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CFP - Review Cards > Retirement > Flashcards

Retirement Flashcards

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1
Q

needs analysis retirement steps

A

Step 1: inflate the annual need in todays’ dollars
Step 2: determine what lump sum is needed at the beginning of retirement

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2
Q
A
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3
Q

what should a planner do to compensate for underestimating the retirement period?

A

add 5-10 years

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4
Q

pension maximization application

A

pure life annuity
difference between pure life and joint survivor payout is used to fund life insurance to provide for the living spouse

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5
Q

List the social insurance programs covered by the Social Security Act

A

OASDI (Social Security)
medicare
federal unemployment insurance
supplemental security income (SSI)

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6
Q

fully insured worker

A

40 credits of coverage

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7
Q

fully insured worker

A

needs 40 credits
insured for life
insured for both survivor benefits and retirement benefits

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8
Q

currently insured worker and what they’re eligible for

A

6 credits
1. lump sum death benefit ($255) for spouse or dependent
surviving spouse’s benefits (if children are under 16)
a dependent benefit

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9
Q

common examples of those not covered by OASDI

A

child, under 18, employed by a parent in an unincorporated business
federal employees continuously employed since 1984

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10
Q

social security disability

A

under age 65
has been disabled for 12 months
is expected to be disabled for at least 12 months (or has a disability which is expected to result in death and has completed a 5 month waiting period)

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11
Q

the spouse of a retired or disabled worker qualifies for social security if she meets any of the following

A
  1. is age 62 or over or at any age if the spouse
    2 has a child in care under age 16
    has a child age 16 and over and disabled before age 22
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12
Q

the surviving spouse (including a surviving divorced spouse) of a deceased insured worker qualifies, when?

A

if the widow(er) is age 60 or over

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13
Q

what does a surviving spouse need to do to qualify for social security benefits?

A

divorced spouse must have been married to the worker for at least 10 years and generally must not be remarried
the surviving spouse of a deceased insured worker, regardless of age, qualifies for social security if caring for an entitled child of the deceased who is either under 16 or became diabled before 22

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14
Q

surviving dependent benefits (social security)

A

surviving dependent, unmarried child of a deceased, disabled, or retired insured worker qualifies iiiffffffffff the dependent
Under 19 and full time student
age 18 or over but has a disability which began before age 22

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15
Q

PIA reduction if before FRA

A

1/180th per month for the first 36 months

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16
Q

reduction of social security benefits

A

<FRA
deduct $1 from benefits for each $2 earned above $22,320
in the year they reach FRA it’s $1 for each $3 of earned income above $59,520

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17
Q

taxation of social security benefits

A

income plus half of benefits
$25k single and $32k MFJ (up to 50%)
$34k single and $44k MFJ (up to 85%)

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18
Q

provisional income for social security benefits

A

AGI
+
tax exempt interest
+1/2 SSI

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19
Q

social security disability definitely

A
  1. under 65
  2. has been disabled for 12 months, is expected to be disabled for 12 months, or suffered from a disability that is expected to result in death
  3. filed and completed the 5 month waiting period
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20
Q

file and suspend

A

repealed in 2016

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21
Q

withdrawaling a social security application

A

a fully insured worker has a one time right to withdraw
within 12 months of initial claim
must repay the prior benefits

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22
Q

deduction amount for money purcahse pension plans

A

25%

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23
Q

are purchase pension plans fixed or flexible contributions?

A

fixed

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24
Q

What does a company need to implement a money purchase pension plan

A

stable cash flow

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25
Q

What is the only plan that favors older participants

A

defined benefit pensions
target benefit pensions

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26
Q

how much can be deducted for target benefit pension plans?

A

25%

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27
Q

fixed or flexible contributions for target benefit pensions

A

fixed

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28
Q

does a target benefit pension need cash flow?

A

stable cash flow

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29
Q

profit sharing plan keys

A
  1. up to 25% employer decution
  2. flexible contributions (must be recurring and substantial)
  3. 401k provisions $23000 (FICA) (hardship withdrawals)
  4. SIMPLE 401k is exempt from creditors
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30
Q

SIMPLE IRA keys

A
  1. for small employers
  2. requires employer match (immediate vesting)
  3. salary reduction limit up to $16,000 (FICA)
  4. company cannot have another plan
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31
Q

SEP IRA keys

A

no salary deferrals
1. up to 25% contribution for owner (w2)/up to 18.59% contribution for self employed
2. account immediately vested
3. can be integrated with social security
4. special eligibility: 21+ years old, paid at least $750, and worked 3 of the 5 prior years

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32
Q

SARSEP keys

A
  1. may have been up to 25 employees, and 50% of the eligible employees must defer
  2. must have been in existence before 12/31/96
  3. salary deduction limit $23,000 (FICA)
  4. new employees may participate in grandfathered plans
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33
Q

Stock bonus plan keys

A
  1. up to 25% employer deduction
  2. flexible contributions
  3. 100% of the contribution can be invested in company stock
  4. ESOP cannot be integrated with Social Secuirty or cross tested
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34
Q

403b/TSA/TDA

A
  1. for 501c3 organizations and public schools
  2. subject to ERISA only if employer contributes
  3. salary reduction limit up to $23k (FICA)
  4. Employer contributions may be subject to vesting schedule
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35
Q

Defined benefit pension plans (keys)

A
  1. favors older employes/owners 50+
  2. guaranteed retirement benefit amount
  3. requires very stable cash flow
  4. past service credits allowed
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36
Q

section 415 limit

A

lesser of 100% of salary or $69,000

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37
Q

salary cap for retirement compensation ccalc

A

$345,000

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38
Q

why would an employer select a money purchase pension plan

A

-the employer wants a stable work force (wants to retain key employees)
-the employer wants a plan that is simple to administer and explain (pension stated percentage contributed)
-the employees are relatively young and well paid

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39
Q

requirements to use a money purcahse pension plan

A

stable cash flow and profit
contributions are mandatory

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40
Q

why are target benefit pension plans unique

A

they are defined contribution plans but have certain features of DB plans

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41
Q

target benefit plan provisions shared with defined contribution plans

A
  • max contrib is the lesser of 100% of comp or $69k
  • retirement benefit is determined by account balance
    employee assumes investment risk
    no annual actuarial determination is required
    forfeitures may be reallocated to remaining participants or used to reduce er contributions
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42
Q

target benefit pension plan provisions shared with DB plans

A

plan generally benefits older employees
fixed mandatory contributions
actuary determines the initial contribution level

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43
Q

investment risk in a target benefit pension plan

A

Falls on the EE

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44
Q

selection of a target benefit pension plan

A

alternative to a db plan
provides adequate retirement benefits to older EEs but has the lower cost and complicity of a DC plan

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45
Q

when would an employer select a profit sharing plan?

A

when profit margin or financial stability vary
when an ER wants to adopt a qualified plan with an incentive feature to motivate ees to make a company profitable
when the ees are young, well paid and have substantial time to accumulate retirement savings

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46
Q

what might they call a 401k plan on the exam?

A

CODA

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47
Q

what is a 401k plan really?

A

provision added to a qualified profit sharing or stock bonus plan
participants have an option to put money in the plan or to receive the same amount as taxable cash compensation

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48
Q

when would an ER select a 401k plan

A

wants to provide a qualfied retirement plan for EEs but can only afford minimal expenses
the ees want to increase their savings on a tax deductible basis

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49
Q

when is a Unik generally permitted

A

when the only participants are the owner and spouse or two partners

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50
Q

statutory safe harbor contribution

A

EITHER a matching contribution or a non elective contribution
$1/1 on the first 3% AND .5/1 ON THE NEXT 2%
ask 4% on the EEs 5%
—
if the ER chooses the nonelective deferral, the ER must contribute 3% of all comp

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51
Q

stock bonus plans and ESOPs are variations of what?

A

profit sharing plans

52
Q

ESOP diversification

A

participants age 55 or older having ten years of participation in the ESOP generally have the right to diversity up to a total of 50% of their account balance
must offer at least three investment alternatives or distribute cash or certificates to the participants

53
Q

cross testing doesn’t apply to what type of plan?

A

ESOPs

54
Q

section 415 limit for benefit

A

beginning at 65
max annual life annuity benefit is the lesser of
$275k or 100% of the participant’s compensation

55
Q

cash balance pension plan guarantees

A

ER guarantees not only the contribution level but also a minimum rate of return on each participant’s account

56
Q

when would ERs select a cash balance pension plan?

A

less expensive and simpler db plan

57
Q

412(i) plan

A

db plan funded entirely with insurance products such as life insurance and annuities
exempt from the minimum funding standard

58
Q

nonqualified retirement plans

A

SEP
SIMPLE
SARSEP
403b

59
Q

age and service requirement

A

only for QUALIFIED PLANS
21 and one year of service
2 year service requirement, BUT the EE is immediately vested

60
Q

year of service

A

1000 hours

61
Q

ratio percentage test

A

plan must cover a percent of NHCEs that is at least 70% of HCEs

62
Q

average benefit test

A

avg bene for NHCEs must be at least 70% of those for HCEs

63
Q

Minimum participation for DB plans

A

must benefit at least the lesser of:
-50 EEs
-the greater of
40% of all EEs or
two EEs

64
Q

definition of HCEs

A

Either a greater than 5% owner or an ee earnign more than $155k

65
Q

Key employee (def)

A

-greater than 5% owner
-an officer ND has comp > $220k
- >1% owner AND comp >$155k

66
Q

top heavy (def)

A

if > 60% of aggregate accrued benefits or account balances are allocated to key employees

67
Q

integration level (DB)

A

level of compensation above which the excess contribution is made
the integration level may not exceed the social security taxable wage base

68
Q

base benefit percentage (DB)

A

plan benefit for comp below the integration level

69
Q

excess benefit percentage (DB)

A

plan benefit for compenation above the integration level

70
Q

Using the excess method short cut (DB)

A

the permitted disparity is the lesser of the base benefit percentage or 26.25%

71
Q

integration level (DC)

A

any dollar amount up to the social security wage base ($168k for 2024)

72
Q

base contribution percentage (DC)

A

contribution percentage for compensation below the integration level

73
Q

excess contribution percentage (DC)

A

contribution percentage for compensation above the integration level

74
Q

permitted disparity (DC)

A

lesser of the base contirbution percentage of the 5.7% formula for determining components of integrated DC plan

75
Q

deduction limits - section 404c

A

ER can only deduct a max of 25% of all participants’ (aggregate) eligible comp

76
Q

annual compensation limit

A

only the first $345k of each EE’s comp

77
Q

elective deferrals when you have more than one employer

A

group 1
401k/402b/SIMPLE/SARSEP = $23k + $7,500 catch up
Group 2
SIMPLE and another SIMPLE = $16k + $3,500 catch up

78
Q

Keogh (HR-10)

A

qualified retirement plan for sol props and partnerships

Owner-employee contrib or bene is based on net earnings instead of salary

self employment tax must be computed and a deduction of one half of the self employment tax must be taken before determining the deductible contribution

79
Q

top heavy plan

A

DC plan is top heavy if more than 60% of the total amount in the accounts of all employees is allotted to key employees

80
Q

DB plan if top heavy

A

bene must be at least 2% of comp multiplied by the number of ees years of service in which the plan is top heavy up to a max of 10 years
(remember: b is the 2nd letter of the alphabet, use 2%)

81
Q

DC plan if top heavy

A

no less than 3% of each non key ees comp
(remember, c is the 3rd letter, so 3%)

82
Q

Qualified plan loans max

A

Total loans can’t exceed the lesser of 50% of the participant’s vested plan bene of $50k
Small accounts can borrow up to $10k without regard to % limit

83
Q

qualified plan loan repayment

A

no more than 5 years
level installments
at least quarterly payments

if failure to repay, the entire balance due is taxable ad 10% penalty

84
Q

which plans can’t provide loans

A

IRAs
SEPs
SIMPLEs
Roth accounts

85
Q

what’s considered comp for IRAs

A

wages
salaries
tips
professional fees
bonuses
alimony (pre 2019)
separate maintenance payments (pre 2019)

86
Q

Exceptions to the IRA 59 1/2 10% penalty rule

A

death
total, permanent disability
qualified education expenses
distribution for medical (subject to floor of 10% of AGI)
72t
first home, up to $10k
medical expense > 7.5% of AGI
$5k for qualified birth/adoption
Federally declared disaster

87
Q

roth ira mandatory distribution

A

TRICK QUESTION. there aren’t any at 73. this is for TRADITIONAL iras

88
Q

ordering rules for IRA distributions

A

if the roth contains both conversion and contributatory amounts, annual roth contributions are considered to be withdrawn first. they are not taxable
the converted amounts are withdrawn second
earnings are considered to be withdrawn last

89
Q

roth inherited rules

A

-within 5 years of the owner’s death if no bene
-over 10 years
-if surviving spouse is the sole bene, the spouse may delay distributions until roth owner would have reached age 73 or may treat the roth as his or her own (roll it into their roth)

90
Q

SEP contributions

A

only employer contributions

91
Q

SEP contribution limits

A

lesser of 25% (not 100%) of comp or $69,000

92
Q

are employers required to make SEP contributions

A

no requirement to make a contribution
but all EE contributions are 100% vested

93
Q

SEP coverage requirements

A

all employees who are at least 21 who have worked for ER for 3/5 years (includes PT)
EEs must make $750 or more

94
Q

SIMPLE IRA contributions

A

ER contributions represent dollar for dollar matching contribution up to 3% of the EEs compensation

95
Q

max number of EEs for a SIMPLE

A

100

96
Q

who must be covered if the ER has a SIMPLE

A

EE has earned $5,000 in any two previous years and is reasonably expected to earn $5000 in the current year

97
Q

SIMPLE Vesting

A

participants are fully vested at all times
10% distribution penalty is increased to 25% during the first 2 years of participation

98
Q

SIMPLE 401(k) is exempt from

A

adp
acp
top heavy requirements

99
Q

403bs are for what employers?

A

501c3s

100
Q

funding options for 403bs

A

annuity contracts or mutual funds
Individual securities are NOT permitted

101
Q

Section 457 deferral limit(s)

A
102
Q

457 age 50 catch-up provision

A

government only
age 50 and over are eligible for an additional deferral of $7,500

103
Q

types of plans guaranteed by the PBGC

A

defined benefit and cash balance plans

104
Q

RMD age

A

73

105
Q

RMD penalties

A

lowered to 25%
decreased to 10% if the RMD is taken by the end of the second year following the year it was due

106
Q

PPA in service withdrawals

A

in service distributions as early as age 62 from DB plan
distributions will be treated as retirement income

107
Q

hardship withdrawals cannot include…

A

unvested amounts and earnings

108
Q

requirements for 72t

A
  1. paid not less frequently than annually
  2. paid w/o changing the amount for the longer of 5 years or until the payee reaches age 59 1/2
  3. based upon the life expectancies of the recipient(s)
  4. based upon a reasonable rate of interest
  5. based upon reasonable mortality assumptions
109
Q

what happens if 72t payments are adjusted

A

if payments are modified in any way, the 10% additional tax is applied retroactively to all payments received before 59 1/2

110
Q

taxation on a direct transfer

A

if a participant receives a direct distribution from a qualified plan 20% must be withheld

111
Q

exception for joint life distributions

A

if the employee’s sole beneficiary is the employee’s spouse, and the spouse is more than 10 years younger than the employee

112
Q

qualified charitable distribution (QCD)

A

direct transfer from an IRA to a qualified charity
age 70 1/2 or older can take up to $100k/year
excludable from tax income

113
Q

exceptions to the 10 year rule

A

surviving sposuse
personan not more than 10 years younger than the plan participant
minor child
disabled person
chronically ill person

114
Q

retiring “early” w/ a 401k plan

A

if you retire between 55 and 59 1/2 distributions from 401ks are not subject to 10% penalty

115
Q

taxation of NUA

A

NUA is always taxed at long term capital gain rates, regardless of the holding period

116
Q

rabbi trust

A

-assets must be available to all general creditors of the ER if it files for bankruptcy

117
Q

secular trust

A

irrevocable trust that is established for the exclusive benefit of the employee
taxation occurs in the year in which the assets are placed in the trust
considered a funded nonqualified deferred compensation arrangement

118
Q

ISO basics

A

tax favored
option to buy stock
first $100k worth of ISOs that vest in a calendar year are entitled to favorable treatment
Options in excess are non-qualified

119
Q

nonqualified stock options

A

RIGHT to purchase a specific number of shares of the employer’s stock

120
Q

ISO and NSO “grant” (def)

A

the date the employee is given the shares and the date the shares are typically value

121
Q

ISO and NSO “exercise” (definition)

A

the date the employees choose to exercise the right to buy the shares awareded

122
Q

ISO and NSO “exercise” - bargain element

A

the spread between the exercise price and the market price

123
Q

what determines LT vs ST loss with Stock options

A

the amount of time between exercise and sale determines whether the gain or loss is long term or short term

124
Q

83b election

A

the employee elects to recognize the tax at the time of the award instead of at the time of exercise

125
Q
A

CFP - Review Cards (17 decks)

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