Retirement Flashcards
Ret. 1.1 How to calculate real rate of return?
1+after tax return/1+inflation ratex100
Ret. 1.2 What do I need to do with my calculator on the second step of a retirement calculation (income needs in retirement)
Put in begin mode
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?
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.
Ret. 2.2 At what age does a surviving spouse qualify for social security retirement benefits?
60
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?
Mr. Kidd, Mrs Kidd, Larry, and Tim.
(Mrs Kidd receives it because there’s a child “in care” (Larry)
Ret 2.5 how to calculate SS reduced benefit?
PIA- (number of months before FRA/180)x PIA
Ret. 2.5 How much can a worker under FRA make before reduced benefits? How much is reduced?
22,320….$1 from benefits for every $2 earned
Ret. 2.5 Workers who reach FRA in current year. How much can they earn before SS deduction? How much is deducted?
59,520…$1 for every 3$
Earned
Ret. 2-6 How is SS taxed?
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
Ret. 2-6 How is muni bond interest treated for SS tax calc?
It’s included as income. Provisional income is AGI + tax exempt interest + 1/2 SS
Ret. 2.7 what are the rules for SS disability?
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.
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?
1700
Provisional income is greater than 34k (single)
Ret. 2-20 what is the approx return if client waits 2 years to take SS at FRA?
13.33%
24/180
Ret. 3.1 Qualified or non qualified
Can discriminate
NQ
Ret. 3.1 Qualified or non qualified
Has ERISA requirements
Q
Ret. 3.1 Qualified or non qualified
Immediate tax deduction for contribution (although employee may not be vested)
Q
Ret. 3.1 Qualified or non qualified
Plan earnings are taxable to employer
NQ
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
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?
69k
Note: start with 25% of 345k, then take the lesser of 69k or the answer.
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?
Money purchase plan
Ret. 3.5 For target benefit pension plans. Whats shared with defined contribution plans? 5 items
- Max contribution is lesser of 100% comp or 69k
- Benefit 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 employer contribution.
Ret. 3-5 Target benefit pension plan. Provisions shared with DB plans. 3
- Benefits older employees
- Fixed mandatory contributions
- Actuary determines initial contribution level
Ret. 3.6 What’s a lower cost alternative to a defined benefit plan, provides adequate retirement benefits to older employees?
Target benefit plan
Ret. 3.7 why would you choose a profit sharing plan? 3
- Employers profit margin or financial stability varies yr to yr.
- Employer wants a qualified plan with incentive feature to motivate employees to make a company profitable
- When employees are young, well paid, and have substantial time to accumulate retirement savings
Ret. 3-7 For 401k deferrals, are they subject to FICA or FUTA?
Yes, but not federal/state
Ret. 3.8 When to select a 401k plan? 2
- Employer wants to provide a qualified retirement plan for employees but can only afford minimal extra expense beyond existing salary and benefit costs.
- The employees want to increase their savings on a tax deductible basis.
Ret. 3.9 how do stock bonus plans and esops differ from traditional profit sharing plans? 4
- Investing in employer stock. SBP (may)
- Participants accounts are stated in employer stock
- Benefits are generally distributable in employer stock
- Employers may deduct dividends with respect to stock held in an esop
Ret. 3.9 When are dividends in an ESOP deductible by employer?
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.
Ret. 3.9 why select stock bonus plan or ESOP? 3
- Company wants to broaden ownership of its stock.
- A company wants to provide its employees with a tax advantaged means to acquire company stock.
- An employer wants its workers to feel a sense of ownership.
Ret. 3.9 who can offer an ESOP?
Any type of corporation (because they can issue stock)
Ret. 3-11 when to select a DB plan?2
- An employer wants to maximize plan contributions to older employees.
- An older controller employee wants to maximize tax deferred retirement savings for his/her own benefit
Ret. 3-13 What is the Section 415 limit?
MAC projected annual benefit is the lesser of 275k or 100% of participants compensation averaged over 4 highest earning consecutive years.
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?
275k (section 415 limit)
30yrs x 3% =90% x 345k (not 400k)
Annual salary cap is 275k
Ret. 3.14 For DB plans, what might affect the employer contributions to a DB plan? 5
- Participants proximity to retirement age (older more)
- Past service (service with employer prior to inception of the plan)
- Forfeitures must be applied to reduce employer contributions.
- Investment return assumptions (lower assumptions =more)
- Salary scale assumptions (older employees make more)
Ret. 3-16 When to select cash balance plan?
Employers select it when looking for a less expensive and simpler db plan.