Distributions and Reporting
Distributions and Reporting
This domain tests the end of the participant lifecycle: required minimum distributions, withholding, rollovers, spousal rights, and the reporting that follows. Accuracy here prevents tax penalties and late-filing exposure.
Distribution rules
- A qualified joint and survivor annuity (QJSA) and qualified preretirement survivor annuity (QPSA) apply to plans subject to those rules; spousal consent must be in writing and witnessed or notarized.
- Eligible rollover distributions require a 402(f) notice and are subject to mandatory 20% federal withholding unless directly rolled over.
- The 10% additional tax on early distributions has exceptions, including age 59½, disability, and qualified birth or adoption distributions.
RMDs
The RMD age is 73 for participants who reach that age after 2022. The first RMD must be taken by April 1 of the year after the participant reaches RMD age; later RMDs are due by December 31. A missed RMD triggers an excise tax, generally 25%, reduced to 10% if corrected timely.
Reporting
Form 5500 is generally due the last day of the seventh month after the plan year ends, with an extension to the 15th day of the 10th month. Form 1099-R reports distributions, and Form 945 reports federal income tax withholding. The Summary Annual Report must be furnished to participants within two months after the 5500 due date.
Worked example
A participant receives a $50,000 eligible rollover distribution and does not elect a direct rollover. The plan must withhold 20%, or $10,000, and pay $40,000 to the participant. If the participant wants to roll over the full $50,000, the participant must replace the $10,000 withheld from other funds within 60 days.
Traps
Using the wrong RMD age; missing the April 1 deadline for the first RMD; treating periodic payments as eligible rollover distributions; forgetting spousal consent; and filing the 5500 without the required schedules or audit.