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Post Retirement Income Flashcards

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1
Q

Concept

the person whose estate planning wishes are documented in the will

A

testator

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2
Q

Concept

minor changes in a will instead of revoking the existing will and writing a completely new one

A

codicil

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3
Q

items to include in your will

A
  • what property to include
  • who will inherit which assets
  • identify an executor
  • choose a guardian for your children
  • select someone to manage a child’s inherited assets
  • sign your original will in front of witnesses who also will sign and make photocopies
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4
Q

fill in the blank

When a person dies without a valid will, the deceased is assumed to have died ____

A

intestate

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5
Q

describe

intestate process

A
  • probate court first ensures that the debts, income taxes, and expenses of the deceased are paid
  • after payments are made, the probate court will divide all property and transfer assets to the legal heirs according to state law
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6
Q

strategies for

unmarried couples and estate planning

A

transfer assets to each other as nonprobate property using the advantages of
* beneficiary and payable-on-death designations
* joint ownership with right of survivorship
* revocable living trusts

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7
Q

Concept

is an assumption in state law that presumes that wedded couples share their fortunes equally

A

partnership theory of marriage rights

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8
Q

Concept

acquisition of property during a marriage and titled in the name of only one spouse

A

becomes the property of both spouses

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9
Q

Exceptions

acquisition of property during a marriage and titled in the name of only one spouse becomes the property of both spouses

A
  • acquired by gift
  • acquired by inheritance
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10
Q

what does the law assume about the rights of the spouse after the death of the other spouse

A

that the surviving spouse owns half of everything that bot partners earned during the matter how much was actually contributed by either partner or even if only one spouse held legal title to the property

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11
Q

Concept

is a legal arrangement between you as the grantor or creator of the instrument and the person designated to control and manage any assets

A

trust

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12
Q

Concept

  • these trust are established while the grantor is alive
  • list types
A
  • living trusts take effect while the grantor is alive, and;
  • testamentary trusts that go into effect upon death
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13
Q

Concept

  • is used to protect and manage a person’s assets, and it is a substitute for a will
  • can be used to avoid probate court
  • grantor maintains the right to change its terms or cancel at any time
A

revocable living trust

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14
Q

Concept

is an arrangement in which the grantor relinquishes ownership and control of property while living

A

irrevocable living trust

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15
Q

Properties

irrevocable living trust

A
  • is an arrangement is which the grantor relinquishes ownership and control of property while living
  • usually involves a gift of the assets to the trust
  • the grantor gives up three key rights: (1) right of control, (2) change of the beneficiaries, and (3) change of the trustees
  • transfers to a trust made within 3 years of death may be brought back into the decdent’s estate
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16
Q

concept

is a trust to boost your current income

A

irrevocable charitable remainder trust (CRT)

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17
Q

effective use of

irrevocable CRT

A
  • is popular for people who want to leave a portion of their estate to charity because doing so can boost one’s income during the grantor’s lifetime
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18
Q

steps

irrevocable CRT

A
  • you set up the trust and irrevocably give it assets
  • the trust then pays you income from the assets in the trust for a set period, usually for life
  • the projected future value of the gift can be discounted to a present value
  • this amount can then be written off as a charitable contribution on one’s current income tax return, saving even more money
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19
Q

who does a CRT work well for

A

a CRT works well for people who show wealth on paper because of appreciated assets

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20
Q

Concept

  • becomes effective upon the death of the grantor
  • can be designed to provide money or asset management after the grantor’s death
A

testamentary trusts

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21
Q

Concept

prepared along with their will that may contain preferences regarding funeral and burial instructions, organ donation wishes

A

letter of last instructions

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22
Q

Concept

is a tax imposed by the IRS on property that is transferred from an estate after a decedent’s death

A

federal estate tax

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23
Q

Properties

federal estate tax

A
  • is a tax imposed by the IRS on property that is transferred from an estate after a decedent’s death
  • the tax is not imposed until that total value of an estate exceeds a certain threshold
  • the threshold is very high
  • it is a tax on the decedent’s estate, not the beneficiary’s inheritance
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24
Q

Define

federal estate tax exemption amount

A
  • The threshold where estate taxes start—$11,400,000 for individuals; $22,800,000 for families
  • This is the amount an individual may pass to heirs during his or her lifetime without estate tax consequences
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25
Q

exemption amount

estates

A
  • tax law exempts the first $11,400,000 of a individual’s gifts made and estates of decedents
  • tax rate on estates valued above this amount range from 18 to 40 percent
  • a married couple will be able to shield twice as much—$22.8 million
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26
Q

annual exclusion amount

gift tax

A

$15,000

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27
Q

Fill in the blank

state estate and inheritance taxes are often referred to as ____ as they result because of someone’s death

A

death taxes

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28
Q

Concept

twelve states and the District of Columbia have a ____, which are charged against the estate regardless of who inherits the assets

A

state estate tax

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29
Q

Concept

____ usually are coupled with the federal estate tax, so when the federal estate is zero, ____ are also zero

A

states estate taxes; state taxes

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30
Q

Concept

is levied on the transfer of assets to heirs who receive the property

A

inheritance tax

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31
Q

Concept

who pays the inheritance tax

A

the heirs

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32
Q

Hannah lists her mother as the person to inherit her life insurance upon her death.

What is Hannah’s mother called in this situation?

Beneficiary

Executor

Codicil

Payable-upon-death designee

A

Beneficiary

The beneficiary is the person designated to receive a benefit upon someone’s death.

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33
Q

Loto met with a lawyer to create a will. He left his assets to his brother.

What is the brother called in this situation?

Guardian

Beneficiary

Executor

Heir

A

Heir

an heir is the person named in the will or entitled by law to inherit assets

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34
Q

Two people bought a house together. Upon the death of one of them, they want to be sure the other immediately receives the property by law rather than through a will.

Which type of transfer should they have in place?

A trust

A revocable living trust

Joint tenancy

Payable-on-death designation

A

Joint tenancy

Joint tenancy with right of survivorship, also called joint tenancy, immediately transfers the property to the surviving party by law rather than by provisions of a will

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35
Q

Malik has a life insurance policy at work. He needs to list the primary person who will receive his life insurance upon his death.

Which transfer by contract method should he use?

Transfer by beneficiary designation

Transfer by joint tenancy

Transfer by payable-on-death designation

Transfer by will

A

Transfer by beneficiary designation

A beneficiary is the person who will receive the life insurance paid upon Malik’s death

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36
Q

A person has a savings account with a payable-on-death designation.

What does that designation mean?

A designee will receive the funds in this account after the owner’s death but cannot access them while the owner is alive.

A designee is able to dispose of the account while the owner is still alive, to ensure the owner’s wishes are carried out after death.

A designee has access to the savings account now and will inherit the account immediately upon the owner’s death.

A designee is an equal account holder and is entitled to 50% of the funds upon the owner’s death.

A

A designee will receive the funds in this account after the owner’s death but cannot access them while the owner is alive.

Payable-on-death designation refers to the person who will receive the funds after the account owner’s death. The designee cannot access the funds while the owner is still alive.

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37
Q

Which type of trust becomes effective upon the death of the grantor and provides money or asset management after death for the heirs’ benefit?

Revocable living trust

Irrevocable living trust

Testamentary trust

Irrevocable charitable remainder trust

A

Testamentary trust

These trusts can provide money or asset management after death to provide income for a spouse and children, grandchildren, or others.

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38
Q

What are two reasons to transfer assets via a trust rather than a will? (Choose 2 answers.)

To designate a guarantor

To avoid battles over the will

To avoid probate court

To ensure that changes can be made after death

A
  • to avoid battles over the will
  • to avoid probate court

“To avoid battles over the will” is correct. If there is a fear of a battle over the will by potential heirs, it is best to create a trust to transfer assets.
“To avoid probate court” is correct. A trust is a legal agreement with a trustee to manage assets to the benefit of the heirs.

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39
Q

Ren and Talia want to establish a trust through their will that will provide asset management for their grandchildren, the heirs of this trust, upon their death.

How would Ren and Talia manage this?

Establish a testamentary trust

Establish a living trust

Establish an inter vivo trust

Establish an irrevocable charitable remainder trust (CRT)

A

Establish a testamentary trust

A trust can be established to minimize inheritance taxes and to restrict how funds can be spent.

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40
Q

What happens when someone passes intestate?

The primary beneficiary named in the will is asked to become the executor of the will.

Probate court is required to ensure that the estate is disseminated according to one’s wishes.

The executor of the will is tasked with distributing the decedent’s property as instructed in the will.

The estate will go through probate and the state will decide how to distribute assets.

A

The estate will go through probate and the state will decide how to distribute assets.

The estate of a person who dies intestate—that is, without a will—goes through probate and pays higher estate taxes. Debts are paid off first, and any assets left over will go to living relatives, or the state if there are no relatives.

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41
Q

Fill in the blank

Most retirement plans offered by employers are called ____

A

qualified plans

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42
Q

Concept

retirement plans offered by employers that qualify for special tax treatment under regulations of ERISA

A

qualified plans

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43
Q

Define

qualified plans

A

employee retirement plans that qualify for special tax treatment under regulations of ERISA

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44
Q

Concept

A law that regulates employee retirement plans, but does not require companies to offer retirement plans

A

Employee Retirement Income Security Act (ERISA)

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45
Q

Supreme Court ruling

ERISA

A

The U.S. Supreme Court held that the ERISA law requires retirement plan sponsors to be legally responsible to continuously monitor investments in their retirement savings plan and, if necessary, remove imprudent investments

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46
Q

Concept

was established by ERISA to protect the interests of employee benefit plan participants and their beneficiaries.

A

Pension Benefit Guaranty Corporation (PBGC)

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47
Q

Describe

Pension Benefit Guaranty Corporation

A
  • established by ERISA to protect the interests of employee benefit plan participants and their benficiaries
  • the per-participant flat premium rate for a plan year is $80 for single-employer plans
  • rates are indexed to inflation
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48
Q

List

two types of employer-sponsored retirement plans

A
  1. defined-contribution retirement plan
  2. defined-benefit
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49
Q

Concept

  • voluntarily offered by an employer and designed to provide a retiring employee a lump sum at retirement
  • this is the most popular retirement plan offered by employers
A

defined-contribution retirement plan

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50
Q

Concept

If the employee says “yes” to participating in a employer-sponsored retirement plan, the employee must make regular contributions

A

defined-contribution retirement plan

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51
Q

Concept

money to fund the retirement plan is contributed only by the employer

A

noncontributory plan

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52
Q

Concept

money to fund the retirement plan is contributed to by both the employer and employee, or solely by the employee

A

contributory plan

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53
Q

Concept

are so described because the employee controls where the assets in their account are invested

A

self-directed plans

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54
Q

Concept

is the process by which employee accrue nonforfeitable rights over their employer’s contributions that are made to the employee’s qualified retirement plan account

A

vesting

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55
Q

according to ERISA

what can employers require regarding vesting

A

that the worker must work with the company for 3 years before vesting begins

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56
Q

Concept

An employer may permit full vesting after 3 years

A

cliff vesting

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57
Q

name

an added benefit of employer-sponsored plan

A

portability

58
Q

Concept

means upon termination of employment, an employee can transfer the retirement funds, when done according to certain rules, from the employer’s account to another tax-sheltered account without taxes or penalty

A

portability

59
Q

Concept

is an asset allocation fund that offers investors premixed portfolios of stocks, bonds, and cash that investors of a certain age and risk tolerance might prefer

A

target-date fund

60
Q

Describe

target-date fund

A
  • is an asset allocation fund that offers investors premixed portfolios of stocks, bonds, and cash that investors of a certain age and risk tolerance might prefer
  • often named for the year one plans to retire
61
Q

Concept

an element of employer-sponsored retirement plans that can help employees save more for retirement

A

automatic escalation

62
Q

Concept

a retirement plan for eligible employees of nonprofit organizations (colleges, hospitals, religious organizations)

A

403(b) plan

63
Q

Roth versions of these employer-sponsored retirement plans

A
  • 401(k)
  • 403(b)
  • 457
64
Q

Concept

when the employing organization has 100 or fewer employees, it may set up this plan

A

Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)

65
Q

Concept

Employers with 25 or fewer employees can offer this type of plan, which is like a 401(k)

A

Salary Reduction Simplified Employee Pension Plan (SARSEP)

66
Q

Law

expands access to retirement savings for permanent part-time workers and smaller employers by allowing them to participate in multi-employer 401(k) style plans

A

SECURE Act of 2019

67
Q

Concept

  • permits workers aged 50 or older to contribute an additional $6,000 to most employer-sponsored plans
  • only $3,000 for SIMPLE
  • $1,000 for IRA
A

catch-up provision

68
Q

Employer-sponsored plans

catch-up provision

A
  • permits workers aged 50 or older to contribute an additional $6,000 to most employer-sponsored plans
  • only $3,000 for SIMPLE
  • $1,000 for IRA
69
Q

list the three choices

when changing employers or retiring with 401(k) plans

A
  1. leave it
  2. transfer it
  3. take it

Option 2 and 3 result in a lump-sum distribution because all the money is removed from a retirement account at one time

70
Q

Lump-sum distributions from 401(k) plans must be executed according to these rules

A

IRS’s rollover regulations

71
Q

Concept

is the action of moving assets from one tax-sheltered account to another tax sheltered account within 60 days of a distribution

A

rollover

72
Q

Concept

The IRS rule that says investors can make only one rollover from one IRA to another in any 12 month period

A

one-rollover rule

73
Q

Describe

one-rollover rule

A

The IRS rule that says investors can make only one rollover from one IRA to another in any 12 month period

74
Q

Concept

pays lifetime monthly payments to retirees based on a predetermined formula

A

defined-benefit retirement plan

75
Q

Describe

defined-benefit retirement plan

A
  • pays lifetime monthly payments to retirees based on a predetermined formula
  • commonly called pensions
76
Q

Concept

  • is a sum of money paid regularly as a retirement benefit
A

pension

77
Q

what does the term “defined” mean in defined-benefit plans

A
  • are termed “defined” because employees and employers know the formula for calculating retirement benefits ahead of time.
  • this fund is different from other pension fund, where the payout amounts depends on investment returns, and if poor returns result in a funding shortfall, employers must tap into the company’s earnings to make up the difference
78
Q

Concept

  • this fund is different from other pension fund, where the payout amounts depends on investment returns, and if poor returns result in a funding shortfall, employers must tap into the company’s earnings to make up the difference
A

defined-benefit plans

79
Q

Concept

  • these plans guarantee employer-paid monthly retirement payments for life, and sometimes to survivors
A

defined-benefit plans

80
Q

Properties

pension benefits in defined-benefit plans

A
  • are based on the years of service at the employer
  • average pay during a set number of working year (typically the last few years)
  • a percentage
81
Q

Properties of what type of benefits

  • are based on the years of service at the employer
  • average pay during a set number of working year (typically the last few years)
  • a percentage
A

pension benefits in defined-benefit plans

82
Q

Concept

  • is a defined-benefit retirement plan that gives each participant an interest-earning account credited with a percent of pay on a monthly basis.
  • it is distinguished by the “balance of money” in an employee’s account at any point in time
  • the employer contributes 100% of the funds, and the employee contributes nothing
A

cash-balance plan

83
Q

Concept

these plans allow for contributions that may be up three or six times that of a typical 401(k) plan

A

cash-balance plan

84
Q

Fill in the blank

contributions to cash-balance plans are skewed toward ____

A

older participants

85
Q

options

if you leave the company before retirement age that offers a cash-balance plan

A
  • you may take the contents of your cash-balance plan as a lump sum and roll it over into an IRA
86
Q

feature

A traditional pension is not ____

A

portable

87
Q

Concept

  • a plan that provides retirement income with no effort on your part, than going to work
  • the payment lasts throughout your retirement, which makes budgeting for retirement much easier
A

defined-benefit

88
Q

Concept

is an annuity where payments continue to the surviving spouse after the participant’s death, often equal to 50 to 100 percent of the participant’s retirement benefit

A

survivor benefit

89
Q

Concept

  • is an employer-sponsored plan that vies employees a share in the profits of a company usually in the form of end-of-year cash or common stock.
A

profit-sharing plan
* also called deferred profit-sharing plan

90
Q

Concept

  • is an employee benefit that provides a company’s workers with an ownership interest in the company.
A

employee stock-ownership plan (ESOP)

91
Q

Describe

employee stock-ownership plan (ESOP)

A
  • is an employee benefit that provides a company’s workers with an ownership interest in the company.
  • the employer allocates a certain number of shares of the company to each eligible employee
  • aloocation of shares is based on level of annual form of distribution
  • employee’s shares are held in the company’s ESOP trust
92
Q

IRS regulations

personally established retirement accounts

A
  • if you do not have access to an employer’s retirement plan, you can and should set up your own plan to fund your retirement
  • IRS regulations allow you to take advantage of personally established, self-directed tax-sheltered retirement accounts, such as IRAs and Roth IRAs
93
Q

Concept

  • is a nondeductible after-tax account that offers significant tax and retirement planning advantages
  • funds in the account grow tax-free
  • you do not pay taxes each year on capital gains, dividends, and other distributions from securities held in it
A

Roth IRA

94
Q

Concept

are very popular because they offer both tax-deferred growth and tax-free withdrawals

A

Roth IRA

95
Q

Concept

the biggest advantage of a Roth IRA tax-sheltered retirement account

A

tax-free withdrawals

96
Q

Why should Roth IRAs be considered the “default choice for retirement investing”

A
  • because despite the head start of a traditional IRA due to the upfront tax break of deductibility, a Roth almost always overcomes that advantage
  • you take a tax hit upfront but never owe the IRS a penny agains
97
Q

Fill in the blank

When you remove money from a Roth IRA, it is considered ____

A

a withdrawal, not a loan
* you cannot put it back

98
Q

Nature, Duration

the primary benefit of a Roth IRA over a 401(k) account and a traditional IRA

A

money coming out is tax-free if the account has been in existence for 5 years

99
Q

two reasons

withdrawals may be made tax-free from a Roth IRA before age 591/2

A
  1. college expenses
  2. firt-time home purchase
100
Q

Concept

is the lowest amount of cash that must be disbursed from some type of retirement plan once a participant reaches age 72

A

required minimum distributions (RMDs)

101
Q

Concept

tax-advantaged account that is exempt from required minimum distributions

A

Roth IRA

102
Q

law

created the RMD rule for tax-advantaged accounts

A

SECURE Act

103
Q

Concept

  • your contributions may be tax deductible
  • result in tax-free growth and taxable withdrawals
A

traditional IRAs

104
Q

Concept

any nonworking spouse can make a deductible contribution to this account of up to $6,000 ($7,000 if age 50 or older) as long as the couple files a joint return

A

spousal IRA

105
Q

List

any nonworking spouse can make a deductible contribution to a spousal IRA under these conditions

A
  • an amount up to $6,000 ($7,000 if age 50 or older)
  • the couple must file a joint return
  • the working spouse has enough earned income to cover the contribution
106
Q

Concept

is a tax-deferred retirement account designed for high-income self-employed and small-business owners and their employees

A

keogh

107
Q

Concept

an individual may save as much as 25 percent of self-employment earned income or $56,000 per participant, whichever is less

A

keogh

108
Q

Concept

  • is a variation of the IRA
  • are adopted by business owners to provide retirment benefits for themselves and all eligibile employees
  • is easier to maintain than a keogh
A

SEP/IRA

109
Q

Properties

SEP/IRA

A
  • is a variation of the IRA
  • is easier to maintain than a keogh
  • all employees must receive the same benefits under a SEP plan
110
Q

Concept

  • all employees must receive the same benefits under this plan
A

SEP plan in SEP/IRA

111
Q

Concept

  • works like a SEP/IRA or employer-provided 401(k)
  • strictly for sole proprietors who have no employees
A

solo individual 401(k) plan

112
Q

Define

premature distributions in retirment accounts

A

early withdrawals before age 591/2

113
Q

four bad things happen with early withdrawals

A
  1. you must prepay taxes that will be due to the government according to the 20 percent withholding rule
  2. 10 percent penalty is assessed on the withdrawal
  3. income tax must be paid on the withdrawn funds
  4. the investment does not grow by compounding
114
Q

list

penalty-free withdrawals

A
  1. expenses for medical, college, and home buying
  2. penalty-free withdrawals for births and adoptions
  3. retirement account loans
  4. hardship withdrawal
  5. early retirement
115
Q

Concept

some people buy this to “guarantee” a portion of their retirement income

A

an annuity

116
Q

Concept

is a contract made with an insurance company that provides for a series of payments to be received at stated intervals (usually monthly) for life or a specified time period.

A

annuity

117
Q

Concept

the person covered by an annuity

A

annuitant

118
Q

Concept

are considered a “risk-pooled mortality product”

A

annuity

119
Q

Concept

this product may be a good solution for those seeking certainty in retirement income

A

annuity

120
Q

Concept

People usually buy this type of annuity at or soon after retirement

A

immediate annuity

121
Q

Concept

  • involves you paying in before retirement then waiting a certain amount of time to receive any payouts
  • once payouts begin, they are more than you would have received with an immediate annuity
A

deferred annuity

122
Q
  • What is the risk invovled with an deferred annuity?
A
  • that you might die before starting to collect
  • in that event, your survivors receive nothing
123
Q

pros and cons

deferred annuity vs immediate annuity

A

deferred annuity
* pros: pays more than an immediate annuity
* cons: you may die before payments begin

immediate annuity
* pros: begin receiving payments almost immediately after purchase
* cons: they pay less than a deferred annuity

124
Q

Concept

  • annuity upon your death, in which your heirs will receive a death benefit
  • either some or all of your remaining payouts
A

cash refund or life annuity

125
Q

disadvantages of annuities

A
  • are sold aggressively because sellers earn very high sales commissions
  • the insurance company charges substantial fees
  • the insurance agent has no fiduciary duty
  • allows for conflicts of interest
126
Q

unplanned realities of retirement

A
  • you may live longer than expected, having not saved up enough
  • you may have to retire early
127
Q

Concept

As the income the individual goes up, they have a tendency to spend more as a reward for working hard

A

lifestyle creep

128
Q

Fill in the blank

when you open a retirement account, you must sign a ____

A

beneficiary designation form

129
Q

Concept

This document contractually determines who will inherit the funds in that retirement acount in case you die before the funds are distributed

A

beneficiary designation form

130
Q

Two major mistakes sometimes occur with the beneficiary designation form

A
  1. singles often list their mothers as the beneficiary, and then fail to change it to their spouse
  2. others keep their first spouse as a beneficiary and fail to change it after they divorce and remarry
131
Q

List

easy fixes that both parties support to save Social Security

A
  • increase the wage cap
  • increase the payroll tax rate
  • change the benefit formula
132
Q

What are the Social Security taxes that are withheld from your wages?

A

FICA taxes

133
Q

Concept

The FICA tax is paid on wage income up to the ____

A

maximum taxable yearly earnings (MTYE)

134
Q

Describe

maximum taxable yearly earnings

A
  • comprises the maximum amount to which the FICA is applied
  • The FICA tax rate consists of 6.2 percent paid employers, and 6.2 percent paid by employees
135
Q

Concept

The MTYE limit does not apply to this tax

A

Medicare tax

136
Q

tax

Wage earners and their employers pay a 1.45 percent tax on all earnings

A

Medicare tax

137
Q

List

The SSA recognizes four statuses of eligibility

A
  1. fully insured
  2. currently insured
  3. transitionally insured
  4. not insured
138
Q

Concept

This is the amount you would receive at your full-benefit retirement age—currently 67 for those born in 1960 or later.

A

basic retirement benefit

139
Q

What will happen if you claim your SSA benefits as early as 62?

A
  • The penalty is approximately 6% for each year that you begin early from your full retirement age
  • 75% of full benefits
140
Q

Concept

This is a person’s gross income after retirement, divided by his or gross income before retirement

A

replacement ratio

141
Q

What is the risk of leaving one’s retirement account with a former employer when changing jobs?

Could result in a delay in accessing funds

A one-time penalty will be charged.

There may be too many investment options and lower fees.

One’s tax bill will be higher.

A

Could result ina delay in accessing funds

142
Q

Which retirement plan accepts contributions from the employee and will provide the employee a lump sum at retirement?

Employer-sponsored retirement plan

Noncontributory plan

Defined-contribution retirement plan

After-tax plan

A

Defined-contribution retirement plan

This plan is a voluntary program. A certain percentage of income is set aside each year by the company for the benefit of each employee.

Personal Finance (10 decks)

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