Indianapolis. 317-236-2249
. Robert L. Gauss. Partner. Indianapolis. 317-236-2133 gaus
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KEY CONTACTS Audra J. Ferguson-Allen
Partner Indianapolis 317-236-2249
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Robert L. Gauss
Partner Indianapolis 317-236-2133
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Melissa Proffitt
Office Managing Partner Indianapolis 317-236-2470
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DISTRIBUTION RULES FOR DEFINED CONTRIBUTION RETIREMENT PLANS QUICK REFERENCE GUIDE STEP #1: Has there been a Distributable Event?
STEP #2: What form of payment is requested?
A distribution is only permitted upon a Distributable Event, as defined by the plan. The Internal Revenue Code permits distributions from a defined contribution plan only upon certain events, which generally include:
The form of payment determines the tax withholding of the distribution and who can receive it. The plan provides what form of payments are permitted. Forms of payment that are Eligible Rollover Distributions may be rolled to another qualified plan or IRA to continue the tax-deferred treatment of the distribution.
401(k)/403(b) Plans: • Severance from employment • Age 59½ • Disability • Death • Financial hardship
457(b) Plans: • Severance from employment • Age 70½ • Death • Unforeseeable emergency
Money Purchase Plans: • Severance from employment • Age 62 • Death • Disability
Profit Sharing Plans: • Severance from employment • A fixed number of years • Attainment of stated age • Occurrence of event such as layoff, illness, disability, retirement, or death
Eligible Rollover Distributions:
NOT Eligible Rollover Distributions:
•
MOST lump sum payments
•
Annuity payments
•
Installment payments scheduled for less than 10 years
•
Installment payments scheduled for 10 years or longer
•
Mandatory cash-outs of small account balances
•
Required minimum distributions
•
Financial hardship distributions
A plan may also provide that rollover contributions received by the plan – and separately tracked – may be distributed at any time.
STEP #3: Who should receive the payment? IF
Eligible Rollover Distribution,
THEN
the plan, at the direction of the distributee, may either
IF
pay the distribution in cash to the distributee, or
pay the distribution in a direct rollover to a recipient qualified plan or IRA that agrees to accept the contribution.
NOT Eligible Rollover Distribution,
THEN the plan must pay the distribution in cash to the distributee. It cannot be paid in a direct rollover.
STEP #4: How should the payment be taxed? All distributions are reported to the IRS on Form 1099-R. Eligible Rollover Distributions: •
Direct rollover – no withholding
•
All other payments – 20% mandatory withholding (cannot be waived)
NOTE: If entire distribution is rolled over to qualified plan or IRA within 60 days, not taxable to distributee
NOT Eligible Rollover Distributions: •
Periodic payments – withholding as if distributee is married with three exemptions
•
Non-periodic payments – 10% withholding
•
Distributee may elect no withholding or additional withholding
These materials are intended for general information purposes only and do not constitute legal advice. The materials should not be used or relied upon as a substitute for a review of applicable statutes, regulations, rulings and court decisions. The reader should consult legal counsel to determine how laws apply to specific situations. These materials were prepared in January 2018, and, consequently, will not reflect changes in law subsequent to that date. Attorney Advertising Material | © 2018 Ice Miller LLP.