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Retirement planning > final > Flashcards

final Flashcards

1
Q

At what age do you have to start taking RMDs for a traditional IRA?

A

April 1 of the year after you turn 70 1/2

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2
Q

What is the early distribution penalty for a Roth IRA?

A

if it is not a qualified distribution the penalty will be 10% can take a qualified distribution after 5 years at age 59 1/2 or to purchase first home (up to 10,000)

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3
Q

Exceptions to the 10% early distribution penalty for a traditional IRA?

A

College expense, Health Care premiums if unemployed

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4
Q

What are the distribution options for a defined benefit plan?

A

Annuity (required), Lump sum

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5
Q

What are the hardship distribution rules?

A

Allows distributions if there is an immediate and heavy financial need and the withdrawal is necessary to satisfy such need.

  • Medical care expenses (employee), Spouse, or dependents
  • Cost related to purchase of a home (excludes mortgage payments)
  • College expenses
  • Payments to prevent eviction
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6
Q

Traditional IRAs require what?

A

RMDs at 70 1/2 at this time no more contributions can be made and you must start taking required distributions

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7
Q

What makes a Roth IRA different from a Traditional

A

Roths do not have RMDs and you can continue to make contributions as long as you have earned income.

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8
Q

What are the contribution limits for IRAs?

A

5,500 with a 1,000 dollar catch up after age 50

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9
Q

How are Roth IRAs taxed?

A

Earnings are taxed as ordinary income. Conversions will be subject to a 10% penalty if withdrawn within 5 years of conversion.

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10
Q

Can you take a loan from a traditional IRA?

A

No

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11
Q

What is 10 year forwarding?

A

Only available for participants born prior to 1936. It mitigates the negative impact attributable to move to a higher income tax bracket because of a lump-sum distribution. The tax due is calculated by dividing the taxable portion of the lump-sum by ten and then applying the 1986 individual income tax rates to the result. this amount is then multiplied by 10 to determine the total income tax due on the distribution.

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12
Q

What is the penalty for an excess contribution to an IRA?

A

6% every year till the excess contribution is withdrawn

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13
Q

What is the maximum loan you can take from profit sharing plans?

A

the lesser of $50,000 or 1/2 the fair market value of the participant’s vested accrued benefit under the plan.

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14
Q

What happens if you have a loan on a 401 k outstanding and you get terminated from the place of employment?

A

The unpaid amount will be deemed a distribution if the employee does not pay it back. This could result in an early distribution penalty of 10%

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15
Q

How much of a rollover is required to be withheld?

A

for an indirect rollover the custodian is required to withhold 20%

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16
Q

Is it more tax beneficial to withdrawal from a traditional IRA or Sell stocks?

A

Withdrawals from the traditional IRA will be taxed as ordinary income there for it would be more beneficial to sell the stock and get taxed at the Long Term Capital Gains Rate.

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17
Q

What exceptions to the 10% early withdrawal are available for and IRA but not qualified plans?

A

Medical Expenses, Tuition, First Time Home Buyer, QDRO

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18
Q

How do you calculate RMDs based on the uniform Life Table?

A

Balance as of December 31 of the previous year / uniform life tables for age at the end of current year.

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19
Q

What are the odd of one spouse reaching 90 when both are 65?

A

50%

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20
Q

How many quarters are needed to be fully insured with social security benefits?

A

40 quarters or 20 for disability

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21
Q

Who received the first social security benefit?

A

Ernest Ackerman it was for 17 cents paid to him in January of 1937

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22
Q

Who was the first person to receive monthly benefits?

A

Ida May Fuller, she paid in $24.75 in over three years of emploment, and received a total of $22,888.92 over 35 years. She died at the age of 100

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23
Q

In 2037, the projected year the Social Security Trust Fund will be exhausted, What benefit will participants receive?

A

The benefit promised is 76 cents on the dollar.

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24
Q

Who is not covered by social security?

A

Federal Employees hired before 1984, Rail Road Retirement System employees, and state and local government workers before 1991 based on employer agreement

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25
Q

What income class does social security make up a larger portion of pre-retirement income?

A

Lower Income Individuals

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26
Q

How much of a benefit can a surviving spouse receive?

A

Up to 100% of the deceased benefit depending on widow/widowers age.

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27
Q

How many years of earnings are used when calculating Social Security benefits?

A

35 years

28
Q

What happens to the Social Security benefit if take before you reach the full retirement age?

A

You can start taking benefits as early as age 62, but the benefit is permanently reduced. I may be further reduced if still working, until full retirement age.

29
Q

What is the risk of outliving assets?

A

Longevity Risk

30
Q

What is the Default Risk?

A

The risk that a creditor will not pay. Includes Annuities, Corporate bonds, Municipal/government bonds, international bonds and Pension Plans

31
Q

What is Liquidity Risk?

A

the risk of not having sufficient liquid assets, or even no access to lump sums of money.

32
Q

How to you hedge inflation risk?

A

Invest for growth and look into inflation protected securities (TIPS)

33
Q

How do you Hedge Market Risk?

A

Diversify the portfolio and make sure you allocate the assets to where they are uncorrelated. This decreases the risk of a portfolio. Also stay in the market for the long run.

34
Q

What is point in time risk?

A

The risk of choosing the wrong time to retire. Retiring when the market drops. Causes the funds to deplete faster.

35
Q

What is the risk associated with not knowing what the future legislation holds for retirees?

A

Policy Risk We don’t know what tax rates/benefits will be as well as social security and healthcare.

36
Q

What are the requirements to be eligible for a reverse mortgage?

A
  • Borrow must be 62 or older
  • Must pay property taxes and have insurance
  • Maintain the home
  • Mortgage must be paid off or refinanced into HECM
  • Must be primary home currently lived in
  • Single family property, HUD-approved condo, or up to u-unit home
  • borrower must complete counseling prior to closing
37
Q

What are the 3 types of benefits for a reverse mortgage?

A

Tenure, Term, Line of Credit

38
Q

What is a Tenure benefit?

A

Equal monthly payments for life as long as in home

39
Q

What is a Term benefit?

A

Equal monthly payments for a fixed period of time

40
Q

What is a Line of Credit?

A

Unscheduled payments or in installments

41
Q

What is the home value limit for the Principal Limit Factor?

A

$625,500

42
Q

What are the benefits of a Reverse Mortgage?

A
  • No monthly principal or interest payment required
  • Proceeds are tax free
  • Interest deductible when paid, and interest paid back is front loaded
  • Benefit type can be changed
  • HECM is non-recourse, borrower or estate will never owe more than the value of the home upon sale or death
  • As long as requirements are met the loan can’t be called/cancelled
  • Can refinance if terms become better.
43
Q

What are some issues with reverse mortgages?

A
  • They aren’t free
  • Misuse or ill advised - bad press
  • Debt
  • Misconceptions - bank owns home, you’ll lose your home
  • Mobility risk
44
Q

What is the bucket strategy?

A

A way to avoid selling assets in bear markets. You have 3 “buckets” one made up of a cash flow reserve (lump sum of 2 years of living expenses) another made up of the investment portfolio. Bucket 2 refills your cash flow when you re-balance. The third is a stand by reverse mortgage. This account is borrowed from in a bear market and cash depletes. Then paid back with the portfolio is back to acceptable measures.

45
Q

What should you not do if you want to leave assets to your heirs?

A

Annuitize a large portion of your assets

46
Q

What percentage of a Social Security benefit can be taxed?

A

up to 85%

47
Q

What risk is managed by an Immediate annuity?

A

Longevity

48
Q

What type of annuity manages inflation risk?

A

Variable annuities

49
Q

How can you purchase an Immediate Annuity?

A

With after-tax or pre-taxed (qualified) dollars. Can use money from qualified plans or IRAs to purchase without triggering a taxable event.

50
Q

How are Immediate Annuities taxed if purchased with a qualified plan (pre-tax dollars)?

A

If purchased from qualified play the payments will be taxed as ordinary income, but there will be no triggered tax event on the purchase of the annuity.

51
Q

How are Immediate Annuities Taxed if purchased with after-tax dollars?

A

A portion will be returned tax-free based on the exclusion ratio.

52
Q

What is the Windfall Elimination Provision (WEP)?

A

It reduces the social security benefit for someone who receives a pension from a employer who didn’t take out social security and qualifies for social security from another jobs they did pay social security taxes

53
Q

Does medicare pay for long-term care?

A

No, Medicare will pay for short stays in a skilled nursing facility, hospice care, or home health care if certain requirements are met.

54
Q

What is mortality risk?

A

The risk of dying earlier than planned assets may be left behind.

55
Q

When is the earliest and latest you can start claiming social security under normal circumstances?

A

The earliest is 62 with a permanent reduction of benefits. To maximize payments the latest would be age 70

56
Q

What is the purpose of file and suspend?

A

The spouse can claim the max 50% spousal benefit and then each person will max their own benefit by filing at age 70

57
Q

Can a divorced spouse receive benefits based on ex’s benefits?

A

Yes, if the marriage lasted longer than 10 years, the divorcee remains unmarried, the divorcee is 62 or older, and the ex-spouse is entitled to benefits.

58
Q

How much can a divorcee recieve from the ex-spouses social security benefit?

A

The divorcee can choose to take up to half of the ex-spouse’s benefit if the ex-spouse is at FRA. This allows the divorcee to wait to claim their own benefit later, if that benefit would be higher.

59
Q

Can you take a deduction for reverse mortgage interest?

A

Yes

60
Q

What does medicare part A cover?

A

Hospital care, home health care, and hospital.

61
Q

What does medicare part B cover?

A

Part B is a voluntary coverage which requires a $147 deductible and quarterly premiums. It covers medical services: surgery, diagnostic test, x-rays, mental illness treatment, therapy medical supplies

62
Q

What is medicare part C?

A

Private insurance coverage which expands on part A and B. Has the option to be managed care, medicare fee-for-service, preferred provider, or specialty plans.

63
Q

What is medicare part D?

A

Additional coverage for prescription drug cost.

64
Q

What are the benefits of single premium immediate annuities?

A
  • It guarantees income that you can’t outlive
  • Investor can tailor the payments to suit their preferences and needs,
  • choice between fixed payments or lifetime plan with 3% COLA
65
Q

What are the 401 (k) contribution limits?

A

18,000 with a 6,000 catch up at age 50

66
Q

SEP contribution limits?

A

The lesser of $53,000 or 25% of employees compensation

67
Q

Simple contribution limits?

A

$12,500

Retirement planning (2 decks)

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