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CPC Plan Distributions & Taxation Flashcards

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  1. Under IRC Section 72(t), which distribution from a qualified retirement plan avoids the 10% early withdrawal penalty?

    Answer: Distributions made as part of a series of substantially equal periodic payments (SEPPs)

    Distributions taken as substantially equal periodic payments under IRC Section 72(t)(2)(A)(iv) are exempt from the 10% early withdrawal penalty.

  2. What is the required beginning date (RBD) for required minimum distributions (RMDs) for an employee who retired in 2024?

    Answer: April 1 following the later of the year the employee turns 73 or the year they retire

    Under SECURE 2.0, the RBD is April 1 following the later of the year the participant reaches age 73 or the year they retire (for non-5% owners).

  3. A participant receives a plan distribution and rolls it over to an IRA within 60 days. The plan withheld 20% for taxes. What happens to the withheld amount?

    Answer: It must be replaced from other funds to complete a full rollover; otherwise the withheld portion is taxable

    To roll over the full distribution and avoid taxation, the participant must contribute funds equal to the 20% withheld from outside sources; the withheld amount can be reclaimed on the tax return but the rollover must be complete within 60 days.

  4. Which plan distribution option allows a participant to receive employer stock at its cost basis and defer tax on the net unrealized appreciation (NUA) until the stock is sold?

    Answer: Lump-sum distribution with NUA treatment under IRC Section 402(e)(4)

    IRC Section 402(e)(4) allows NUA on employer stock distributed in a lump sum to be taxed at long-term capital gains rates rather than ordinary income rates when the stock is later sold.

  5. A 401(k) participant takes a hardship withdrawal. Which statement is correct under post-2019 rules?

    Answer: The 6-month suspension of elective deferrals following a hardship withdrawal was eliminated

    The Treasury's 2019 final hardship regulations eliminated the mandatory 6-month deferral suspension following a hardship distribution.

  6. What is the tax treatment of a qualified distribution from a Roth 401(k) account?

    Answer: Completely tax-free if made after age 59½ and the 5-year holding period is met

    A qualified Roth 401(k) distribution—made after age 59½ and after a 5-year participation period—is entirely excluded from gross income.