F.51 Distribution rules and taxation Flashcards

The minimum amount that must be withdrawn annually from tax-deferred retirement accounts (such as Traditional IRAs and 401(k)s) starting at a specific age, currently 73 (as of 2023).

A direct transfer of funds from an IRA to a qualified charity, which can satisfy RMD requirements and is excluded from taxable income.

A 10% penalty imposed on withdrawals from tax-advantaged retirement accounts before age 59½, unless an exception applies.

A withdrawal from a Roth IRA that is tax- and penalty-free if the account has been held for at least five years and the account owner is 59½ or meets an exception.

A rule that requires Roth IRA earnings to be tax-free only if the account has been open for at least five years, and for inherited IRAs, it dictates that non-spouse beneficiaries must withdraw all funds within five years unless using the 10-year rule.

A tax strategy allowing individuals to take employer stock from a 401(k) as a lump-sum distribution, paying ordinary income tax only on the stock’s cost basis while deferring capital gains tax on the appreciation.

A strategy that allowed non-spouse beneficiaries to extend RMDs over their lifetime, now largely replaced by the 10-year rule under the SECURE Act of 2019.

Withdrawals are taxed on a Last-In, First-Out (LIFO) basis, meaning earnings are taxed first as ordinary income before contributions are returned tax-free.

A rule requiring most non-spouse beneficiaries of inherited retirement accounts to fully withdraw the account balance within 10 years of the original owner’s death.

A method that allows penalty-free early withdrawals from a retirement account by committing to a series of substantially equal payments based on IRS-approved calculation methods.