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Distributions - misc

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[Opinion] What's an Appropriate Discount Rate for Personal Financial Planning?
"[W]hile historical asset class returns give us a sense of what we might expect in the future from various asset mixes, there are no guarantees that these historical returns will continue in the future, and higher expected investment returns generally do not come without additional risk.... [C]onsideration of this additional investment risk is an important part of the 'appropriate discount rate' determination that should not be ignored. Mr. Kitces' advice is potentially inconsistent with the basic financial economic principle that the value of a future stream of payments should be determined by finding a portfolio of assets that matches the benefit stream in amount, timing and probability of payment." (Ken Steiner, FSA Retired)
Discount Rates for Social Security or Pension Decisions
"[T]he fact that the proper discount rate is the investor's expected rate of return, means that the 'right' discount rate will vary from one person to the next, based on their investment approach and risk tolerance. For those who are more inclined towards aggressive investments, a higher discount rate may be used, while those who are conservative will use a lower discount rate of interest ... [I]nvestors must still be cautious to pick a discount rate that is actually realistic to the portfolio in the first place -- otherwise, an unrealistically high discount rate will lead to decisions that turn out to be less-than-optimal after the fact, when the money-in-hand doesn't actually produce the expected results!" (Nerd's Eye View)
[Official Guidance] Text of IRS Chief Counsel Memo 2017-18: Rollover of IRA Distributions from Failed Financial Institution (PDF)
"[An] IRA distribution made from a failed financial institution by the FDIC as receiver is disregarded for purposes of applying the one-rollover-per-year limitation, provided: [1] neither the failed financial institution nor the depositor initiated the distribution, and [2] no financial institution has assumed the IRAs of the failed financial institution." (Internal Revenue Service [IRS])
Catch 22 Situations With Retirement Plan Distributions
"Sometimes you need a particular form of distribution to achieve a certain tax result, but the retirement plan doesn't allow it. Or sometimes the tax law seems to say opposite things about the same distribution.... Retiring between age 55 and age 59 1/2.... 401(k) hardship distribution subject to the 10% penalty.... Estate wants to use the five-year payout." (Natalie Choate, in Morningstar Advisor)
How ETFs Might Help Retirees Better Manage Distributions
"Although many legal boundaries stand in the way, instead of receiving a cash lump sum, retirees could instead receive a balanced portfolio of ETFs allocated based on a specific risk profile. With the onset of digital advice from independent platforms as well as from traditional brokerage firms and wealth managers, the barriers to integrating an ETF portfolio into a beneficiary's new or existing account are falling." (Pensions & Investments)
Retirement Calculators: Three Good Options
"Calculators aren't capable of providing a bullet-proof analysis of the complex factors and future unknowns that will determine whether someone has done the planning and saving required to ensure a financially secure retirement. With that caveat, Squared Away found three calculators ... that do a good job. They met our criteria of being reliable, free, and easy to use. Many other calculators were quickly eliminated, because they were indecipherable or created issues on the first try." (Squared Away Blog, by the Center for Retirement Research at Boston College)
Retirement Plans Are Leaking Money. Here's Why Employers Should Care
"If their retirement accounts are dwindling, older employees may not be able to retire when they want to. How problematic that is depends on the employer and its workforce management philosophy.... [If] an employer wants workers to stay until normal retirement age, pass along their knowledge and skills, and then leave so younger workers can move up, early withdrawals become more problematic." (Society for Human Resource Management [SHRM])
Nobody Knew Couples Budgeting Could be So Complicated
"[If] a couple's Income from Other Sources (such as Social Security benefits, pension benefits, or life annuities) is expected to decrease or cease upon the death of one of the individuals, the left-hand side of the Basic Actuarial Equation (the assets) can be overstated ... [and]the right-hand side of the equation (spending liabilities) may be understated.... [T]wo possible approaches ... [are] a simple approximate approach and a more complicated (but more accurate) actuarial approach." (Ken Steiner, FSA Retired)
[Discussion] Separate Form 945 for Tax Withholdings on Distributions from Separate Plans?
"I have an individual client who maintains two plans for his business, and has had tax withheld due to distributions from each plan. Should these be reported by the plans on one Form 945 (they use the same EIN number), or do we file two separate forms?" (BenefitsLink Message Boards)
[Discussion] Retired Participant Wants Distribution of Less Than Full Account Balance
"A participant retired in May of this year. She is on Social Security. She sent in a distribution request form and asked for a partial distribution, but the plan document specifically says 'lump sum' only. She is wanting to take a minimum out each month so that she does not mess up her SS. What to do? Her balance is approximately $1,800." (BenefitsLink Message Boards)
[Discussion] Terminating a ROBS 401(k), Then Rollover to an IRA
"Individual bought a franchise using a Rollover-as-Business-Startup 401(k) plan and now wants to terminate it. Can the stock be rolled over to his IRA? If it could, there would be seem to be no such thing as a ROBS -- you would just start a company using an IRA. I thought the whole point was to take advantage of the employer securities exemptions available in a 401(k) plan." (BenefitsLink Message Boards)
How Do Distributions from Retirement Accounts Respond to Early Withdrawal Penalties?
"Crossing the age 59-1/2 threshold leads to a $1,600 increase in annual distributions from IRAs. People with birthdays that result in fewer months of penalty-free withdrawal in the calendar year in which they turn 59-1/2 have a much smaller increase in annual distributions between the years in which they turn 58-1/2 and 59-1/2. In contrast, those who turn 59-1/2 early in the calendar year see much sharper increases." (TIAA Institute)
[Discussion] Taxable Distribution of Life Insurance; Rollover to Save the Day?
"Participant held life insurance in a retirement plan. Agent said the insurance should be transferred to the participant. The participant is over 59-1/2 so at least it was a permitted distributable event. But he was not aware that the transfer would be a taxable distribution. We're still within 60 days of the transfer. If the participant has sufficient outside assets, can he contribute an amount to an IRA equal to the cash value less the basis and treat it as a rollover?" (BenefitsLink Message Boards)
Dynamic Retirement Spending with Small-But-Permanent Cuts
"[E]ngaging in a more rapid series of smaller -- but permanent -- spending cuts can be even more effective. For example, rather than cutting spending by 20% for 3 years after a market decline, if the retiree simply commits to trimming real spending by 3% (permanently) in any year that market returns are negative -- approximately the equivalent of forgoing an inflation adjustment during the down year, and a fairly trivial spending adjustment for most retirees -- the safe withdrawal rate rises by almost 0.5% (to more than 4.5%). With the large-but-temporary cut, the safe withdrawal rate only rises by 0.1%, instead." (Nerd's Eye View)
Annuities Offer Stability, Lump Sum Takers Say
"More than half -- 52 percent -- of lump sum recipients agreed that their budget would be more predictable if they'd chosen annuity payments from an employer pension or defined contribution plan ... Far fewer lump sum recipients -- 34 percent -- said it would be easier to pay for necessities if they had chosen monthly annuity payments instead of a lump sum ... The average lump sum amount ... for those who took a lump sum from the defined benefit plan was about $192,000. The average defined contribution plan balance at retirement was about $240,000." (
401(k) Distribution Rules: Frequently Asked Questions
"When am I eligible for a 401(k) distribution? ... What's a hardship distribution? ... When can I rollover a 401(k) distribution? ... Can I leave my money in my 401(k) plan after I terminate employment? ... When must I start taking Required Minimum Distributions from my 401(k) account? ... How are 401(k) distributions taxed? ... How are distributions of Roth 401(k) deferrals taxed?" (Employee Fiduciary)
Are You Being Too Frugal During Retirement? The Actuarial Budget Benchmark Can Help You Decide
"Now researchers are telling us that many retirees are being 'overly cautious' with their investment and spending strategies. [A] recent analysis ... shows, among other things, 'adults become less optimistic about future economic growth and financial health as they age and 'perhaps as a reaction to declining financial optimism, the average adult 60 years or older will trim their spending by about 2.5 percent every year, or by about 20 percent over a 10-year period.' " (Ken Steiner, FSA Retired)
[Discussion] 1099R Distribution Code for Roth Conversion Rollover
"A terminated participant in a 401(k) plan elected to receive her distribution from the plan (all non-Roth 401(k) pre-tax salary deferrals) as a Roth Conversion Rollover (to her Roth IRA). I understand that this money will be taxable income for the year, so I assume that box 1 and 2 will both be the amount of the distribution. What would the distribution code be? I'm thinking a code 1 because it's taxable income, but it's a Roth conversion rollover so I am confused -- I don't see how it can be code G for a rollover, because it's taxable income." (BenefitsLink Message Boards)
[Guidance Overview] Time is Right to Contact Recordkeepers About Hardship Substantiation
"The IRS's openness to substantiation in a summary form will be welcome news to many administrators and plan sponsors. But accepting summary substantiation will require careful review by the recordkeeper and, even with that review, administrators and sponsors will have to rely on participants to maintain records.... Plan sponsors should consider whether the efficiency from reduced documentation is worth the potential for headaches in an IRS audit." (Proskauer's ERISA Practice Center)
Software Solutions to Calculate Safe Withdrawal Rates
"[No] financial planning software solution has ever been created to illustrate the safe withdrawal rate approach.... [In] part, it's because the original safe withdrawal rate research used very simple assumptions -- from a two-asset-class portfolio, to ignoring the impact of fees, and a fixed 30-year time horizon -- which just doesn't hold for a wide swath of retirees. To fill the void, though, two new software solutions have recently emerged for financial advisors, specifically to illustrate the safe withdrawal rate approach, and be able to model the impact of varying assumptions, from a wider range of asset classes, to the impact of investment expense ratios and advisory fees, and time horizons that may be longer or shorter than 30 years." (Nerd's Eye View)
Income Illiteracy May Favor Simple Annuities
"Asset allocation, the 4 Percent Rule retirement portfolio withdrawal mantra, return on asset classes, tax implications, Social Security strategies -- many of these concepts in retirement finance are lost on millions of retirees. But talking to retirees about investing all or a portion of their $200,000 nest egg into an income annuity generating $700 a month for the rest of their lives? It doesn't get much easier than that[.]" (
Social Security Retirement Benefits and Private Annuities: A Comparative Analysis
"This issue paper explains some key features of Social Security retirement benefits, focusing on program funding; benefit payments to retired workers, their spouses, and survivors; and benefit taxation. It then discusses key features of private annuities, including funding and payments, types and features, and taxation. In addition, this paper gives examples of the premiums needed to replicate Social Security retirement benefits and discusses the variables that affect the amount of annuity income. Lastly, this issue paper explains some of the risks of both the Social Security program and the private annuity industry." (U.S. Social Security Administration [SSA])
[Opinion] It's Harder Than You Think to Spend Down Your 401(k) Account in Retirement
"[P]eople seem to have a psychological attachment to their pile; they have spent a lifetime building it up and may be reluctant to draw it down. Second, people are fearful about end-of-life health care needs and want to be sure they have enough money to cover their expenses. Finally, people seem to have a desire to leave a bequest ... So, without some guidance, chances are high that retirees will deprive themselves of necessities. One way to help may be to put more emphasis on the Required Minimum Distributions[.]" (Alicia Munnell, in MarketWatch)
Retirement Lump Sums Being Depleted Quickly
"More than one out of five workers who accepted a lump sum from their employer-sponsored retirement plan have depleted it ... Of the individuals who opted for the lump sum, 62 percent had money left over from the withdrawal, 21 percent had depleted their lump sum and 17 percent didn't know or couldn't recall ... Those who reported depleting their lump sum said it took them an average of five and a half years to burn through the money." (
What It Takes for Financial Advisors to Specialize in Retirees
"[E]ffectively managing a retirement portfolio, and the distributions that occur from it, is about more than just managing the investments themselves. Because retirement portfolios also have to face sequence of return risk -- the possibility that even if the portfolio generates the desired long-term return, if it achieves that return with an unfavorable sequence, ongoing distributions could catastrophically deplete the portfolio before the good returns show up! As a result, the best strategy for retirement income isn't necessarily the one that produces the best return." (Nerd's Eye View)
Withholding Requirements for 401(k) Plan Distributions
"Normally, any taxable distribution is subject to a mandatory federal income tax withholding of 20%. However, there are certain circumstances when a participant can choose not to have the 20% federal income tax withholding from their distribution.... Periodic payments ... Nonperiodic payments ... Distributions sent outside the United States to nonresident aliens ... Eligible rollover distributions." (WithumSmith+Brown, PC)
[Discussion] Are Participant Loans Really Taxed Twice?
"The author of the article purports that merely because the loan repayments are made with after-tax dollars, the compensation needed to repay the loan represents a double taxation (i.e., because every dollar of loan payments = $1.33 of comp). But the analysis does not take into account that the $10,000 of pre-tax money was received without paying any taxes." (BenefitsLink Message Boards)
[Discussion] Why Make a Plan-to-Plan Transfer?
"An employee terminates from Employer A and starts working for Employer B. They are unrelated employers. Both plans allow Plan-to-Plan transfers into and out of the plans. What is the benefit of this participant doing such transfer instead of a rollover?" (BenefitsLink Message Boards)
Find the 'Goldilocks' Solution for Spend-Down During Retirement
"[Sequence of return risk (SORR)] is generally not as significant of an issue with those who use more dynamic spending strategies that periodically adjust for actual investment experience. It is more of an issue with individuals and their financial advisors who disassociate spending decisions from actual investment performance. Rather than having faith that such a decoupling approach will work ... an actuarially determined spending budget [can] be determined each year and that the resulting amount be used as another 'data point' in making spending decisions." (Ken Steiner, FSA Retired)
Dynamic Programming Methods in Retirement Planning
"Ultimately, it's still not clear that there's one 'right' way to do retirement planning. Whether it is Monte Carlo versus historical ... goals-based versus cash flow-based ... or dynamic programming versus non-optimizing approaches ... all can provide different insights, which in turn can help guide decision for clients given the risks and sheer uncertainty they face in planning for retirement. But in the end, if the whole point of doing financial planning is at least in part to come up with an actual plan for how to handle an uncertain future, dynamic programming provides a unique toolset that isn't available in today's traditional financial planning software solutions ... at least, not yet!" (Nerd's Eye View)
Are 401(k) Loans Double Taxed?
"Many financial experts believe that 401k loans are not double taxed. They say that the overall tax treatment of the individual is the same whether he/she takes a 401k plan loan or a loan from somewhere else. An equivalent amount of taxes would be required to pay back a loan from any other lender.... However, that does not change the fact that a participant appears to experience a tax on the principal portion of 401k loans that is more than double his/her incremental tax rate." (Lawton Retirement Plan Consultants)
[Official Guidance] Text of IRS Publication 590-B: Distributions from IRAs (PDF)
60 pages, for use in preparing 2016 returns. "You can make only one rollover from an IRA to another (or the same) IRA in any 12-month period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because it is not considered a rollover.... If an RMD is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the RMD to you, or offer to calculate it for you.... For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan ... However, these distributions are taken into account when determining the modified adjusted gross income threshold." (Internal Revenue Service [IRS])
[Opinion] Continuing Saga of So-Called 'Safe Withdrawal Plan' -- Good News, Bad News
"[T]he good news in this research is that: it is a mistake to view portfolio withdrawals in isolation from other sources of income (as is the common practice), and risks retirees face in retirement can be mitigated by investing in guaranteed lifetime income sources and using dynamic rather than static spending strategies. The bad news ... is that Dr. Blanchett is even talking about utilizing safe withdrawal strategies with the implication that there are still financial planners out there who continue to use such strategies for their clients." (Ken Steiner, FSA Retired)
[Guidance Overview] (Mild) Relief for Safe-Harbor Hardship Administration
"The [memorandum to IRS EP employees] provides for some flexibility to employers and TPAs by allowing them to rely on summaries of information from participants. Employers and TPAs that currently require source documents to substantiate hardship distributions do not need to make any changes to their procedures. While they may want to consider whether collecting summaries might streamline their practices, their current practices assure that documentation is available upon an audit without having to rely on participants' recordkeeping abilities to satisfy any substantiation requests by the IRS." (Trucker Huss)
Because the Whole is Greater than the Sum of its Parts: Using the Actuarial Approach to Determine Spending During Retirement
"When comparing spending strategies, many retirement researchers make simplifying assumptions that individuals have Social Security and maybe one or two other lifetime income sources that are not deferred and, in total, are expected to be received linearly in constant real dollars over a retiree's lifetime planning period. They also assume that individuals will determine their annual spending by summing these individual sources of income and will spend exactly this amount each year.... The primary problem with summing individual sources of income to determine how much one can spend in a year is that it increases the odds that a retiree's spending strategy will be inconsistent with the retiree's spending goals." (Ken Steiner, FSA Retired)
Rollover Roulette: Rollover, Direct Rollover, Direct Payment, Direct Transfer or Transfer (Part 2: Potential Horrible Consequences)
"The only way that a beneficiary may move inherited eligible retirement plan monies to an inherited IRA is through a 'direct trustee-to-trustee transfer.' ... A 'direct rollover' is available only to plan participants (and their surviving spouses) and requires that the monies be paid directly to the plan participant's new employer's eligible retirement plan or IRA. A 'direct rollover' is not subject to the 60-day rule.... An IRA owner can also run into trouble if he or she confuses a 'rollover' with a 'transfer' and, as a result, does more than one rollover between IRAs in a 12-month period." (Morgan Lewis)
Communicating Your ESOP Distribution Policy
"Many companies [find] that a key challenge facing their ESOP participants is understanding the distribution policy.... Live meetings are the best way to answer any immediate questions participants may have. A short recorded webinar can be developed to provide an overview of the distribution policy, including the process and timeline.... Print materials are useful because participants can refer to them at a later date and can share them with spouses or financial advisors." (Principal Financial Group)
IRS Permits Self-Certification for Hardship Withdrawals from Retirement Accounts
"Be careful of inconsistencies such as a medical service invoice for services after a funeral date or an expense for a casualty loss prior to the date of the casualty ... In these circumstances, the agent will ask the employer or the TPA [third-party administrator] for the source documentation. This is where a potential risk exists for the employer and why the IRS has in the past been reluctant to accept self-certification." (Society for Human Resource Management [SHRM])
What to Collect When Processing a Hardship Distribution
"[This article provides] a list of specific documents that the employer must collect based on each type of hardship.... [1] Notifications that the employer/administrator must provide to the employee ... [2] General information for all hardship requests ... [3] Specific information on deemed hardships: [a] Medical care ... [b] Purchase of principal residence ... [c] Educational payments ... [d] Foreclosure/eviction from your principal residence ... [e] Funeral and burial expenses ... [f] Repairs for damage to principal residence." (Castle Rock Investment Company)
How Skillful RMD Planning Can Sustain Retirement Portfolios
"[T]he mathematics of the RMD virtually guarantee that a portfolio cannot be liquidated within 45 years. The required minimum withdrawal may be inadequate to meet the needs of the retiree in the later years, but that is a different matter. On the other hand, the stipulated RMD may be more than the retiree needs to spend that year, so the excess above their needs can be reinvested into a taxable investment account -- or simply stuffed in a mattress!" (Financial Planning)
Strategies to Make the Most of Your Retirement Assets
"In the future, if the government has to increase taxes one of the first doors they may knock will be these type of accounts.... One strategy to review if standard deductions go up is the benefit of converting a portion of your qualified retirement asset to a Roth IRA.... Another option to avoid paying higher taxes in the future is to position a portion of your qualified money into a QLAC.... If tax rates go down and standard deductions increase; delaying your Social Security benefit could prove to be a solid long-term tax play." (Slott Report)
[Guidance Overview] IRS Publishes Audit Guidelines for Hardship Withdrawals from 401(k) and 403(b) Plans
"The IRS audit guidelines only relate to the documentation requirements that apply to safe harbor hardship withdrawals, but are likely to also be relevant to non-safe harbor hardship withdrawals." (Miller Johnson)
[Guidance Overview] New IRS Audit Guidelines for Safe Harbor Hardship Distributions
"[M]any third party administrators offer streamlined hardship withdrawal services and do not maintain source documents or summaries. Employers using such services should ask the third party administrator if it will be modifying its services in light of the new IRS guidance. If not, the employer should maintain summaries to meet the new guidelines in the event of an IRS audit." (Wilkins Finston Friedman Law Group LLP)
[Guidance Overview] IRS Clarifies Permissible Substantiation Procedures for Hardship Withdrawals
"[B]efore relying on an employee's summary of the underlying documents, the plan must first [1] notify the requesting employee of various items of information, and then [2] obtain both general information concerning the participant and his or her request and more specific information concerning the event cited as justifying the hardship withdrawal.... Plans that have been relying on employee self-certifications should certainly do so. By providing the appropriate notice and obtaining the specified information, such self-certifications may be continued." (Spencer Fane)
[Guidance Overview] IRS Provides New Guidelines for Documenting Hardship Distributions
"The memorandum requests that field agents follow a 2-step approach in determining if a hardship distribution was made on account of a deemed immediate and heavy financial need ... [If] the notification provided to employees in Step 1 or the information reviewed in Step 2 is incomplete or inconsistent on its face, the agent may ask for source documents from the employer or third-party administrator." (EisnerAmper)
[Guidance Overview] IRS Views on Self-Certification of Financial Hardship
"In cases where any participant has received more than two financial hardship distributions in a single plan year, the guidelines advise agents to request source documents supporting those distributions if a credible explanation for the multiple distributions cannot be provided.... [P]lan sponsors may wish to consider limitations on the number of financial hardship distributions that a participant may take or to apply a more stringent process for approving requests for financial hardship distributions where more than two requests are made in any plan year." (Benefits Bryan Cave)
[Guidance Overview] IRS Issues Substantiation Guidelines for Safe-Harbor Hardship Withdrawals
"Although the guidance does not have binding legal or regulatory effect, it nonetheless highlights what auditors of plans offering safe-harbor hardship distributions will be looking for ... and reinforces that plan administrators should be regularly reviewing their record retention practices. It also emphasizes the need for proper documentation and internal controls for such distributions, including, to the extent applicable, understanding between TPAs and employer plan sponsors regarding their respective roles in the review and documentation process, as well as the importance of substantiation before distributions are made." (McGuireWoods LLP)
[Guidance Overview] Fiduciary Rules and 401(k) Hardship Distributions: The Latest
"An interesting byproduct of the regulatory process over the past several years is that both advisors and plan-related clients have been sensitized to many of the issues addressed -- albeit sometimes clumsily -- in the fiduciary regulation. For example, should a plan require that its investment advisor act as a fiduciary, even if the regulation ends up not requiring this? If not, why would a plan want to retain someone who is not required to act in the plan's best interest?" (Ferenczy Benefits Law Center LLP)
[Guidance Overview] New IRS Guidance Makes Substantiating Hardship Withdrawals Easier (PDF)
"While not intended to be a statement of law, the memorandum provides IRS examiners with insight as to how to evaluate a plan's hardship withdrawal program. Most importantly, the memorandum provides plan sponsors an alternative, and much less burdensome, process to meet their hardship substantiation obligations." (Lockton)
[Guidance Overview] 401(k) and 403(b) Plan Hardship Distribution Substantiation: What Will the IRS Be Looking For?
"In order to avoid potential unpleasantries on audit, plans that use an electronic or streamlined hardship distribution request process will need to take certain steps. First, the employer or TPA must provide the employee notice ... Second, the summary of information must include, at a minimum, the information specified in the [two recently issued IRS] memoranda ... Third, if a TPA administers hardship distributions, it should provide a report to the employer at least annually that describes the hardship distributions made during the year." (Jackson Lewis P.C.)
[Official Guidance] Text of IRS Memo: Substantiation Guidelines for Safe-Harbor Hardship Distributions from Section 403(b) Plans (PDF)
"This memorandum sets forth substantiation guidelines for EP Examinations employees examining whether a section 403(b) plan safe-harbor hardship distribution is 'deemed to be on account of an immediate and heavy financial need' pursuant to Section 1.401(k)-1(d)(3)(iii)(B) of the Income Tax Regulations.... [The Feb. 23, 2017] 401(k) Memorandum and Attachment are also applicable to hardship distributions from section 403(b) plans[.]" (Internal Revenue Service [IRS])
[Guidance Overview] Recent IRS Guidance for Hardship Distributions
"The Guidelines indicate that if the employer or administrator received a summary of source documents ... the IRS examining agent should inquire whether the employer or TPA had provided a specified notification to the participant prior to making the hardship distribution. Three of the four items on that notice are tax-related items ... The fourth item requires the participant's agreement to preserve source documents and make them available on request to the employer or administrator, without specifying the consequences of the participant's failure to comply with his or her agreement." (The Wagner Law Group)
[Opinion] Why Planning Fees Should Be Payable from Retirement Accounts
"[If] the aim of tax policy is to facilitate better outcomes for consumers, it's worth acknowledging that the current framework unintentionally exhibits poor behavioral characteristics by limiting the ability of consumers to pay for long-term financial planning advice from accounts that are ear-marked for long-term goals (or forcing those financial planning fees to be bundled with [assets-under-management (AUM)] fees or product commissions that may not be practical or feasible in all situations)!" (Nerd's Eye View)
[Guidance Overview] IRS Issues Memorandum on Substantiation Guidelines for Safe-Harbor Hardship Withdrawals from 401(k) Plans
"Although the Memorandum is not formal guidance, it does provide information on what the IRS considers sufficient substantiation and documentation for a hardship withdrawal.... [T]he Memorandum does not address substantiation of non-safe-harbor hardship withdrawals, although the employer should consider applying these standards for any hardship withdrawal." (Sherman & Howard)
Using Income Data from IRS to Examine the Transition to Retirement
"[M]ost individuals do not experience a reduction in inflation-adjusted spendable income after claiming Social Security... Examining the five-year period from one year before individuals first receive Social Security retirement benefits to three years after, 81 percent of individuals had income, either directly or through a spouse, from employer retirement plans, annuities, or IRAs; and another 8 percent had a Form 1099-R (indicating a retirement account transaction, such as a rollover, that did not generate income), a Form 5498 (indicating IRA ownership), or both." (Peter J. Brady, Steven Bass, Jessica Holland, and Kevin Pierce, Via SSRN)
The Consequences of Overestimating Retirement Expenses
"The actuarial approach anticipates that many things will change each year, and the client and financial advisor will meet periodically (I recommend annually) to revisit and recalculate the plan to reflect those changes. Some financial advisors, however, doubt their clients will like the potential budget variability under the actuarial approach. But this variability can be managed using rainy day funds, transference of funds between spending buckets or by smoothing the actuarially calculated budget." (Ken Steiner, FSA Retired, in Advisor Perspectives)
[Guidance Overview] Guidance to IRS Examiners on 401(k)/403(b) Hardship Withdrawals
"[A recent IRS memo to EP employees] is a welcome glimpse into the IRS's view of what might be acceptable in lieu of obtaining actual documentation upfront.... [E]mployers/TPAs should consider whether they prefer to continue requesting source documentation or align their programs with the memorandum. A possible risk with the alternative approach is the participant misplacing or being otherwise unable to produce the source documentation if requested." (Seyfarth Shaw LLP)
[Guidance Overview] Are You Keeping the Right Documentation for 401(k) Hardship Distributions?
"[In a Feb. 23, 2017 IRS memorandum, Employee Plans (EP) Examinations employees] are directed to obtain 'source documents' such as 'estimates, contracts, bills and statements from third parties.' Second, EP employees are directed to obtain a summary of the information contained in the source documents. The summary should include certain notifications made to the employee before the hardship[.]" (Bradley Arant Boult Cummings LLP)
[Guidance Overview] IRS Offers Easier Option for Substantiating Hardship Withdrawals
"Prior informal guidance set out the IRS position that plan administrators must retain financial information and documentation to substantiate the need for a hardship distribution. The new IRS memorandum [provides that] a plan administrator may retain a summary of information contained in source documents. To rely on such a summary, the employee obtaining a hardship distribution must be provided a notice containing information specified in the IRS memorandum, such as the tax consequences of a hardship distribution and the participant's obligation to preserve source documents relating to the hardship." (Husch Blackwell)

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