Key Developments
Retirement Tax Planning evolves over time. Review the most important developments:
-
- Increase in the prescribed age for required minimum distributions
- Extended rollover period for plan participants attaining age 72 in 2023
- IRS not penalizing certain failures to make minimum distributions
- New exceptions to the early distribution penalty
- Modifications of exceptions to the early distribution penalty
- The percentage limitation on QLAC premiums repealed and the dollar limitation reset
- Alternative election for computing RMDs on partial annuitizations
- Reduction of penalty for failure to make required minimum distributions
- IRA charitable distributions now include amounts paid to split-interest entities
- Self-certification of hardships
- Conformance of treatment of RMDs from designated accounts to the treatment of Roth IRAs
- Surviving spouse’s election to be treated as the employee in an employer plan
- Tangible personal property of an IRA must be in the possession of the trustee
- New life expectancy tables and a new Uniform Lifetime Table
- Suspension of minimum distribution requirements for 2020
- Applicability of early distribution penalty to annuities held in trust
- Distribution of individual custodial accounts from section 403(b) plans
- Proposed regulations limit availability of extended rollover period for loan offsets
- Ten-year deferral, and fewer life expectancy distributions, for designated beneficiaries
- New limitations on distributions to see-through trusts for retirees dying after 2019
- Applicable multi-beneficiary trust for disabled or chronically ill beneficiaries
- No premature distribution penalty on birth or adoption distributions
- “Lifetime income investments” can be distributed or transferred
- IRA contributions allowed after age 70 ½
- In-service distributions from eligible state/local government plans at age 59½
- A taxpayer may not use credit cards to take out qualified plan loans
- Repeal of recharacterizations of TQR contributions
- Qualified plan distributions taxable on receipt
- View Joint Committee statement on “backdoor” Roth contributions with caution
- Extended rollover period for some loan-offset distributions made by tax-favored plans
- Qualified stock or RSUs derived from qualified equity grants
- The basic exclusion increased for gift and estate tax purposes
- More liberal hardship distributions from 401(k) plans
- Automatic waiver of the 60-day rule for a returned federal tax levy
- Self-certification of permissible reasons for violating the 60-Day rollover requirement
- Lump sum election by members of the U.S. military under the Blended Retirement System (BRS)
- Judical review of IRS denials of waivers of the 60-day rollover rule
- Filing election to report income on receipt of unvested property
- Purchase of employer stock from employee at less than fair market value
- Beneficiary elections for time of payment of deferred compensation
- Time allowed for payment of deferred compensation after death of participant or beneficiary
- Liberalization of the test for favorable treatment of recurring part-year compensation under Section 409A and Section 457(f)
- Substantial risk of forfeiture relating to the purpose of compensation under a Section 457(f) plan
- Substantial risk of forfeiture relating to involuntary severance of employment under a Section 457(f) plan
- Substantial risk of forfeiture relating to a covenant not to compete under a Section 457(f) plan
- Extension of a substantial risk of forfeiture under a Section 457(f) plan
- Short-term deferrals are not deferred compensation under either Section 457(f) or Section 409A
- Treatment of a spouse’s community property interest in an IRA distribution to a nonspousal beneficiary
- Refinancing to cure a default on a five-year qualified plan loan
- Relief from Section 409A for deferrals grandfathered under Section 457A
- Sale of a retiree’s life insurance policy
- Underwriters’ commissions on IPO of nonstatutory stock not deductible from option exercise income
Charitable Beneficiary Designations
-
-
- Distributions taxed to former spouse regardless of community property laws
- Protection from bankruptcy for funds in IRAs and retirement plans
- IRS allowed correction of overpayment of required minimum IRA distribution
- Division of an inherited IRA held by a trust
- Use of multiple trusts to maximize IRA tax deferral
- Transfer of funds from an IRA to a health savings account
- Division of IRA in divorce with consequent reduction of distributions
- IRS allowed an IRA loan to a church secured by life insurance
- Personal sale of stock at a loss and repurchase by an IRA
- IRA distributions paid directly to charities
- Withdrawal of after-tax excess contributions
- IRS lien not extinguished by rollover to another plan or IRA
- IRA provisions placing restrictions on distribution
- Married individuals and registered domestic partners in community property states
- Prohibited transactions of self-directed IRAs
-
-
-
- No bankruptcy exemption for inherited IRAs
- Boilerplate cross-collateralization agreement not necessarily a prohibited transaction
- Transactions between an IRA owner and an IRA-owned entity
- Publicly traded grantor trust holding gold
- The trustee of an IRA may refuse to invest in certain types of assets
- Treatment of a spouse’s community property interest in an IRA distribution to a nonspousal beneficiary
- Rollovers to Simple IRAs now generally allowed
- IRA contributions allowed after age 70 ½
- Tangible personal property of an IRA must be in the possession of the trustee
- IRA charitable distributions now include amounts paid to split-interest entities
-
Required Minimum Distributions for Plans and IRAs
-
-
- Increase in the prescribed age for required minimum distributions
- Extended rollover period for plan participants attaining age 72 in 2023
- IRS not penalizing certain failures to make minimum distributions
- The percentage limitation on QLAC premiums repealed and the dollar limitation reset
- Alternative election for computing RMDs on partial annuitizations
- Reduction of penalty for failure to make required minimum distributions
- Conformance of treatment of RMDs from designated accounts to the treatment of Roth IRAs
- Surviving spouse’s election to be treated as the employee in an employer plan
- Ten-year deferral, and fewer life expectancy distributions, for designated beneficiaries
- New limitations on distributions to see-through trusts for retirees dying after 2019
- Applicable multi-beneficiary trust for disabled or chronically ill beneficiaries
- Suspension of minimum distribution requirements for 2020
- Minimum distribution flexibility for certain government plans
- Beneficiary designation by judicial reformation
- Separate accounts unavailable when beneficiary is a decedent’s estate
- Non-spouse beneficiary’s minimum distribution election under a personally purchased annuity
- Deaths of decedent and surviving spouse in quick succession
- Delayed minimum distribution payments
- Purchase of qualifying longevity annuity contracts (QLACs)
- New life expectancy tables and a new Uniform Lifetime Table
-
Long-Term Care, Residential Retirement Communities, Etc.
-
-
- The Tax Court determines the deductible portion of retirement community fees
- Medical deduction denied for entrance fee paid to residential retirement community
- Taxable interest not imputed on most retirement community fees
- Tax treatment of long-term care insurance included in an annuity or insurance contract
- Trusteed plans for retiree medical expenses
-
Transfers to Roth IRAs: Part 1
-
-
- Roth conversions allowed for high-income individuals after 2009
- IRS focus on transactions between Roth IRAs and related businesses
- The taxable value of an IRA annuity converted to a Roth IRA
- Correction of defective Roth conversion denied where statute of limitations has run
- Recharacterization of defective transfers to Roth IRAs allowed though the recharacterization period has expired
- Some additional important aspects of taxable conversions to Roth IRAs
- Roth conversions by beneficiaries
-
Transfers to Roth IRAs: Part 2
Receipt of Property or Options from Employer
Tax-Favored Employer Retirement Plans: Part 1
-
-
- Favorable tax treatment for lump sum received soon after start of pension
- Government garnishments of qualified retirement plan benefits are limited
- Some plan distribution restrictions not applicable to rolled-over amounts
- Taxable value of life insurance distributed by an employer retirement plan
- Protection from bankruptcy for funds in retirement plans
- Rollover allowed for amount of plan funds used to offset plan loan
- Insurance premium payments by plans not taxable to police, firefighters, or emergency workers
- Pension plan distributions to employees working under phased retirement programs
- Phased retirement payments taxed as non-annuity payments
- Distributions must comply with qualified plan documents despite other conflicting claims
- Election to diversify out of employer securities
- No constructive trusts for attorneys fees
- No acceleration of benefits for an IRS levy
- Restitution under the Mandatory Victims Restitution Act
- Transfers from qualified retirement plans to foreign plans
- Qualified plan distributions taxable on receipt
- IRS lien not extinguished by rollover to another plan or IRA
-
Tax-Favored Employer Retirement Plans: Part 2
-
-
- Disregard of an early retirement that lacks substance
- Registered domestic partners and same-sex spouses in community property states
- Effect of certain life annuity elections on spousal annuity requirements
- Employer securities traded only on the OTCBB are not subject to diversification elections
- Refinancing to Cure a Default on a Five-Year Qualified Plan Loan
- Extended rollover period for some loan-offset distributions made by tax-favored plans
- More liberal hardship distributions from 401(k) plans
- “Lifetime income investments” can be distributed or transferred
- In-service distributions from eligible state/local government plans at age 59½
- A taxpayer may not use credit cards to take out qualified plan loans
- Self-certification of hardships
-
Retiree Rollovers to IRAs and Other Plans
-
-
- 60-day rollover period not started by misaddressed lost check
- IRS may waive the 60-day rollover requirement in various circumstances
- Proposed regulations limit availability of extended rollover period for loan offsets
- No 60-day waiver merely because financial institution declines to provide information
- Proceeds of lawsuit settlement rolled over tax-free to IRA
- Rollover of employer stock not reversible
- No 60-day waiver due to taxpayer’s negligence
- Intervening property purchase invalidates attempted IRA rollover
- Rollovers of taxpayer investment from qualified plans to additional types of tax-favored plans
- The trustee of an IRA or plan can refuse to accept a rollover
- Grant of 60-day rollover waiver for portion of distribution not used for personal purposes
- Revision of the one-rollover-per-year rule
- Multiple rollovers from a single qualified plan distribution
- Multiple rollovers from a single Roth account distribution
- Rollovers to Simple IRAs now generally allowed
- Self-certification of permissible reasons for violating the 60-Day rollover requirement
- Judical review of IRS denials of waivers of the 60-day rollover rule
- Distribution of individual custodial accounts from section 403(b) plans
- Automatic waiver of the 60-day rule for a returned federal tax levy
-
Spouses and Other Beneficiaries: Part 1
-
-
- Spouse’s IRA ownership election significantly impacts retirement plan rollovers
- Spousal rollover to IRA permitted after another beneficiary’s proper disclaimer
- Rollovers to IRAs allowed for some indirect distributions to surviving spouses
- IRA ownership election by surviving spouse may lengthen children’s tax deferral
- QDRO distributions taxed to former spouse regardless of community property laws
- Indirect distributions to a former spouse not taxable to the former spouse
- Optional spousal annuity in lieu of required joint and survivor spousal annuity
- Rollovers by nonspouse beneficiaries from decedents’ retirement plans to IRAs
- No implied election to avoid penalty for failure to make required distributions
- Spouse or former spouse taxed on QDRO benefits
-
Spouses and Other Beneficiaries: Part 2
-
-
- Same sex marriages recognized for federal tax purposes
- Spousal rollovers through a trust
- Effect of certain life annuity elections on spousal annuity requirement
- Treatment of a spouse’s community property interest in an IRA distribution to a nonspousal beneficiary
- QDRO survivorship benefits lost due to late filing with plan
-
U.S. Military and Survivor Benefits
-
-
- Lump sum election by members of the U.S. military under the Blended Retirement System (BRS)
- Statute of limitations extended for tax refunds triggered by VA awards
- Recovery of prior year withholding taxes after retroactive award of VA benefits
- Surviving spouse tax refund on retroactive grant of VA benefits
-
Social Security Tax Developments
Penalty on Early Distributions from an IRA, Plan, or Annuity
-
-
- New exceptions to the early distribution penalty
- Modifications of exceptions to the early distribution penalty
- Periodic payments that avoid the 10 percent penalty on early distributions
- Increasing payments nullify substantially equal exception to penalty
- Avoidance of early distribution penalty on substantially unequal distributions
- Early distribution penalty on nonpayment of loan due to bankruptcy proceedings
- Relief from penalty on early distributions to public safety employees from governmental plans
- Effect of trustee error on penalty tax for premature distributions
- No premature distribution penalty on birth or adoption distributions
- Applicability of Early Distribution Penalty to Annuities Held in Trust
Nonqualified Employer Retirement Plans: Part 1
-
-
- Parent corporation may guarantee unfunded retirement benefits
- Early payments substantially limited under 409A nonqualified plans
- Taxes, penalties, and interest upon failure to conform to section 409A
- Nonqualified deferred compensation payable by certain foreign entities
- No private letter rulings on nonqualified plan issues
- Deferral of recurring part-year compensation
- TARP executive pay accelerations or deferrals under 409A
- Relief for section 409A operational failures
- Bankruptcy protection extended to participants in former qualified plans
-
Nonqualified Employer Retirement Plans: Part 2
-
-
-
- Disregard of the statute of limitations for trust-funded nonqualified plans
- Forfeiture of restricted property upon discharge for cause
- Filing election to report income on receipt of unvested property
- Purchase of employer stock from employee at less than fair market value
- Beneficiary elections for time of payment of deferred compensation
- Time allowed for payment of deferred compensation after death of participant or beneficiary
- Liberalization of the test for favorable treatment of recurring part-year compensation under Section 409A and Section 457(f)
- Substantial risk of forfeiture relating to the purpose of compensation under a Section 457(f) plan
- Substantial risk of forfeiture relating to involuntary severance of employment under a Section 457(f) plan
- Substantial risk of forfeiture relating to a covenant not to compete under a Section 457(f) plan
- Extension of a substantial risk of forfeiture under a Section 457(f) plan
- Short-term deferrals are not deferred compensation under either Section 457(f) or Section 409A
- Relief from Section 409A for deferrals grandfathered under Section 457A
-
-
Natural Disaster Tax Relief for IRAs and Qualified Plans
Federal Restrictions on State Income Taxes
Estate Tax on Retirement Benefits
Personally Purchased Annuities
Applicability of Community Property Laws
-
-
-
-
- QDRO distributions taxed to spouse regardless of community property laws
- Qualified plan distributions to registered domestic partners in certain community property states
- IRA distributions to married individuals and registered domestic partners in community property states
- Treatment of spouse’s community property interest in an IRA distribution to a nonspousal beneficiary
-
-
-
-