Life and Death Planning for Retirement Benefits

Table of Contents

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Variable vs. fixed annuities................................................................................................446 What a “Defined Benefit plan” is ......................................................................................447 What a “Defined Contribution plan” is .............................................................................448 10.2 RMD S FOR D EFINED B ENEFIT P LANS .....................................................................................449 Introduction to the DB/annuity RMD rules ......................................................................449 Differences between DB, DC plan rules ...........................................................................450 Payment intervals; other DB terminology ........................................................................450 Permitted forms, durations, of annuity ..............................................................................450 Payments must be nonincreasing, except…......................................................................452 Other changes permitted after the ASD ............................................................................454 When the annuity payments must commence; the RBD..................................................455 Converting an annuity payout to a lump sum ...................................................................456 If participant’s ASD is prior to the RBD ..........................................................................457 RMD rules for DB plan death benefits..............................................................................458 10.3 B UYING AN A NNUITY I NSIDE AN IRA OR O THER DC P LAN ...................................................460 Purchasing an immediate annuity inside an IRA..............................................................460 Exception for “Qualified Longevity Annuities” ...............................................................461 Definition of a QLAC.........................................................................................................461 Dollar and percentage limits on QLAC purchases ...........................................................462 QLAC concept does not apply to Roth IRAs ...................................................................462 Death benefits under a QLAC ...........................................................................................463 Planning use for QLACs ....................................................................................................463 10.4 A NNUITY P AYOUTS FROM P LANS : P UTTING I T A LL T OGETHER ............................................464 Drawback of nonspouse survivor annuities ......................................................................464 Illustrations: Different choices...........................................................................................464 Expert tip: Subsidized plan benefits ..................................................................................465 More expert tips: How to evaluate choices .......................................................................466 Problems with the annuity rules ........................................................................................466 11.1 M ISCELLANEOUS R ETIREMENT /I NSURANCE R ULES ...............................................................468 The three valuation rules for annuity contracts ................................................................468 RMD extension for insolvent insurance company ...........................................................470 11.2 P LAN -O WNED L IFE I NSURANCE : I NCOME T AXES ...................................................................470 Tax consequences to participant: During employment ....................................................470 Current Insurance Cost: From P.S. 58 to Table 2001 ......................................................472 Current Insurance Cost: Using insurer’s actual rates .......................................................472 Current Insurance Cost: Term life insurance ....................................................................473 Current Insurance Cost: Investment in the contract .........................................................473 Income tax consequences to beneficiaries ........................................................................474 11.3 P LAN -O WNED L IFE I NSURANCE : T HE “R OLLOUT ” AT R ETIREMENT .....................................474 Options for the policy when the participant retires ..........................................................474 How to determine policy’s FMV: Rev. Proc. 2005-25 ....................................................475 CHAPTER 11: INSURANCE, ANNUITIES, AND RETIREMENT PLANS ...........................468