Certain participants chose to annuitize their

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Certain participants chose to annuitize their retirement accounts. In this case, RMD is calculated in a different manner. RMD compliance is tested when the annuity payments begin. Insurance companies are aware of this special rule and they factor this requirement into calculating the initial annuity payment amounts. The annuity payments must start before the required beginning date. Another important nuance of RMD calculation is that all IRAs are aggregated for determining RMD compliance. Consider a taxpayer who has three separate traditional IRAs each with $200,000 in them. They also have an RMD amount of $21,794.17 based upon their age and their oldest beneficiary. They can aggregate their IRAs in terms of taking the required $21,794.17 out of only one IRA and leaving the other 2 untouched. It is also possible to aggregate 403(b) accounts. It is not possible to aggregate qualified plans. This is one reason why qualified plans are often rolled into a traditional IRA after retirement occurs. A very important new rule was just finalized by the U.S. Department of the Treasury. (Links to an external site.)Links to an external site. It establishes a qualified longevity annuity contract (QLAC) as a viable distribution option within either a 401(k) or an IRA. A QLAC enables a 401(k) or IRA owner to use up to the lesser of 25% of their account balance or $125,000 to purchase a longevity annuity, which is essentially a life annuity. The great news is that the QLAC does not need to comply with RMD rules! This means that the participant can wait until after age 70 1/2 to begin making annuity payments to the participant under a QLAC arrangement. This is great news for someone who wants to partition their account into one basket of assets used to purchase the longevity annuity and another to simply invest in the stock, bond, and/or money markets in whatever mix suits their risk tolerance and investment objectives. The portion of the account not invested in a QLAC will still be subject to the RMD rules. An added benefit is that any amount used to invest in a QLAC that is not paid out in benefits when the participant dies can be fully refunded to their tax-advantaged account and therefore available to their heirs. There is a good article in the Journal of Accountancy that talks about this new concept further. (Links to an external site.)Links to an external site. Lesson 8: Managing Distributions In Lesson 7, you learned about the various distribution options available within the world of retirement planning. In Lesson 8, you will learn about how financial professionals help clients manage their distribution options in order to hopefully achieve the retirement of their dreams. One of the biggest components of managing distribution options is to establish a realistic withdrawal rate. You will also learn about some issues facing the middle class and the wealthy client.
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  • Spring '14
  • VOSS,JAMESA
  • Cash balance plan

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