section 1 - The American College Online Learning Center

8. IRA funded plans (IRAs, SEPs, SIMPLEs) have the following characteristics:a. Allow for discretionary withdrawalsb. Allow for a wide range of investment choicesc. Allow for a wide range of annuity productsd. Allow the participant to purchase an immediate annuity at any time9. Choosing the right distribution option from a defined-benefit plana. The distribution decision should be made as part of a comprehensive retirementincome plan—but too often, it is not.b. What plan distribution options are available and how much will be paid undereach option?c. If an annuity is desired and the plan has a lump sum option, then more planning isrequired because the client can elect the lump sum and roll it to an IRA withouttax consequences. Consider:(1) Is the right annuity available inside of the plan?(2) When is the annuity going to be annuitized?(3) If the option is available both inside and outside of the plan, whichapproach pays the largest amount?(4) Is there a difference in the security of benefit payments?(5) Is there an impact on potential ad-hoc employer-provided COLAs or otherbenefits (e.g., retiree’s health) by taking the money out of the plan?d. Pension maximization concept—elect a life annuity and use the differencebetween the life annuity payments and joint and survivor payments to purchaselife insurance.e. If a lump sum is the desired form of payment, note that timing matters!(1) Value tied to outside index which changes over time(2) When interest rates are lower, the lump sum values are higher.(3) In an increasing interest rate environment, the lump sum value will belower.(4) The index used has changed from one based on treasuries to one basedon corporate bonds. (Today’s lump sum values are lower than in the past.)10. Choosing the right distribution option from a defined contribution plana. What is the best distribution option for the retirement income plan?b. What plan distribution options are available?c. When is the annuity purchase desired?d. Is the best annuity price available inside or outside of the plan?11. Qualified plan rollovers(1) Plan may have institutional pricing which might be advantageous for theclient.(2) Plan sponsor may offer institutional pricing through IRA rollovers to thesame carrier.a. Most participants elect lump-sum distributions.b. It is critical for the client to defer taxes until benefits are needed (except ifwithdrawals will be taxed at a very low rate).c. Elect a direct rollover of “eligible distributions” to tax-advantaged plans or an IRA.4.4