 2017, you have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to roll over a qualified plan loan offset amount." (Internal Revenue Service [IRS])
[Guidance Overview] IRS 401(k) Plan Fix-It Guide: Hardship Distributions Were Not Made Properly
Feb. 11, 2019. "How to avoid the mistake: [1] Review the plan document language ... [2] When you amend your plan document, make certain the language for hardship distributions is in the most recent document. [3] Establish hardship distribution procedures ... [4] Only allow hardship distributions that meet the plan document and IRC Section 401(k) requirements. [5] Look for signs that the hardship distribution program is being abused or badly managed." (Internal Revenue Service [IRS])
[Official Guidance] Text of 2018 IRS Form 8915B: Qualified 2017 Disaster Retirement Plan Distributions and Repayments (PDF)
"Complete this part only if you have qualified 2017 disaster distributions in 2018 and the total of your qualified 2017 disaster distributions in 2017, if any, for the type of qualified 2017 disaster distribution(s) (hurricanes or wildfires) made in 2018 was less than $100,000." (Internal Revenue Service [IRS])
If You Aren't Separately Budgeting for Non-Recurring Expenses, You Probably Don't Have a Robust Retirement Spending Budget
"One of the significant differences between the Actuarial Approach and these other approaches is that it develops separate budgets for your recurring and your non-recurring future expenses.... These new revised workbooks now permit you to input up to three expected non-recurring expenses and will now calculate a recurring spending budget, a non-recurring spending budget and a total spending budget for the current year based on the input items." (Ken Steiner, FSA Retired)
[Guidance Overview] IRS Issues Proposed Regs Modifying Hardship Distribution Rules
"Most of the changes made by the [Bipartisan Budget Act] and the proposed regulations apply to the safe harbor rules for hardship distributions, and many plans have adopted those changes because they provide better assurance of compliance with the hardship distribution standards.... [A] plan amendment that relates to the final regulations will be treated as an amendment to correct a disqualifying provision, even if it does not; therefore, all amendments that relate to the final regulations will have the same deadline." (Trucker Huss)
[Guidance Overview] The 403(b) Hardship Distribution That's Not a Hardship Distribution Under the Proposed Regs
"[A] 403(b) QNEC and QMAC distribution ... is made under Reg 1.403(b)-6(b), under which amounts NOT attributable to elective deferrals can be distributed.... This [has] at least four operational effects: [1] [T]hese amounts CAN be rolled over, unlike a 403(b)(11) distribution of elective deferrals ... [2] [T]he plan document language which will need to be amended is NOT the hardship section. Rather, it is the in-service withdrawal section of the plan document.... [3] [T]he 'financial need,' 'deemed hardship' and other rules required of hardship distributions by statute or regulation will not apply as a matter of law, but only as a matter of chosen plan operational rules ... [4] [T]he 402(f) notice needs to properly identify the tax attributes of this type of distribution, that is, that it can be rolled over." (Business of Benefits)
Decumulation Confusion
"[Two recent articles provide] intriguing perspectives on the same issue -- one citing a survey of a seemingly irrational fear among those about to retire, and another stating that while a healthy concern for maintaining one's standard of living is quite valid, obsessing about a bear market -- or investment performance in general -- is the wrong approach to maintaining that standard, and should take a back seat to proper risk management." (Cammack Retirement Group)
[Official Guidance] Text of 2018 IRS Publication 590-B: Distributions from IRAs (PDF)
63 pages. "What's New: [1] No recharacterizations of conversions made in 2018 or later.... [2] No miscellaneous itemized deductions allowed.... [3] 2018 Form 1040 redesigned.... References to Form 1040 and its related schedules have been revised accordingly in this publication. [4] Form 1040A and Form 1040-EZ no longer available." (Internal Revenue Service [IRS])
[Guidance Overview] We're in a New York State of Distributions
"The first $20,000 of a taxpayer's taxable retirement income in each year is exempt from New York State and City income taxation.... [A] New Yorker who takes a $20,000 distribution annually after reaching age 59 1/2 saves as much as $2,500 annually in otherwise eventually payable New York taxes. Note that this is not a deferral but rather complete tax-exemption on these amounts." (Thomson Reuters Practical Law)
Deferred Income Annuities Enhance Retirement Readiness (PDF)
"The study finds an overall improvement in retirement readiness when DIA purchases equal to 5, 10, and 15 percent of the 401(k) balance, and a pre-commencement death benefit, are added to the DIA. When the results are broken out by age at simulated death, there is an overall decrease in retirement readiness for those dying before benefits begin, as well as for those dying soon after benefits begin." (Employee Benefit Research Institute [EBRI])
Is the Partial Government Shutdown Affecting Your Benefit Plans?
"While on leave, employees are not in pay status and, therefore, elective contributions to 401(k) plans and cafeteria plans cannot be made.... A temporary or permanent layoff or a cutback in hours affecting a number of employees can have an impact on nondiscrimination testing.... Employees who are laid off or experience a reduction in hours resulting in loss of health plan coverage must be offered COBRA continuation coverage.... IRS is not publishing the monthly 'applicable interest rate' used in calculating lump sum payments from certain pension plans." (The Wagner Law Group)
New Insights Into Real-World Retirement Spending Behaviors (PDF)
"[C]onventional wisdom about prudent retirement income strategies has typically centered around two much-touted rules of thumb. The first is the 4% rule ... The second is that post-retirement income can be broadly modeled using a fixed, reduced benchmark rate relative to someone's pre-retirement income level.... [R]esearch into real-life retirement spending patterns, however, uncovered three surprising trends that suggest it may be time to re-examine these popular replacement income strategies.... There is a lifetime spending curve. There is a retirement spending surge. There is notable spending volatility at and through retirement." (J.P. Morgan Asset Management)
[Official Guidance] Text of 2018 Instructions for IRS Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (PDF)
"You must file Form 5329 if any of the following apply ... [1] You received a distribution from a Roth IRA and either the amount on line 25c of Form 8606 ... is more than zero, or the distribution includes a recapture amount subject to the 10% additional tax, or it's a qualified first-time homebuyer distribution ... [2] You received a distribution subject to the tax on early distributions from a qualified retirement plan ... [3] The contributions for 2018 to your traditional IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, HSAs, or ABLE accounts exceed your maximum contribution limit ... [4] You didn't receive the minimum required distribution from your qualified retirement plan." (Internal Revenue Service [IRS])
Expand Your Spending Categories in 2019 for Better Personal Retirement Budgeting and Planning
"[W]hen determining whether you are spending too much or too little, ... you should be looking at the proposed total spending budget for the current year divided by the present value of your total assets ... and not the proposed amount to be withdrawn from your accumulated savings divided by your accumulated savings." (Ken Steiner, FSA Retired)
[Opinion] SPARK Comment Letter to IRS on Proposed Hardship Distribution Regs (PDF)
11 pages. "By its terms, the Substantiation Memo only refers to the existing safe-harbor events. The IRS should expressly clarify that the substantiation guidelines described in the Substantiation Memo will cover the new safe-harbor event for expenses incurred as a result of federally-declared disasters and ensure that the Internal Revenue Manual is updated accordingly. This update should set forth what information and notifications the IRS would expect a plan administrator to collect and provide to substantiate the new seventh safe-harbor hardship event for expenses related to federally-declared disasters." (The SPARK Institute)
[Guidance Overview] IRS Issues Updated Eligible Rollover Distribution Notices
"The IRS recently updated its model notices in [Notice 2018-74] to include a number of significant changes in the law. There are two model notices, one for payments from a Roth account and one for payments not from a Roth account. Two changes addressed in the updated model notices apply to participants of most retirement plans, while others only apply to participants in certain governmental plans." (Frost Brown Todd LLC)
Assessing Economic Resources in Retirement: The Role of Irregular Withdrawals from Tax-Advantaged Retirement Accounts
"Compared to total household income, irregular IRA and pension withdrawals amount to about 5 percent of income for singles and 10 percent of income for married households. The irregular withdrawals are concentrated among those in the highest wealth quartile and those in the highest education group, reflecting the higher prevalence of pensions in high-paying jobs that are predominantly held by those with high education. Thus, they have little impact on poverty rates." (Michigan Retirement and Disability Research Center, Univ. of Michigan)
Finding Your Tax Equilibrium Rate When Liquidating Retirement Accounts
"[W]ith some relatively simple and straightforward assumptions about future Social Security and pension payments, RMD calculations, and anticipated interest, dividends, and capital gains, it really is feasible to make a reasonable approximation of an individual's future tax rates to determine where the ideal equilibrium will be. And then engage in strategies from accelerated retirement account liquidations, to partial Roth conversions, and capital gains harvesting, as necessary to ensure that any currently-lower tax brackets are filled up to reach the equilibrium point." (Nerd's Eye View)
Developing a 2019 Retiree Spending and Withdrawal Budget
"[If] you invested significantly in equities in 2018, it is likely that you experienced some investment losses last year. In order to avoid undesirable fluctuations in recurring spending, you may wish to consider some or all of the following actions: [1] Dipping into the Rainy-Day Fund that you previously established with investment gains enjoyed in previous years; [2] Reducing 2019 non-essential non-recurring expenses, or [3] Using the Smoothed Actuarial Budget Benchmark[.]" (Ken Steiner, FSA Retired)
[Official Guidance] Text of 2018 IRS Form 8915A: Qualified 2016 Disaster Retirement Plan Distributions and Repayments (PDF)
"Attach to 2017 Form 1040, 2017 Form 1040A, or 2017 Form 1040NR." [Fillable PDF; may not open correctly in some browsers.] (Internal Revenue Service [IRS])
[Guidance Overview] IRS Issues Proposed Regs Amending Rules for Hardship Distributions
"The proposed regulations include the following changes: [1] Elimination of the six-month suspension requirement; [2] Elimination of the plan loan requirement; [3] Modifications to the list of hardship distribution events; [4] Addition of participant representation requirement; [5] Expansion of sources available for hardship distributions.... [T]he Treasury Department and IRS expect that plans will need to amend their hardship distribution provisions to reflect some or all of the changes in the proposed regulations." (Drinker Biddle)
Retirement Plan Withdrawal Trends
"[T]he average participant withdrew more than 55% in any given year at or soon after retirement. Only 28% of participants remained in the plan three years after retirement." (J.P. Morgan Asset Management)
[Official Guidance] Text of IRS Publication 939: General Rule for Pensions and Annuities (PDF)
83 pages, Rev. Dec. 2018. "Use this publication if you receive pension or annuity payments from: [1] A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan); or [2] A qualified plan if: [a] Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you don't qualify to use, or didn't choose to use, the Simplified Method; or [b] Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years." (Internal Revenue Service [IRS])
Reasons Why the Smoothed Actuarial Budget Benchmark is Superior to IRS RMD for Developing Spending Budgets
"[T]he RMD suffers from the following deficiencies: ... The assumptions underlying RMD withdrawal factors are questionable and are inconsistent with assumptions used to price inflation-indexed annuities.... [T]he RMD withdrawal factors are not based on one's life expectancy. Application of RMD is unclear for ages under 70. RMD doesn't coordinate with other sources of income. RMD doesn't consider non-recurring expenses.... RMD is inflexible and doesn't accommodate 'budget shaping.' " (Ken Steiner, FSA Retired)
Why Now Might Be the Time to Eliminate a Hardship Distribution Provision
"The new standard states that an employee must represent ... that he or she has insufficient cash or other liquid assets to satisfy his/her hardship need. The plan administrator may rely on the employee's representation unless the plan administrator has actual knowledge to the contrary.... [T]hat last part about the plan administrator having actual knowledge to the contrary could be an administrative minefield for plan sponsors, as plan sponsor personnel responsible for administration of the retirement plan might be more aware of personal information regarding some employees[.]" (Cammack Retirement Group)
Making Charitable Donations of Stock Instead of Cash After Tax Reform
"If you're charitably inclined and hold meaningful amounts of appreciated stock, such as shares acquired from a stock option exercise, restricted stock/RSU vesting, or ESPP purchase, donating stock instead of cash can be a smart tax-planning move.... [S]tock donations can reduce your taxes by giving you total deductions that exceed your new increased standard deduction amount." (Forbes)
[Guidance Overview] Proposed Amendments to the Hardship Distribution Regs (PDF)
"[This article includes] a table reflecting the various effective/applicability dates.... The Proposed Regulations make it automatic that a hardship distribution for those in FEMA-designated areas is permissible when there is a major federally declared disaster ... [T]he Proposed Regulations allow a plan to retroactively apply the new disaster event [rules] for 2018.... Employers will need to make operational decisions to implement changes under the Proposed Regulations prior to adopting a plan amendment.... A Hardship Distribution Operational Checklist will be helpful in this regard." (ASC)
Tips to Maximize the Tax Savings of Your QCDs and RMDs
"This year, [qualified charitable distributions (QCDs)] are more valuable than ever before. So valuable in fact, that everyone who qualifies should be making their donations through QCDs, which allow you to make charitable gifts of up to $100,000 per year directly from your IRA. An IRA check made payable to the charity will also qualify." (The Wall Street Journal; subscription may be required)
Better Budgeting with an Actuarial Approach
"Most [sustainable withdrawal plans (SWPs)] and Monte Carlo models focus exclusively on recurring expenses in retirement. A more robust [sustainable spending plan (SSP)] should separately plan for future expenses that are non-recurring in nature as well as those expected to be recurring from year-to-year.... Because it involves a mark-to-market calculation of client assets and spending liabilities, the [actuarial budget benchmark (ABB)] can produce volatile results from year-to-year due to investment fluctuations. Those undesirable fluctuations can be mitigated by smoothing the results." (Ken Steiner, in Advisor Perspectives)
New Hardship Rules, Other Statutory Changes Reflected in Newly Proposed 401(k) Regulations
"The stance taken by the IRS with regard to hardship distributions for casualty losses was unexpected.... [T]he proposed regulations allow (but do not require) plans to eliminate the requirement to suspend contributions for six months on the first day of the first plan year beginning on or after December 31, 2018, even if the hardship distribution was made prior to that date." (Newport Group)
[Guidance Overview] IRS Proposes Regs on Hardship Withdrawals
"Although 403(b) plans generally follow the hardship rules applicable to 401(k) plans, the proposed regulations do not modify the 403(b) rules to permit withdrawal of earnings on 403(b) elective deferrals or QNECs/QMACs that are in custodial accounts.... 403(b) plan sponsors will need to exercise care when amending their plans to comply with BBA 2018 and the proposed regulations." (Morgan Lewis)
[Guidance Overview] IRS Issues Much Anticipated Hardship Guidance
"The proposed regulations generally address: [1] the required elimination of the post-withdrawal suspension of elective deferrals, [2] the optional elimination of the requirement for participants to take plan loans first, [3] the ability to include additional plan account sources in hardship distributions, [4] changes in the ability to qualify for a hardship distribution in the case of casualty losses and losses associated with federal disaster areas, and [5] changes in the administrative process required to document that a participant has demonstrated the requisite financial need." (Groom Law Group)
How Much Cash Should Retirees Have on Hand?
"Retirees who now have access to their retirement accounts without penalty may consider having extra cash on hand ... to help sustain themselves should there be an extended down market. Retirees can draw from this 'cash cushion' account instead of having to sell investments at an inopportune time, locking in a loss." (T. Rowe Price)
DOL Guidance Addresses Fiduciary Status and Fees Under Program Facilitating Portability of Automatic Rollovers
"[F]iduciaries of distributing plans will remain fully responsible for their decision to participate in the program and thus will need to carefully consider its cost and features compared to other default IRA options. As the benefits of the program may depend significantly on the provider's success in enlisting plans and recordkeepers willing to share data about plan participation, this cost-benefit analysis may be especially difficult, particularly for early adopters." (Thomson Reuters / EBIA)
[Guidance Overview] DOL RCH Advisory Opinion Illustrates the Difficulties Inherent to Bulk IRA/Auto Portability Programs
"IRAs are individually owned investment contracts, which are under the control of the former participant -- even though they are set up by the former employer.... [T]he DOL made it clear that negative consent will not suffice to relieve the program's sponsor from the fiduciary obligations related to the decision to move the money from the IRA to the new plan.... Then there is that nasty problem of securities laws and other state laws ... The question ... is how a fiduciary which is not appointed by the individual IRA holder has any legal authority to do ANYTHING with a registered security (or even any other investment) after it is set up by the original employer, as the investments are legally owned by the former participant." (Business of Benefits)
DOL Proposes Prohibited Transaction Exemption Allowing Vendor's Automatic Account Transfers
"RCH is constructing a system to share data on 401(k) participants with recordkeepers to find a departing employee's new plan and facilitate the transfer.... RCH plans to charge a maximum one-time fee of $59 for each transfer. For accounts with $590 or less, the charge will be 10 percent of the balance, and the service is free for accounts with $50 or less. There also is a 20-percent reduction in the fee charged to a plan when the annual volume of roll-in transactions exceeds 1 million transactions per year, meaning the benefits of scale are passed on to participants in the form of reduced fees[.]" (HR Daily Advisor)
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