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Wrong Answer Deck > Retirement > Flashcards

Retirement Flashcards

1
Q

Ret. 1.1 How to calculate real rate of return?

A

1+after tax return/1+inflation ratex100

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2
Q

Ret. 1.2 What do I need to do with my calculator on the second step of a retirement calculation (income needs in retirement)

A

Put in begin mode

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3
Q

Ret. 2.2 client is self employed. He employs his 16 yr old. Pays her approx 5k per year. How/what does he have to pay for taxes?

A

Her earned income will be less than her standard deduction. A child under the age of 18 and employed by a parent in an unincorporated business does not have to pay self employment tax or fica tax nor does the parent.

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4
Q

Ret. 2.2 At what age does a surviving spouse qualify for social security retirement benefits?

A

60

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5
Q

Ret 2.4 Mr Kidd age 58 receiving SS disability. Wife is age 53. 3 kids. Larry, 30 disabled at age 16, Tim 18 still in high school, Ella age 19 graduated HS working full time. Who receives SS benefits?

A

Mr. Kidd, Mrs Kidd, Larry, and Tim.
(Mrs Kidd receives it because there’s a child “in care” (Larry)

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6
Q

Ret 2.5 how to calculate SS reduced benefit?

A

PIA- (number of months before FRA/180)x PIA

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7
Q

Ret. 2.5 How much can a worker under FRA make before reduced benefits? How much is reduced?

A

22,320….$1 from benefits for every $2 earned

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8
Q

Ret. 2.5 Workers who reach FRA in current year. How much can they earn before SS deduction? How much is deducted?

A

59,520…$1 for every 3$
Earned

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9
Q

Ret. 2-6 How is SS taxed?

A

Person/persons income + half of SS is more than 25k (single) 32k (MFJ) = up to 50% tax on SS

“”””is more than 34k (single) 44k MFJ = up to 85% tax

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10
Q

Ret. 2-6 How is muni bond interest treated for SS tax calc?

A

It’s included as income. Provisional income is AGI + tax exempt interest + 1/2 SS

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11
Q

Ret. 2.7 what are the rules for SS disability?

A

Under 65, 5 month waiting period after filing for benefits, Has been disabled for 12 months, is expected to be disabled for 12 months, or suffered from a disability that will result in death.

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12
Q

Ret. 2.9 Client will receive 2k/mo in SS at FRA. 401k distribution will be 1k per month. Muni bond interest will be 1k per month. What amount of SS will be included in taxable income?

A

1700
Provisional income is greater than 34k (single)

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13
Q

Ret. 2-20 what is the approx return if client waits 2 years to take SS at FRA?

A

13.33%
24/180

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14
Q

Ret. 3.1 Qualified or non qualified
Can discriminate

A

NQ

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15
Q

Ret. 3.1 Qualified or non qualified
Has ERISA requirements

A

Q

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16
Q

Ret. 3.1 Qualified or non qualified
Immediate tax deduction for contribution (although employee may not be vested)

A

Q

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17
Q

Ret. 3.1 Qualified or non qualified
Plan earnings are taxable to employer

A

NQ

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18
Q

Ret. 3.1 Qualified or non qualified
Distributions are taxable at ordinary tax rates with exception of 10 yr avg and NUA under stock bonus, ESOP, and 401k

A

Q

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19
Q

Ret. 3.4 Owners salary is 450k. The money purchase plan contributes 25% of all participants eligible comp. What can the owner contribute into his account?

A

69k
Note: start with 25% of 345k, then take the lesser of 69k or the answer.

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20
Q

Ret. 3.4 owner wants a stable work force, wants a plan that is simple to administer and explain, and employees are relatively young and well paid. What retirement plan would fit?

A

Money purchase plan

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21
Q

Ret. 3.5 For target benefit pension plans. Whats shared with defined contribution plans? 5 items

A
  1. Max contribution is lesser of 100% comp or 69k
  2. Benefit determined by account balance
  3. Employee assumes investment risk
  4. No annual actuarial determination is required
  5. Forfeitures may be reallocated to remaining participants or used to reduce employer contribution.
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22
Q

Ret. 3-5 Target benefit pension plan. Provisions shared with DB plans. 3

A
  1. Benefits older employees
  2. Fixed mandatory contributions
  3. Actuary determines initial contribution level
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23
Q

Ret. 3.6 What’s a lower cost alternative to a defined benefit plan, provides adequate retirement benefits to older employees?

A

Target benefit plan

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24
Q

Ret. 3.7 why would you choose a profit sharing plan? 3

A
  1. Employers profit margin or financial stability varies yr to yr.
  2. Employer wants a qualified plan with incentive feature to motivate employees to make a company profitable
  3. When employees are young, well paid, and have substantial time to accumulate retirement savings
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25
Q

Ret. 3-7 For 401k deferrals, are they subject to FICA or FUTA?

A

Yes, but not federal/state

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26
Q

Ret. 3.8 When to select a 401k plan? 2

A
  1. Employer wants to provide a qualified retirement plan for employees but can only afford minimal extra expense beyond existing salary and benefit costs.
  2. The employees want to increase their savings on a tax deductible basis.
27
Q

Ret. 3.9 how do stock bonus plans and esops differ from traditional profit sharing plans? 4

A
  1. Investing in employer stock. SBP (may)
  2. Participants accounts are stated in employer stock
  3. Benefits are generally distributable in employer stock
  4. Employers may deduct dividends with respect to stock held in an esop
28
Q

Ret. 3.9 When are dividends in an ESOP deductible by employer?

A

Paid directly to participants or benes. Paid to the plan then distributed within 90days. Used to make payments on loans used to acquire employer securities. Paid to the plan then reinvested in qualifying employer stock.

29
Q

Ret. 3.9 why select stock bonus plan or ESOP? 3

A
  1. Company wants to broaden ownership of its stock.
  2. A company wants to provide its employees with a tax advantaged means to acquire company stock.
  3. An employer wants its workers to feel a sense of ownership.
30
Q

Ret. 3.9 who can offer an ESOP?

A

Any type of corporation (because they can issue stock)

31
Q

Ret. 3-11 when to select a DB plan?2

A
  1. An employer wants to maximize plan contributions to older employees.
  2. An older controller employee wants to maximize tax deferred retirement savings for his/her own benefit
32
Q

Ret. 3-13 What is the Section 415 limit?

A

MAC projected annual benefit is the lesser of 275k or 100% of participants compensation averaged over 4 highest earning consecutive years.

33
Q

Ret. 3-12 Pension plan provides life annuity equal to 3% of earnings for up to 30 years. Annual average comp is 400k. Whats the defined benefit amount?

A

275k (section 415 limit)
30yrs x 3% =90% x 345k (not 400k)
Annual salary cap is 275k

34
Q

Ret. 3.14 For DB plans, what might affect the employer contributions to a DB plan? 5

A
  1. Participants proximity to retirement age (older more)
  2. Past service (service with employer prior to inception of the plan)
  3. Forfeitures must be applied to reduce employer contributions.
  4. Investment return assumptions (lower assumptions =more)
  5. Salary scale assumptions (older employees make more)
35
Q

Ret. 3-16 When to select cash balance plan?

A

Employers select it when looking for a less expensive and simpler db plan.

36
Q

Ret. 3-16 What are the disadvantages of cash balance plans for employees?

A

Older long service employees receive lower pension benefits when a DB plan is converted to a cash balance plan.

37
Q

Ret. 4.5 What is the minimum participation for a DB plan?

A

50 employees or the greater of 40% of all eligible employees or 2 employees (one of there’s only one)

38
Q

Ret. 4.4 Define highly comp employee?

A

5% owner or more than 155k income in the prior year.

39
Q

Ret. 4.4 define key employee

A

During current year. Greater than 5% owner, an officer and has comp greater than 220k, greater than 1% owner and comp greater than 155k

40
Q

Ret. 4.5 what are the vesting schedules for faster? And what are the vesting alternatives?

A
  • Top heavy DB plans or All defined contribution plans
    -3 yr cliff, 2-6 year graded, 100% vested with 2 year eligibility
41
Q

Ret 4.5 What is the vesting schedules for Slower?

A
  • non top heavy DB plans only
  • 5yr cliff, 3-7 year graded, or 100% vested with 2 year eligibility
42
Q

Ret. 4.7 While complying with ERISA pension plan participation rules, the employer also wants to adopt a plan using the most stringent service requirement. What should he choose?

A

2 yr / 100% schedule
*key word was service requirement

43
Q

Ret. 4-11 For ADP and ACP testing what is the shorthand method to solve for HCEs?

A

If NHCE is 0-2% then multiply by 2 for HCE. If NHCE is 2-8% then add 2 for HCE

44
Q

Ret. 4-15 What is the social security threshold? More specifically for identifying DC plan integration?

A

168,600

45
Q

Ret. 4-15 if HCE salary is 345k base percentage is 17%. How to calculate comp for HCE?

A

17%+5.7%= 22.7
16% x 168,600
22.7% x (345k-168,600)
= 68,705 (notice it’s less the 69k)

46
Q

Ret. 5-1 What is the section 404c limit?

A

It’s the deduction limit. Employer can deduct the max of 25% of all participants (aggregate) eligible comp.

47
Q

Ret. 5.2 Client earns 200k as a young owner of a one employee corp. what is the total that he can defer to a solo 401k plan assuming the max profit sharing contribution will also be made?

A

19k
25% of 200k is 50k
69k-50k = 19k

48
Q

Ret. 5.5 For Keogh plans (HR -10) how are deductible contributions determined?

A

Self employment tax must be and a deduction of 1/2 of the self employment tax must be taken before determining deductible contribution.
In addition: take the employee contribution and divide it by 1+employee percentage. 15%EC…..15/1.15= 13.04(self employment contribution)

49
Q

Ret. 5.6 what is the shortcut method for determining net schedule c income for self employed contributions.

A

Multiple 12.12% for 15% contribution for non owner employees
Multiply by 18.59% for 25% contribution for non owner employees.

50
Q

Ret. 5.7 How is top heavy in DC plans calculated?

A

If more than 60% of total amount in all accounts is allotted to key employees.

51
Q

Ret. 5.7 What are the effects on a DB plan and a DC plan if they are top heavy as far as contributions or benefits.

A

DB (B is 2nd letter)- at least 2% of compensation multiplied by years of service (max 10)
DC- (C is 3rd letter)- Contribution must be no less than 3% of each non key employee comp.

52
Q

Ret. 5.8 When can a plan loan interest be deductible?

A

Can only be deductible by non key employees if 1. The loan is for the participants primary residence or 2. The loan is secured by the primary residence.

53
Q

Ret. 5.11 client is self employed with no employees. Gross income is 140k. Business expenses are 20k. Business meals are 40k. If he installs a max profit sharing plan how much can he contribute to the plan?

A

18,590
Gross 140k - business expense - 50% meals= 100k x 18.59%

54
Q

Ret. 10-4 When are Rabbi trusts used? 3

A
  1. Possibility of ownership/management change before deferred comp benefits are paid (takeover/acquisition)
  2. New management might be hostile to the key employee in the future and fail to honor the comp agreement
  3. Risk that litigation to enforce payment of deferred compensation in the future would likely be too costly to be practical
55
Q

Ret. 10-4 What would a secular trust address in comparison to a Rabbi trust?

A
  1. The lack of security in relying on an informally funded plan
  2. The fear that the tax savings will disappear because tax rates after retirement may be higher
56
Q

Ret 10-4 Is a secular trust considered funded or unfunded?

A

Is considered a funded irrevocable trust

57
Q

Ret. Quiz 3 For tax year 2024, what is the max permissible contribution amount to a defined benefit plan?

A

None- it’s determined actuarially. The benefit could be based on comp up to 345k, the max benefit is 275k in 2024.

58
Q

Ret quiz 4 Sole prop is going to contribute to his SEP. makes 50k. What’s the max he can contribute?

A

9,295….18.59%x 50k

59
Q

Try. QUIZ 7 Client owns and operates company Inc. no other employees. Income net of business is &0k. Which plan would provide the max allowable contribution? Simple, Simple 401k, SEP, Keogh

A

SEP. 80kx .25 = 20k
Simples can only be 16k. Keogh doesn’t give enough info.

60
Q

Ret. Ch 7 which of the following plan contributions is not subject to FICA and FUTA?

A

SEP. because it’s 100% employer contribution FICA and FUTA don’t apply

61
Q

Ret. Ch 7 which of the following investment vehicles may not be used to fund a TSA? Open end? Mutual Funds? Annuities with incidental insurance? Blue chip stocks?

A

Blue chip stocks. TSAs can’t hold stocks

62
Q

Ret. Quiz 7 why would a uni 401k allow more funds to go in then a profit sharing plan or SEP?

A

Profit sharing plans or SEPS don’t allow for the catch up

63
Q

Ret. Quiz 9 company’s pension plan consists of the following investments. Which investment may produce UBTI income? Real property rents, gain from sale of cap gains, equipment leasing program, annuities, whole life?

A

Equipment leasing program-normally a limited partnership, annual limited partnership in excess of 1k is exposed to UBTI current taxation.

Wrong Answer Deck (6 decks)

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