Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

“principal residence”; Reg. § 1.121-1(b) says the determination depends on all the “facts and circumstances.” “Qualified acquisition costs” are the costs of “acquiring, constructing, or reconstructing a residence,” including “usual or reasonable settlement, financing, or other closing costs.” § 72(t)(8)(C) . A “first-time homebuyer” is a person who has had no “present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the” residence being financed by the distribution. If the homebuyer is married, both spouses must meet this test. § 72(t)(8)(D) . Finally, to the extent the distribution in question qualifies for one of the other exceptions ( e.g. , a distribution to pay higher education expenses), it will not count as a “first-time homebuyer” distribution (so it will not count towards the participant’s $10,000 limit) even if it is used to pay expenses that would qualify it for the first-time homebuyer exception. § 72(t)(2)(F) .

IRS levy on the account

Forced distributions after 1999 resulting from an IRS levy under § 6331 will not be subject to the penalty. § 72(t)(2)(A)(vii) .

Return of certain contributions

Certain excess contributions to “CODA” plans (see ¶ 8.3.02 ) may be distributed penalty- free if various requirements are met. See § 401(k)(8)(D) and § 402(g)(2)(C) . Regarding return of an IRA or Roth IRA contribution prior to the due date of the tax return for the year for which such contribution was made, see ¶ 9.1.03 (B).

Qualified reservist distributions

The penalty does not apply to “qualified reservist distributions” (QRDs). A QRD is a distribution from an IRA or from the elective-deferral portion of a QRP ( ¶ 8.3.02 ), that is made after September 11, 2001, to an individual reservist who is called to active duty. The active duty call or order must be for more than 179 days or for an indefinite period, and occur after September 11, 2001. The distribution must occur on or after the date the participant is called up and before the end of the active duty period. § 72(t)(2)(G)(iii) . See ¶ 2.7.04 (C) regarding the ability to “roll over” QRDs without regard to normal rollover deadlines and contribution limits. Congress likes to enact special exceptions for individuals affected by natural disasters, provided the disaster is on the national news for at least a week. Someone who lives in a county affected by Hurricane Katrina may thereby qualify for a penalty exception, while someone who suffered worse losses in a local disaster that affected only a few people will not qualify. For penalty exceptions applicable to certain hurricane victims, see § 1400Q , Notice 2005-92 , 2005-51 I.R.B. 1165, IRS Publication 4492 , and IRS Form 8915. Exceptions for tax-favored disasters