Required Minimum Distributions and Beneficiary Planning Flashcards
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What is the Net Unrealized Appreciation (NUA) strategy available with employer retirement plans?
Answer: A technique allowing employer stock distributed in-kind from a qualified plan to have its appreciation taxed at long-term capital gains rates rather than ordinary income rates
The NUA strategy allows an employee to take a lump-sum in-kind distribution of employer stock from a qualified plan, paying ordinary income tax only on the cost basis while the appreciation is taxed at preferential long-term capital gains rates when the stock is later sold.
What is a Qualified Charitable Distribution (QCD) and how does it interact with an RMD?
Answer: A direct transfer from an IRA to a qualified charity (up to the annual limit) that counts toward the RMD and is excluded from taxable income
A QCD allows IRA owners age 70½ or older to transfer up to the annual limit directly from an IRA to a qualified public charity; the amount counts toward the RMD and is excluded from gross income.
What is the annual QCD limit per taxpayer in 2024 after SECURE 2.0's inflation indexing provision took effect?
Answer: $105,000
SECURE 2.0 indexed the QCD limit to inflation starting in 2024, increasing it to $105,000 per taxpayer per year from the prior fixed $100,000 limit.
What is the 'separate account rule' for inherited IRAs, and why is it important for planning?
Answer: A rule that, when met by December 31 of the year following the owner's death, allows each beneficiary to use their own life expectancy for distribution calculations
If multiple beneficiaries split an inherited IRA into separate inherited IRA accounts by December 31 of the year following the owner's death, each beneficiary can use their own life expectancy or applicable rule rather than the oldest beneficiary's.
What is the significance of the 'September 30 deadline' in inherited IRA beneficiary planning?
Answer: The date by which non-individual beneficiaries must be cashed out so remaining individuals can use life expectancy-based distributions
September 30 of the year following the owner's death is the beneficiary finalization date; any non-individual beneficiaries (such as estates or charities) must be cashed out by then so remaining designated beneficiaries can use life expectancy-based distributions.
How does a Roth IRA conversion interact with an account owner's required minimum distribution obligation for that year?
Answer: RMDs must be fully taken before any Roth conversion can occur, and RMD amounts themselves cannot be converted
The IRS treats RMDs as the first dollars distributed from a traditional IRA in a given year; the account owner must satisfy their full RMD before converting any additional amounts, and RMD amounts cannot themselves be converted.
What is a 'conduit trust' in the context of naming a trust as a retirement plan beneficiary?
Answer: A trust that receives IRA distributions and immediately passes them through to the trust's current beneficiaries
A conduit trust requires that all retirement plan distributions received by the trust be immediately 'piped through' to the current trust beneficiary rather than accumulated inside the trust.