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These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

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1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

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Retirement Perspectives

With so much confusion about lifetime required minimum distributions (RMDs), here are some key points on the right way and time to begin withdrawals.

Required minimum distributions (RMDs) have become a hot topic in recent years, as more individuals postpone retirement and continue to work later in life.  Like many things in life, timing is everything. If investors withdraw too early, they may deplete their funds too quickly and miss investment opportunities in the process. If they withdraw too late, they may run afoul of the tax man. So be sure to familiarize yourself with the myriad rules that apply.

In general, participants in employer-sponsored retirement plans and IRA account owners must start taking lifetime RMDs soon after they turn 70½. The RMD rules apply to all qualified plans, including 401(k), 403(b), 457(b), and the federal government’s Thrift Savings Plan. In addition, minimum withdrawals also apply to employer-sponsored IRAs, including SEP, SAR SEP, and SIMPLE accounts. Complicating matters further, while designated Roth accounts and qualified plans are subject to lifetime RMDs, Roth IRAs are not.

It is the responsibility of plan participants and IRA owners to make sure that they withdraw the correct amount each year from their account. Failure to do so can result in stiff penalties. Retirees who aren’t familiar with the many nuances beneath the maze of rules on RMDs may not like the consequences. An RMD amount that should have been taken but wasn’t is subject to a 50% penalty reportable on IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.”

Required Beginning Date versus Required Minimum Distribution
The required beginning date (RBD) is the date by which an IRA owner must take their first required minimum distribution (RMD) in order to avoid a 50% penalty. The IRA (including SEPs and SIMPLE) RBD for RMDs is no later than April 1 following the attainment of age 70½ regardless of work status. This means that individuals born in January–June will have their first RMD in the year they are age 70. Those born in July–December will have their first RMD in the year they are age 71. They will turn age 70 in one year, but not be age 70½ until the following year. Notably, Roth IRAs are not subject to RMDs during the owner’s lifetime, but could be subject to the RMDs after the death of the owner. Note that Roth 403(b), Roth 401(k) and Roth 457(b) are subject to RMDs during the owner’s lifetime. There is only one exception to the IRA RBD: funds invested in a qualifying longevity annuity contract do not have required distributions until age 85.

The rule of thumb is that RMDs are first required in the year an account owner turns 70½. Although a special rule allows individuals to defer their initial RMD until April 1 of the year following the year the investor turns 70½, subsequent distributions are required to be taken annually thereafter. So, if an IRA account owner turns 70½ in 2018, his or her first RMD can be delayed until April 1, 2019. However, choosing that option will require the individual to take two minimum distributions in 2019: both the delayed 2018 and the 2019 minimum distribution. Although delaying a distribution may put you in a lower tax bracket, taking two distributions in the same tax year could bump you into a higher marginal tax bracket.

What about 401(k)s?
The rules for calculating RMDs are identical for qualified plans (including 401(k) plans), and for 403(b) and 457(b) plans. Generally, RMDs must commence no later than April 1 of the year following the later of attainment of age 70½ or the date the employee severs employment with the employer sponsoring the plan. The first distribution is required to be made by April 1 of the year following the RBD. 

Unlike IRAs, qualified plans, such as 401(k)s, offer some RMD relief, albeit temporarily via the “still working” exception. Certain individuals who still work for an employer sponsoring the 401(k) plan are not required to start taking RMDs until the year they reach 70½ or when they retire, whichever comes later. As mentioned, IRA owners must begin taking RMDs after turning 70½. There are no exceptions. In contrast, while the same requirement generally exists for any 401(k) assets, exceptions are available. For example, so long as you don’t own more than 5% of the company sponsoring your 401(k), and you are still working there, you can delay RMDs until you retire, if the plan allows, so even if you’re just working part-time you could still be able to defer RMDs from your 401(k), so long as the employer classifies you an employee.

Tip: It's interesting to note that the IRS has never defined “still working,” so even if you’re just working part-time, you may still be able to defer RMDs from your 401(k), so long as the company still classifies you an employee.

RMDs for Participants Who Own More or Less Than 5% of the Business
Unlike a traditional IRA, 401(k) plan participants (who own 5% or less of the business sponsoring the plan) can defer their initial RMD to either the end of the calendar year in which they reach age 70½ or to December 31 of the year in which they retire from the employer maintaining the plan, whichever comes later.

Owners who hold more than 5% of the sponsoring company must begin taking RMDs by April 1 of the calendar year after the year in which they reach age 70½, regardless of whether or not they are employed by the company. In other words, so-called “5% owners” cannot defer RMDs past 70½, regardless of work status.

How individuals qualify as 5% owners is determined by whether they own more than 5% of the company on any day in the plan year in which they turn 70½. But the tax code’s family attribution rules also apply, which means any ownership in the business by your spouse, child, or grandchild will be included as well.

Check Your Plan Document
Participants in 401(k) plans and their advisors should make sure they check the plan document or summary plan description for specific rules. Some sponsors, for example, may require that RMDs are taken in the year the participant turns 70½, without exception. Alternatively, a plan may allow workers to delay their initial minimum distribution until the year in which they retire or the following year.

What If You Have More Than One Retirement Account
Many investors own more than one type of retirement account IRA (e.g., 401(k), IRA, etc.).  Individuals who own more than one type of IRA (including SEP and SIMPLE) may satisfy the RMD requirement for that plan type or retirement account type from any like accounts; however, RMD calculations must be done separately for each account.  

So if an individual has two accounts and the total RMD is $100 (e.g., $50 from each), the individual can take the whole $100 from just one account. Note that the IRA RMD amounts may not be taken from 401(k)s, and 401(k) RMD amounts may not be taken from IRAs. Investors also can always take more than the minimum required distribution.

Aggregation is not permitted for RMDs associated with 401(k) accounts. Instead, a separate minimum distribution must be taken for each 401(k) plan account. Last, 403(b) accounts follow IRA rules, thus allowing a 403(b) account owner to take their RMD from one or more 403(b)s; however, investors are prohibited from using IRA proceeds to satisfy a 403(b) RMD and vice versa.

In general, if you participate in more than one company-sponsored retirement plan, an RMD must be both calculated and taken separately from each one. An exception to this general rule applies if you have multiple 403(b) accounts. Here, you still need to calculate the RMD for each account separately, but you can then aggregate them and take the total sum from just one of your accounts or spread it out among any of them in whatever proportion you desire. So, if you have two 403(b) accounts and one 401(k), you would have to take at least two distributions (one from the 401(k) and another from at least one of the (403(b) accounts).

You can aggregate IRAs (including SEPs and SIMPLEs) you own, and you can aggregate IRAs inherited from the same person but not IRAs owned and inherited. The same is true for 403(b) accounts. You can never aggregate different types of accounts or any employer plans.

Tax Implications for IRAs and Qualified Plans

  • Distribution amounts drawn from deductible (pretax) contributions and earnings are taxed as ordinary income, subject to federal and state income tax (if applicable).
  • The portion of distributions applicable to nondeductible (aftertax) contributions potentially can be recovered tax-free.
  • It is the IRA owner’s responsibility to keep track of his or her basis, whereas with qualified plans, it is the responsibility of the plan sponsor.

RMD Practice Tips

  • Qualified 401(k) plan rules do not allow for aggregation. Instead, RMDs must be calculated on each plan and distributed independently. (An RMD is calculated for each account by dividing the prior December 31st balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in tables in Publication 590-B.)
  • Lifetime RMDs are generally calculated using the IRS Uniform Lifetime Table, unless the accountholder’s beneficiary is a spouse, the sole beneficiary, and more than 10 years younger than the account owner.
  • RMDs may not be rolled over, or transferred, in any distribution calendar year, including the first distribution calendar year
  • Unlike Roth IRAs, designated Roth 401(k), 403(b), and 457(b) accounts are subject to lifetime RMDs.
  • RMD is determined by dividing the accounts balance by the distribution period as found in the IRS Uniform Lifetime Table.
  • The account balance is the fair market value on December 31 of the year that precedes the distribution calendar year. The IRS Joint Life Expectancy table can be substituted for the entire distribution calendar only if your spouse will be the sole beneficiary and your spouse is more than 10 years younger than you.
  • Employees aged 70½ or older are eligible to participate in a SEP or SIMPLE IRA, assuming they satisfy the plan’s eligibility requirements. However, once an employee turns 70½, RMDs are required.
  • The IRS can waive the 50% penalty on missed RMDs for “good cause.”

Frequently Asked Questions
To further help familiarize you with lifetime minimum distribution rules, we offer answers to some frequently asked questions.

Q. Can I roll over my RMD to an IRA, Roth IRA, or other eligible retirement plan? 
A. No. If you choose to roll over your RMD, it will be treated as an excess contribution and potentially would be subject to taxes and/or penalties.

Q. If I convert my traditional IRA to a Roth IRA, would I still have an RMD?
A. Anyone, regardless of age, can convert traditional IRA assets to a Roth IRA. Although the amount of the RMD must be distributed prior to the conversion, RMDs would cease for all future years. For example, Tom’s 2018 RMD is $5,000. Tom must distribute his RMD prior to converting his IRA to a Roth IRA. Assuming the rest of his IRA is converted, Tom will never be required to take another RMD. 

Q. How are IRA RMDs calculated after the annuity is annuitized?
A.
It depends. For example, if Stacy has only one IRA that’s solely invested in an annuity, the RMD amount is straightforward: it would be the annuitized amount that is distributed annually from her IRA.

Conversely, minimum distribution payouts rules are tricky when there are multiple IRAs at play. So suppose Gina has two IRAs: IRA #1 is invested in mutual funds, while IRA #2 has been annuitized, paying/distributing an amount annually. In this situation, the annuity payout will satisfy the RMD only for IRA #2, whereas the RMD amount for IRA #1 must be determined separately, without regard to IRA #2.

Q. Are Roth 401(k) accounts subject to minimum distributions?
A.
Yes. While Roth IRAs offer the advantage of no lifetime RMDs, Roth 401(k)s follow a different set of rules. Individuals will need to take RMDs from their Roth 401(k) account after reaching age 70½, unless an exception applies.

Q. Does Lord Abbett offer assistance in calculating lifetime minimum distributions?
A.
Yes. Lordabbett.com has several retirement calculators, including one labeled, “What is my projected required minimum distribution?”

Q. Who is responsible for satisfying the RMD in the year the owner of a traditional IRA passes away (assuming he/she was a least 70½)?
A.
The beneficiaries are responsible for satisfying the minimum distribution, assuming the account owner passed away before taking the RMD in the year he or she died.

Q.  Will my IRA custodian provide RMD assistance?
A:
 The IRA custodian is required to report to the account owner that an RMD is due for the current year and provide an offer to calculate the RMD amount, or alternatively can provide the account owner a calculation of the amount of the annual RMD obligation from that IRA.  As long as the IRA owner is alive at the beginning of 2018, the IRA custodian will be required to provide a calculation of the RMD to that IRA owner by January 31, 2019, based on the account balance on December 31, 2018, and how old the IRA owner will be on December 31, 2018. 

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

GLOSSARY OF TERMS

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

A simplified employee pension plan (SEP IRA) is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP IRA.

Qualified Retirement Plan—This is a savings plan that is allowed certain tax advantages because it meets criteria spelled out in the IRS Code and in the Employee Retirement Income Security Act [ERISA] of 1974. Employers can take tax deductions for any contributions they make to an employee's account. Employee contributions and investment returns are tax-deferred until withdrawn. Contribution limits apply, as do penalties for early withdrawal.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

Required minimum distribution (RMD) is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

An IRA rollover may involve the application of fees and charges to the investor. A rollover is the process of moving your retirement savings from your retirement plan at work (401(k), profit-sharing plan, etc.) into an Individual Retirement Account (IRA). 

The Summary Plan Description (SPD) issued by plan administrators explains participants’ and beneficiaries’ rights, benefits, and responsibilities under the plan in understandable language. The SPD includes such information as: the plan’s requirements regarding eligibility; a description of benefits and when participants have a right to those benefits; procedures regarding claims for benefits and remedies for disputing denied claims; and the rights available to plan participants under the Employee Retirement Income Security Act (ERISA).

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