Retirement Flashcards
provisional income
AGI + muni bond + 1/2 social security benefits
- Traditional Defined Benefit Pension Plan
-$345,000 salary
-stuff it like a pig
-275k DB limit
-Employer takes investment risk
-no front end limit
-“old man” plan
6 qualified plans
- Traditional Defined Benefit Pension Plan
- Cash Balance
- Money Purchase
- Target Benefit
- Profit Sharing Plans (with 401k provisions
- Stock Bonus (ESOP)
Plan 1
Traditional Defined Benefit Pension Plan
Plan 2
Cash Balance
Plan 3
Money Purchase
Plan 4
Target Benefit
Plan 5
Profit Sharing Plan
Plan 6
Stock Bonus (ESOP)
Defined Benefit Plans
Plans 1 & 2
1. Traditional Defined Benefit Pension Plan
2. Cash Balance
Defined Contribution Plans
Plans 3-6
3. Money Purchase
4. Target Benefit
5. Profit Sharing Plan
6. Stock Bonus (ESOP)
Pension Plans
Plans 1-4
1. Traditional Defined Benefit Pension Plan
2. Cash Balance
3. Money Purchase
4. Target Benefit
Profit Sharing Plans
Plans 5 & 6
5. Profit Sharing Plan
6. Stock Bonus (ESOP)
Employer contributions Pension
Employer has mandatory contributions
Section 415 limit
Annual addition limit (1+2+3)
1. EE (worker)
2. ER (company)
3. Forfeitures
Defined Contribution
-$345,000 comp limit
-$69,000 annual addition (415 limit)
-Employee takes investment risk
- Money Purchase
-$345,000 comp limit
-favors younger employee
-$69,000 annual addition (415 limit)
- Cash Balance
-one big hypothetical account
-employer must guarantee minimum rate of return
-“cousins” to trad DB plan
- Target Benefit
-similar to plan 1
-targeting benefit, not guaranteeing it
-$69,000 limit
- Profit Sharing Plan (w/ 401k provisions)
-favors younger employees
-sharing profits, not mandatory contributions
-can stand alone, 401k is in addition
- Stock Bonus (ESOP)
company stock added instead of cash
“444S”
EE defer
-401k
-403b
-457
-Simple
The Pension Benefit Guaranty Corp (PBGC)
like FDIC for pensions
Keogh owner shortcut 15%
12.12%
Keogh owner shortcut 25%
18.59%
Provisional income 50% taxation
50% social security taxed if..
-single: PI greater than 25k
-MFJ: PI greater than 32k
surviving spouse social security
can get check if he/she is 60 or older
any time you see tandem plan
wrong answer
social security fully insured
40 credits
403b catch-up contribution
-age 50 by end of plan year = $7,500
- 15 years of service = $3,000
Money Purchase Plan benefits..
younger employees
Roth conversion withdrawals
59 1/2 or 5 year holding period
Choose SEP if..
-employer wants alternative to qualified plan that is easy/inexpensive
-lots of short term employees
Simple IRA
Pre tax up to $16,00-
-immediate vesting
-has no $345,000 limit
-25% penalty for first 2 years
-over 50 $3,500 catch up
ACP & ADP testing
0 - 2%
times 2
ACP & ADP testing
2 - 8%
plus 2
Simple eligibility
an employee must have earned at least $5,000 in compensation for the employer in any 2 prior years and expect to earn at least $5,000 in compensation in the current year.
Roth conversion distributions
From conversions, FIFO (no tax, subject to penalty if attributed to conversion within five years)
Is a SEP subject to FICA or FUTA?
Direct employer contributions are not subject to FICA and FUTA
What plans are not allowed to integrate with Social Security?
ESOPs, SIMPLEs, and SARSEPs.
403b early distribution
Although a 403(b) plan is not a “qualified plan,” it is subject to many of the same rules. It qualifies for the exception to the penalty if the participant has attained age 55 and separates from service. Age 55 is determined on December 31st of the year of separation. The person does not have to already be 55 on the date of separation as long as they will be 55 on December 31 of the year of separation.
Simple IRA early distribution penalty
25%
The Department of Labor (DOL)
The Department of Labor (DOL) governs the actions of plan fiduciaries and ensures compliance with the ERISA plan reporting and disclosure requirements.
The ratio test requires for non highly compensated employees
The ratio test requires that the coverage percentage of nonhighly compensated employees must be at least 70% of the coverage percentage of highly compensated.
The limit on the term of any loan (generally)
5 years
ACP Test
The ACP test is required for all plans that provide employer-matching contributions or employee after-tax contributions.
ADP Test
The actual deferral percentage (ADP) test is applicable to plans that allow employee elective deferral contributions.
Under Section 410, the following classes of employees may be excluded from nondiscrimination testing:
-Collectively bargained (union) employees.
-Part-time employees who work less than 1,000 hours per year.
-Employees under age 21.
-Employees with less than 1 year of service (2 years of service if the plan offers 100% immediate vesting).
Is college a qualified special purpose distribution for a Roth IRA?
NO
Mandatory withholding for qualified plan
A distribution from a qualified plan will incur mandatory 20% withholding.
How many employees must a defined benefit pension plan cover?
According to the 50/40 rule, defined benefit pension plans must cover the lesser of 50 employees or 40% of all eligible employees.
Cash balance plan favors..
young employees
Are rollovers from an eligible Section 457 plan are permitted into Section 401(k) and Section 403(b) plans?
Yes
