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CFP - AB > Retirement > Flashcards

Retirement Flashcards

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1
Q

Retirement Planning
Needs Analysis

A

Step 1: Inflate the annual need in today’s dollars.
Funds needed 1st year of retirement

Step 2: Determine what lump sum is needed at the BEGINNING of retirement
Amount needed to fund

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2
Q

Social Security Benefits

A

Social Security (old age, survivor & disability - OASDI)
Medicare
Federal Unemployment
Supplemental Security Income (SSI)

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3
Q

Social Security Fully Insured

A

40 quarters

Eligible for both survivor AND retirement benefits

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4
Q

Social Security Currently Insured

A

6 quarters of coverage

Eligible for:
Lump sum death benefit
Survivor spouse’s benefit
Dependent benefit

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5
Q

SS Worker Benefits

A

Retired fully insured aged 62 or over entitled to retirement benefits

Under age 65 disabled 12mos, expected to remain disabled at least 12mos or result in death entitled to disability benefit with 5 month waiting period

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6
Q

SS Spouse Benefits

A
  1. Spouse of a RETIRED or DISABLED worker qualifies if meets any of the following:
  • 62 or over or any age if
  • Has child in care under 16
  • Has child 16 and over and disabled before 22
  1. Spouse of DECEASED insured worker qualifies if 60 or over or any age if caring for child of deceased under age 16 or disabled before 22
  2. Divorced for two years, ex spouse qualifies if 62 or over and married at least 10yrs
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7
Q

SS Dependent Benefits

A

Surviving dependent, unmarried child of deceased, disabled or retired qualifies if:
- Under 19 and full time student
- 18 or over and disabled before 22

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8
Q

SS Lump sum death benefit

A

One time lump sum benefit of $255

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9
Q

Qualified Plans/ERISA

A

Vesting
Admin costs
Exempt from creditors
Integrate with social security
May NOT discriminate
Immediate tax deduction for contribution

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10
Q

Retirement Plans

A

NO vesting
Limited admin costs
MAY discriminate
No employer tax deduction for contributions until employee is taxed

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11
Q

Defined Contribution Plans
(Qualified plans/ERISA)
(Vesting/admin/exempt from creditors/integrate with SS)

A
  1. Money purchase PENSION
  2. Target benefit PENSION
  3. Profit Sharing
  4. Profit Sharing 401k
  5. Stock Bonus Plan

Minimum employer contribution must be no less than 3% of non key employees compensation. (C is 3rd letter; use 3%)

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12
Q

Factors affecting employee’s DC plan benefits

A

Years to retirement
Investment returns
Salary levels
Employer contributions
Forfeitures

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13
Q

Solo 401k

A

NOT subject to coverage testing and non discrimination

2 different contributions: employee elective salary referral AND employer contribution (25% of compensation) with $66,000 cap

Catch up of $7,500 permitted

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14
Q

412i plan

A

Defined benefit plan funded entirely with insurance products such as life insurance and annuities.

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15
Q

Qualified Plan Eligibility Requirements

A

Age & Service: (1) age 21 & 1yr of service (21 and one rule)
(2) 2yr service but immediately vested (2-yr/100% rule)

Year of service: 1,000 hrs within initial 12mos or 500 hrs 3 conservative years

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16
Q

Qualified Plan Coverage Requirements

A

Ratio percentage test: Must cover a percentage of NHCEs that is at least 70% of the percentage of HCEs who are covered

Average benefit test: Average benefits for all NHCEs must be at least 70% off HCEs

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17
Q

Highly Compensated Employees (HCEs)

A

A greater than 5% owner*
OR
Earn more than $150,000 in PRECEDING year

**Employees who are the spouse, parent, child or grandparent of a >5% owner is deemed to be a >5% owner

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18
Q

Key Employees (Key Vest)

A

Relates to vesting

Greater than 5% owner*
OR
Officer AND earn more than $215,000
OR
Greater than 1% owner AND earn more than $150,000

**Employees who are the spouse, parent, child or grandparent of a >5% owner is deemed to be a >5% owner

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19
Q

Top Heavy Plans

A

More than 60% of aggregate accrued benefits or account balances are allocated to key employees

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20
Q

Faster Vesting Schedule

A

Top heavy DB plans
All defined CONTRIBUTION plans

Vesting Alternatives:
100% 2yr eligibility
2-6 year grade
3 year cliff

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21
Q

Slower Vesting Schedule

A

Non top heavy DB plans ONLY

Vesting Alternatives:
100% vested 2yr eligibility
3-7 year grades
5 year cliff

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22
Q

ADP/ACP Testing

A

Compares the percentages of HCEs to those of the NHCEs. The HCEs rate must be both of the following:

Not more than 125% of the NHCE rate
Not more than 200% of the NHCE rate and not more than two percentage points greater than the NHCE rate

Short hand
NHCE HCE
Deferral 1% (x2) 2%
Deferral 2% (x2) 4%
Deferral 3% (+2) 5%
Deferral 4% (+2) 6%

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23
Q

Controlled Group

A

Parent subsidiary: One entity owns 80% of other entities

Brother sister: 5 (or fewer) owners of two or more entities own 80% or more of each entity

Affiliated Service Group: Service orgs (HAEL) that provide professional services

Employee Leasing: Employers choosing to lease employees from independent employee leasing org

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24
Q

Defined Benefit Plan SS integration

A

Excess method

Integration level: Level of compensation above which the excess contribution is made

Base benefit percentage: Plan benefit for compensation below the integration level

Excess benefit percentage: Plan benefit for compensation above the integration level

Permitted disparity: Lessor of base benefit percentage or 26.25%

25
Q

Defined Contribution Plan SS Integration

A

Integration level: Any dollar amount up to Social Security wage base ($160,200 for 2023)

Base benefit percentage: Contribution percentage for compensation below the integration level

Excess benefit percentage: Contribution percentage for compensation above the integration level

Permitted disparity: Lessor of base benefit percentage or 5.7%

26
Q

Annual Compensation Limit

A

Only first $330,000 of each employee’s compensation is taken into account

27
Q

Elective deferrals with more than one employer

A

401k/403b/SIMPLE/SARSEP $22,500 + $7,500 catch up

SIMPLE and SIMPLE $15,500 + $3,500 catch up

28
Q

IRA Eligibility

A

Any person receiving compensation can contribute

29
Q

Keys to IRA deductiblity

A

Neither spouse is an active participant or if single person is not an active participant

Active participant status includes qualified plans, SIMPLE, SEPS, TSA and union plans NOT 457

Active participant = annual additions

30
Q

Compensation for IRA purposes

A

Wages, salaries, tips, professional fees and bonuses
Alimony
Separate maintenance payments

31
Q

Roth conversion distributions

A

No income tax/no penalty:
- Meet 5 year holding period
- Fails to meet 5 year holding period with special purpose

No income tax/10% penalty
- Fails to meet 5 year holding period with no special purpose

Either wait 5yrs or turn 59 1/2

32
Q

Roth earnings distributions

A

NO income/NO penalty:
- Meet 5 year hold period with qualifies triggering event (59 1/2 or older, death, disability, 1st home buy up to $10,000)

Income tax/NO penalty:
- Meet 5 year hold period with special purposes (medical expenses, insurance prem while unemployed, birth/adoption, higher education, 72t)

Income tax/10% penalty:
- Meet 5 year hold period with NO triggering events or special purposes
- Fails to meet 5 year hold period with NO special purpose

Wait 5yrs AND turn 59 1/2

33
Q

Roth 401k

A

Only 401k, 403b and governmental 457 may offer

34
Q

ABLE Accounts (Helen)

A

Tax advantaged accounts for the disabled.

Contribute up to $17,000 annually
Qualified expenses not included in gross income
Disabled before 26

35
Q

Keogh (HR-10)

A

Operates as a DB, money purchase or profit sharing plan

36
Q

PBGC

A

Guarantees a monthly benefit for DB and cash balance plans

37
Q

Unrelated Business Taxable Income UBTI

A

Income from a limited partnership or dividends from a margined account

38
Q

Substantially equal payments 75t

A
  1. Paid not less frequently than annually and without changing the amount for the longer of 5yrs or payee reaches 59 1/2
  2. Based on life expectancies & rate of interest and mortality (if applicable)
39
Q

Annuity Distribution Options

A

Life: lifetime

Joint & Survivor: lifetime and survivors lifetime

Life with Guaranteed Payments: Longer of life or guaranteed PERIOD

Annuity Certain: Guaranteed PAYMENTS

40
Q

RMD Penalty

A

25% excise tax first year
10% second year

41
Q

Withdrawals with early retirement

A

Retire between 55 & 59 1/2, 401k participants can withdraw directly without paying a 10% penalty

NOT available for IRAs

42
Q

Unit benefit formula

A

Most frequently used DB formula also known as percentage of earnings per year of service.

Average compensation of $100,000 with 30 years of service with 1.5% per year of service (given). Pension $45,000 1.5% x $100,000

43
Q

Loans from qualified plans

A
  • Do not exceed lessor of 50% off vested plan or $50,000
  • Repayment 5 years or less, unless for home purchase
  • At least quarterly payments or entire balance due is taxable
  • **Interest is NEVER deductible for key employees **
  • Interest is only deductible for non-key if loan is for AND secured by primary residence
44
Q

Establishing a qualified plan

A
  • Safe harbor 401k plans generally must be adopted before the beginning of the plan year
  • Standard 401k plans (with deferrals) must be established before the first deferral can be made
  • New SIMPLE 401k plans must be adopted any time on or after January 1 but not later than October 1 of the year in which it is adopted
45
Q

Rules for inherited IRAs

A

Dies before RBD
Spouse
- Rollover IRA assets to own IRA and take distributions based on own RBD
- Keep assets in IRA and take distributions based on deceased’s RBD

Non spouse
- 10yr rule

Dies after RBD
Spouse
- Rollover IRA assets to own IRA and take distributions based on own RBD
- Keep assets in IRA and take distributions based on the longer of:
1. Spouse life expectancy
2. 5yr rule

46
Q

QDRO Distributions

A

CANNOT require the trustee to make such a cash payment to the assistant payee

47
Q

ISO

A

ISO: Tax favored plan for compensating executives by granting options to buy company stock.

  • Only first $100,000 gets favorable ISO treatment. Options granted which exceed that amount are NSOs

HOLDING REQUIREMENTS
EGGS
- 1yr from Exercise to Sell
- 2yrs from Grant to Sell

DISQUALIFYING DISPOSITIONS
- If sold **same calendar year ** as exercised subject to FICA/FUTA. If sold within 12 months (but following calendar year) of exercise subject to ordinary income **NOT ** FICA/FUTA

48
Q

Phantom stock & Stock Appreciation Rights (SARS)

A
49
Q

A child under age 18 who is employed by a parent in an unincorporated business

A

Excluded from social security but may be subject to federal income tax

50
Q

Surviving unmarried dependent of deceased insured worker qualifies for SS if

A

UNDER 19 and full time student
OR
Age 18+ and disabled before age 22

51
Q

Profit Sharing - Qualified Plan

A

Employer may contribute AND deduct up to 25% off the employee’s salary in addition to the elective deferral

52
Q

SEP (Simplified Employee Pension)

A

Simple to install
CAN be integrated with social security

53
Q

412(e)3 [or 412(i)] ERISA plan

A

DB plan funded entirely with insurance products such as life insurance and annuities.

Appeals to employers that have some need for life insurance.

54
Q

Exception to joint life distributions (RMD)

A

Sole beneficiary is spouse and is more than 10 years younger can use last survivor life expectancy for slower distribution

55
Q

Taxation of SS Benefits

A

50% taxable: Income plus half benefits > $25,000 (single) $32,000 (MFJ)

85% taxable: Income plus half benefits > $34,000 (single) $44,000 (MFJ)

56
Q

Retirement Savings Credit

A

No credit over $73,000 MFJ

MAC CREDIT $2,000 Single/$4,000 MFJ

57
Q

Annuity Distribution Options

A
  • Life annuity: Participant’s lifetime (highest payout)
  • Joint & survivor: Specified percentage paid to beneficiary
  • Life with guaranteed payments: Longer of life or specified period
  • Annuity certain: Certain specified amount of payments and then stops
58
Q

Section 404

A

Employer can only deduct max 25% of all participants’ aggregate eligible compensation

CFP - AB (6 decks)

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