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<< Older News  |  December 4, 2020

News

All News > Misc. Distribution Issues

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Retirement Innovation and the New Age of Longevity
Principal Financial Group Link to more items from this source
Nov. 18, 2020

20 pages. "The innovations of auto-enrollment and auto-escalation, and the growth of target date funds and similar products, has substantially increased the savings rates for many (though by no means all) Americans. But at retirement, the vast majority of savers are dropped into a financial world without guardrails, and with a wide range of complicated choices that few are able to fully appreciate.... There are a number of different ways to create reliable income streams in retirement."

Tags: Misc. Distribution Issues  •  Retirement Plan Design

How Much Taxes Will Retirees Owe on Their Retirement Income?
Center for Retirement Research at Boston College Link to more items from this source
Nov. 12, 2020

"Taxes are meaningful for the top quintile, who are mostly married couples with average combined Social Security benefits of $50,900, 401(k)/IRA balances of $325,400 and financial wealth of $441,400. If these retirement and financial assets were fully annuitized, the amount a household would receive is equivalent to about $3,000 a month, and these households face tax liabilities of about 11 percent."

Tags: Misc. Distribution Issues  •  Retirement Plan Design

IRS Simplifies Certain 403(b) Plan Terminations
planadviser Link to more items from this source
Nov. 9, 2020

"Rev. Rul. 2020-23 now provides that 403(b) retirement plans funded through individual or group 403(b)(7) custodial accounts can be terminated through the distribution of individual custodial accounts. The guidance establishes that, if a distributed custodial account continues to comply with certain requirements, no portion of the distributed custodial account is includible in gross income until such amounts are actually paid out of the account to a participant or beneficiary."

Tags: 403(b) Plans and Annuities  •  Misc. Distribution Issues

Text of IRS Rev. Rul. 2020-23: Distribution of Individual Custodial Accounts in Kind Upon Termination of a § 403(b) Plan (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Nov. 5, 2020

"Issue: Whether a § 403(b) retirement plan funded through the use of § 403(b)(7) custodial accounts that takes the actions described in this revenue ruling has been terminated in accordance with the rules of § 1.403(b)-10(a), and whether distributions made to participants or beneficiaries in connection with termination of the plan are includible in gross income....

"Holding: In [two actions described in this revenue ruling], Plan A is terminated in accordance with the rules of Section 1.403(b)-10(a). Distribution of an ICA in kind to a participant or beneficiary is not includible in gross income until amounts are actually paid to the participant or beneficiary out of the [individual custodial account (ICA)], so long as the ICA maintains its status as a Section 403(b)(7) custodial account. Any other amount distributed from a custodial account to a participant or beneficiary to effectuate plan termination is includible in gross income, except to the extent the amount is rolled over to an IRA or other eligible retirement plan by a direct rollover or by a transfer made within 60 days."

Tags: 403(b) Plans and Annuities  •  Misc. Distribution Issues  •  SECURE Act

Reducing Estimated Tax Penalties with IRA Distributions
Nerd's Eye View Link to more items from this source
Nov. 4, 2020

"[R]etirement account distributions are often made only once per year, which effectively creates a 'pay-as-you-go' loophole for taxpayers whose income consists of retirement account distributions! Because of this, advisors whose clients rely on retirement account distributions for income can help maximize savings by withholding taxes later in the year, thereby letting clients keep their money longer (and letting those funds grow in the meantime) without risk of incurring Estimated Tax Penalties."

Tags: IRAs  •  Misc. Distribution Issues

Editor's Pick Loans and Distributions Under the CARES Act: Questions and Concerns
Ferenczy Benefits Law Center Link to more items from this source
[Guidance Overview]
Oct. 30, 2020

"Several sections of the [CARES] Act relate to retirement plans, specifically those relating to distributions and loans to qualified individuals, which provide relatively ready access to money for those suffering financially from the pandemic and the related quarantine.... This article reviews these provisions of the CARES Act, as well as the questions and concerns that have arisen in its wake."

Tags: 401(k) Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  Misc. Distribution Issues  •  Retirement Plan Administration

IRS Provides Guidance on Changes Under the SECURE and Miners Acts (PDF)
ASC Link to more items from this source
[Guidance Overview]
Oct. 26, 2020

"[E]xcept for the tracking of hours, plan sponsors will not need to apply the new [long-term, part-time (LTPT)] employee rules until the 2024 plan year ... [P]lan amendments reflecting an employer's discretionary decision to allow for [Qualified Birth or Adoption Distributions (QBADs)] are not required immediately ... Perhaps the most important clarification is that the delayed plan amendment date applies to both required and discretionary plan amendments related to the SECURE Act and the Miners Act."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration  •  Retirement Plan Design  •  SECURE Act

Text of 2020 Instructions for IRS Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Oct. 20, 2020

Oct. 13, 2020. "[1] Qualified disaster or coronavirus-related distributions.... [2] Maximum age for traditional IRA contributions.... [3] Withdrawals in the case of a birth or adoption of a child.... [4] Increase in age for mandatory distributions.... [5] Temporary waiver of minimum required distributions." [Also available: 2020 IRS Form 5329]

Tags: CARES Act  •  Coronavirus (COVID-19)  •  IRAs  •  Misc. Distribution Issues  •  Required Minimum Distributions (RMDs)

IRS Publishes Guidance on Withholding and Reporting of Retirement Plan Accounts Escheated to Unclaimed Property Funds
Ascensus Link to more items from this source
Oct. 20, 2020

"An amount as described in the Revenue Ruling 2020-24 example is a 'designated distribution' (not wages, not a payment to a nonresident alien or corporation, or dividends on employer securities), and is therefore subject to withholding under Internal Revenue Code § 3405."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

Safe Withdrawal Rates: How Far We Have Come in 18 Years!
ValueWalk Link to more items from this source
[Opinion]
Oct. 20, 2020

"The error in the studies that gave rise to the 4 percent rule is that they do not take valuations into consideration. Robert Shiller's Nobel-prize-winning research shows that the market is NOT efficient, that investors are in fact highly emotional and often set stock prices far above or far below their true value. So risk is not constant but variable and the safe withdrawal rate is not always 4 percent but a number that ranges from 1.6 percent when stock prices are insanely high to 9.0 percent when stock prices are insanely low."

Tags: Misc. Distribution Issues  •  Retirement Plan Design

Determining Your Asset Mix in Retirement
Ken Steiner, FSA Retired Link to more items from this source
Oct. 19, 2020

"One of the most important considerations in your retirement plan is how to invest your assets.... [S]ome of your assets, like Social Security and pensions, may not be as liquid as your accumulated savings or other of your more 'investible' assets, but they do have value; generally provide relatively low-risk payments for life; can be expected to provide income to meet some of your future spending liabilities; and therefore should logically be considered when deciding how much risk to assume in your more investible assets."

Tags: Misc. Distribution Issues  •  Retirement Plan Design

Text of IRS Rev. Proc. 2020-46: Permissible Reasons for Self-Certification of Eligibility for a Waiver of the 60-Day Rollover Requirement (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Oct. 16, 2020

"The revenue procedure modifies and updates Rev. Proc. 2016-47 [which] provides a list of permissible reasons for self-certification of eligibility for a waiver of the 60-day rollover requirement.... [T]his revenue procedure modifies that list by adding a new reason: a distribution was made to a state unclaimed property fund. As under Rev. Proc. 2016-47, a self-certification relates only to the reasons for missing the 60-day deadline, not to whether a distribution is otherwise eligible to be rolled over.... [T]his revenue procedure provides examples of situations in which a distribution would not be eligible to be rolled over. The appendix sets forth model language that may be used for self-certification."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration  •  Rollovers

Text of IRS Rev. Rul. 2020-24: Withholding and Reporting with Respect to Payments from Qualified Plans to State Unclaimed Property Funds (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Oct. 16, 2020

"Holdings: [1] The payment of Individual C's accrued benefit from Plan X is subject to federal income tax withholding under § 3405. [2] The payment from Plan X is subject to reporting under § 6047.

Transition Relief: A person will not be treated as failing to comply with the withholding and reporting requirements described in this revenue ruling with respect to payments made before the earlier of January 1, 2022, or the date it becomes reasonably practicable for the person to comply with those requirements."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

IRS Final Regs on Withholding from Periodic Payments Allows Future Guidance to Set Default Rate
Thomson Reuters / EBIA Link to more items from this source
[Guidance Overview]
Oct. 8, 2020

"The final regulation -- which is identical to the proposed version -- removes the temporary regulation and sets basic ground rules for withholding on periodic payments without establishing a new default withholding rate.... [T]he regulation indicates that the rules applicable to withholding certificates for periodic payments will 'parallel' the rules for wage withholding unless the Code's rules for periodic payments specifically provide otherwise."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

IRS Issues Helpful Guidance on the SECURE Act Retirement Plan Changes
Bond, Schoeneck & King Link to more items from this source
[Guidance Overview]
Oct. 8, 2020

"[Notice 2020-68] provides answers to at least some of the open questions concerning the retirement plan changes under the SECURE Act. In particular, the notice includes useful guidance on the Act's new rules regarding 401(k) plan participation by long-term, part-time employees and so-called 'qualified birth or adoption distributions' (QBOADs)."

Tags: Misc. Distribution Issues  •  Retirement Plan Design  •  SECURE Act

2020 IRS Form 4972: Tax on Lump-Sum Distributions (From Qualified Plans of Participants Born Before January 2, 1936) (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Oct. 6, 2020

"Use Form 4972 to figure the tax on a qualified lump-sum distribution ... you received in 2020 using the 20% capital gain election, the 10-year tax option, or both. These are special formulas used to figure a separate tax on the distribution that may result in a smaller tax than if you reported the taxable amount of the distribution as ordinary income."

Tags: Misc. Distribution Issues

IRS Provides Guidance on Long-Term, Part-Time Employees in 401(k) Plans, Qualified Birth and Adoption Distributions, and In-Service Distributions from Pension and 457(b) Plans
Frost Brown Todd LLC Link to more items from this source
[Guidance Overview]
Oct. 5, 2020

"Defined contribution plans ... may (but are not required to) offer qualified birth or adoption distributions, but defined benefit plans are not.... The distributions are not subject to the 10% early distribution penalty tax under Code Section 72(t) ... [T]he distributions are not treated as eligible rollover distributions under the direct rollover rules, which means the plan is not required to give the 402(f) special tax notice or apply mandatory 20% withholding (although the voluntary withholding rules do apply)."

Tags: 401(k) Plans  •  Misc. Distribution Issues  •  Retirement Plan Design

IRS Finalizes Default Withholding Rules for Periodic Retirement and Annuity Payments
Hanson Bridgett LLP Link to more items from this source
[Guidance Overview]
Oct. 5, 2020

"Under the final regulations, the IRS can change the default rate of withholding applied to monthly pension or annuity payments simply by issuing new forms, instructions, or other guidance, rather than by having to issue new regulations. Plan administrators and annuity providers should consider making changes to their systems and processes to allow frequent changes to the default withholding rate for pension or annuity payments. The IRS will likely issue guidance prior to year-end to announce the default withholding rate that will apply for periodic retirement and annuity payments in 2021."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

Text of IRS Final Regs: Income Tax Withholding on Certain Periodic Retirement and Annuity Payments Under Section 3405(a)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Sept. 29, 2020

13 pages. "This document sets forth a final regulation that provides rules for Federal income tax withholding on certain periodic retirement and annuity payments to implement an amendment made by the Tax Cuts and Jobs Act. This regulation affects payors of certain periodic payments, plan administrators that are required to withhold on such payments, and payees who receive such payments.... This regulation is effective [on the date of publication in the Federal Register].... [T]his Treasury decision adopts the proposed regulation as final with no modifications[.]"

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

IRS Issues Final Regs on Income Tax Withholding on Certain Periodic Retirement and Annuity Payments
Internal Revenue Service [IRS] Link to more items from this source
[Guidance Overview]
Sept. 29, 2020

"Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer's periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions. The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury. The final regulation issued [on September 28, 2020] provides guidance for 2021 and future calendar years."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration

IRS Issues Guidance on Pension Distributions at Age 59-1/2
Cheiron Link to more items from this source
[Guidance Overview]
Sept. 28, 2020

"Notice 2020-68 makes it clear that: a plan is not required to provide in-service distributions, a plan that currently provides in-service distributions need not reduce the eligible age from 62 to 59½, and the reduction to age 59½ for in-service distributions does not alter the rules regarding normal retirement age contained in section 1.401(a)-1(b)(2) of the Treasury Regulations, which currently provide that age 62 is presumed to be a valid normal retirement age."

Tags: Misc. Distribution Issues  •  Retirement Plan Administration  •  SECURE Act

IRA Withdrawal Patterns in Times of Crisis (PDF)
Employee Benefit Research Institute [EBRI] Link to more items from this source
Sept. 11, 2020

Infographic. "The likelihood of an IRA withdrawal among retired households went down during the 2008 market downturn. In contrast, the share of not-yet-retired households taking withdrawals from their IRA increased in the same period."

Tags: IRAs  •  Misc. Distribution Issues

How Might Taking Coronavirus-Related Distributions Impact Retirement Benefits? (PDF)
Employee Benefit Research Institute [EBRI] Link to more items from this source
Sept. 4, 2020

"If all workers take a coronavirus-related distribution and fail to repay it, the overall reduction in retirement balances is projected to be 20 percent. The lowest age groups are least impacted -- in part because their current account balances are too small for them to take the full $100,000 distribution."

Tags: CARES Act  •  Coronavirus (COVID-19)  •  Misc. Distribution Issues

Text of IRS Notice 2020-68: Miscellaneous Changes Under the SECURE Act and the Bipartisan American Miners Act of 2019 (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Sept. 2, 2020

31 pages. "[T]his notice addresses issues under the following sections of the SECURE Act: Section 105 (small employer automatic enrollment credit), Section 107 (repeal of maximum age for traditional IRA contributions), Section 112 (participation of long-term, part-time employees in Section 401(k) plans), Section 113 (qualified birth or adoption distributions), and Section 116 (permitting excluded difficulty of care payments to be taken into account as compensation for purposes of determining certain retirement contribution limitations). This notice also addresses issues under Section 104 of the Miners Act (reduction in minimum age for in-service distributions) and provides guidance on deadlines for plan amendments."

Tags: 401(k) Plans  •  Misc. Distribution Issues  •  Retirement Plan Amendments  •  SECURE Act

More Employees Are Taking Coronavirus-Related Distributions
planadviser Link to more items from this source
Aug. 26, 2020

"Almost a quarter of U.S. workers (22%) have borrowed money from their retirement accounts.... As the pandemic continues throughout 2020 and even into 2021, more reports are expressing concerns over its effect on the retirement industry.... [A] World Economic Forum estimate ... projects the retirement savings gap will grow by 5% each year and ultimately reach $400 trillion by 2050."

Tags: 401(k) Plans  •  CARES Act  •  Coronavirus (COVID-19)  •  Misc. Distribution Issues  •  Retirement Plan Design


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