Retirement Flashcards
Self-Employment (SE) Tax Rate
is made of
2.9% Medicare (up to $168,000)
12.4% - Social Security
15.3% Total
ISO Bargain Element
The Bargain Element =
[(Exercise Price – Strike Price) x # of shares]
A positive AMT adjustment in the amount of the bargain element occurs with the exercise of ISOs.
The provision attached to a profit-sharing plan allowing participants to make elective deferrals into the plan is called __________.
Section 401(k) of the Internal Revenue Code allows a cash or deferred arrangement to be added to a profit-sharing plan to allow participant elective deferrals into the plan.
Medicare Part A
Part A: Hospital
- Most participants pay no premium
- Must be age 65 or older and paid into Medicare for at least 10 years
- Flat per hospitalization deductible for days 1-60; Co-pay for days 61-90; over 90 days uses lifetime reserve days up to 60 additional days and requires even higher co-pay
- Costs beyond 150 days are paid by individual
Medicare Part B
Part B: Medical (non-hospital)
- Optional but highly recommended; requires premium – Most individuals pay a standard premium; higher-income individuals pay a higher premium.
- Annual deductible - after the deductible Medicare pays 80%, and the individual pays 20%
Medicare Part C
Part C: Medicare Advantage
- Alternative to A & B. Typical vastly lower premiums than Medicare A and B combined with a Medicare Supplement (Medigap) insurance policy. Some plans have zero premiums. Uses “gatekeeper” concept; must use network providers
Medicare Part D
Part D: Prescription drugs; (remember “D” for drugs)
- Coverage is optional but recommended; requires premium; Medicare Advantage plan may include prescription drug coverage
A target benefit pension plan is a ________.
Defined Contribution Pension Plan
What are the two types of defined benefit plans?
- Cash Balance Pension Plan
- Traditional Defined Benefit Pension Plan
- Both are types of pension plans.
What does a Traditional Defined Benefit pension guarantee?
The final monthly pension amount.
This is a key characteristic of Traditional DB pensions.
What is a ‘fully insured’ traditional defined benefit plan funded by?
Cash value life insurance or annuity contracts (IRC Section 412(e)(3)).
This funding structure is specific to certain traditional DB plans.
What does a Cash Balance Plan guarantee?
A specific cash balance at the plan’s stated normal retirement age.
This is a defining feature of Cash Balance Plans.
Do defined benefit plans guarantee the final benefit?
Yes, they guarantee the final benefit.
This contrasts with defined contribution plans, which do not guarantee the final benefit.
What is the primary difference between defined benefit plans and defined contribution plans?
DB plans guarantee the final benefit, while DC plans do not.
Understanding this difference is crucial for evaluating retirement plans.
Fill in the blank: A _______ plan guarantees a specific cash balance at the plan’s stated normal retirement age.
Cash Balance Pension Plan
True or False: A Traditional Defined Benefit pension plan is not a pension plan.
False
Traditional Defined Benefit plans are a type of pension plan.
What is the first step to mastering the classifications of qualified plans?
Master the general overview first.
This helps in recognizing redundant elements in each category.
IRA Contribution Deduction Thresholds
Active Partipant vs. Non-Active
MFJ (One Spouse Active and One Spouse Not)
Active Participant Spouse MAGI Threshold = MFJ = $123K
Non-Active Spouse MAGI Theshold = Spousal IRA = $230K
Roth IRA Distribution Layers In Order
- Regular Contributions to Roth (Basis)
- Roth IRA Conversion Contributions
- Earnings
Regular Contributions don’t require 5 Year Rule
Conversions have their own 5 Year Clock (FIFO)
Earnings require 5 Year Rule & one of 4 Qualifying Scenarios or Taxes & 10% penalty
Roth Conbtribution 5 Year Clock Starts When?
January 1st of year of contribution, regardless of when contribution was made
What are the 4 Roth IRA Qualifying Distrubition Circumstances after 5-Year Holding Period has been completed?
- Death
- Disability
- First Tiime Home Purchase ($10K)
- Age 59.5
Absolute requirement for tax-free distributions from Roth IRA earnings after 5-year account opening period is satisfied
Net Unrealized Appreciation (NUA)
How is Lump Sum Distribution of Employer Stock from a Qualified Employer Plan taxed?
Example; Employer gave employee $100K of stock in 401K profit sharing plan
Now stock is worth $300K = $200K of gains (NUA)
Upon transfer in-kind to a brokerage account:
Basis ($100K) is taxed as ordinary income.
Gain (NUA) is taxed at Long-Term Capital Gains.
After the NUA distribution, a new clock starts on STCGs on the day its transfered out of qualified account.
Exception: The entire account balance has to be cleared out including mutual funds, cash, etc. If not and only the stock (NUA) is tranfered out, it is taxed as ordinary income.
What % of employer stock can a profit-sharing plan invest in?
A profit-sharing plan may invest 100% in employer stock. Non-profit-sharing plans are limited to 10% employer stock.
In 2024, what is the maximum annual pension that can be funded in a cash balance pension plan?
The maximum annual pension that can be funded in a cash balance pension plan in 2024 is $275,000.
A dependent parent of a worker may be eligible for Social Security (BLANK) benefits but is not eligible for (BLANK) benefits.
A dependent parent of a worker may be eligible for Social Security survivor benefits but is not eligible for retirement benefits.
Jessie has net earnings from self-employment of $200,000. What is Jessie’s self-employment (SE) tax for 2024?
$200,000 x .9235 = $184,700
$184,700 - $168,600 (Social Security wage base 2024) = $16,100
$16,100 x .029 (Medicare) = $467
$168,600 x .153 = $25,796
$467 + $25,796 = $26,263
A penalty exception for early withdrawal to pay eligible education expenses is available only for distributions from a (BLANK). The exception is NOT available for early withdrawals from a (BLANK).
A penalty exception for early withdrawal to pay eligible education expenses is available only for distributions from an IRA. The exception is NOT available for early withdrawals from a qualified plan.
Vesting for a traditional profit-sharing plan must be at least as generous as (BLANK)-year cliff, or **(BLANK) **year graded
Vesting for a traditional profit-sharing plan must be at least as generous as 3-year cliff, or 2-6 year graded.
How many years of service does a teacher need to work at a sponsoring school or 501(c)(3) to qualify for the $3,000 Special Catch Up contribution to their 401(b) Plan?
And can they contribute both the Special Catch Up contribution and the regular +50 $7,500 Catch Up Contribution in the same year?
15 Years
Yes, can contribute both for a total of $33,500
($23,000 + $7,500 + $3,000 = $33,500)
Section 1031 Exchange is for?
Section 1035 Exchange is for?
1031 = investrment property
1035 = life insurance, endowment contracts, annuities, and long-term care insurance
Which part of Medicare uses a “gatekeeper” approach?
Medicare Part C – Medicare Advantage uses a “gatekeeper” approach. Participants must use in-network providers and a primary care physician acts as the “gatekeeper” to approve care and make referrals.
Withdrawals from a SIMPLE IRA in the first two years of participation are subject to a (BLANK) early withdrawal penalty tax.
Withdrawals from a SIMPLE IRA in the first two years of participation are subject to a 25% early withdrawal penalty tax.
The calculated income upon which the taxation of Social Security benefits is based is referred to as?
Provisional Income
1/2 of SS Benefits + Tax-Exempt Income + AGI
If the stated plan contribution is 25% in a plan for a self-employed person, what is the shortcut percentage to multiply by the net earnings from self-employment to calculate the maximum contribution for the self-employed person?
18.59%
In 2024, what is the maximum annual earnings considered in the Social Security AIME calculation?
$168,600
How much is the 403(b) Special Catch Up Contribution and how many years of service does the employee need to have with the sponsoring school or 501(c)(3) employer to use it?
Can it be combined with Age 50+ catch up contribution in the same year?
403(b) Special Catch Up
- Available for employees with a minimum of 15 years of service with the sponsoring school or 501(c)(3) employer.
- Additional deferral allowance up to $3,000 per year.
- May be used in the same year as age 50+ catch-up.
- Age 50+ with 15 years of service may defer up to $33,500 (2024) ($23,000 + $7,500 + $3,000).
- Section 403(b)deferrals are aggregated with other plan deferrals in applying annual maximums.
What is the term for a court-ordered distribution from a qualified plan to a former spouse?
Qualified Domestic Relations Order (QDRO) is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to an alternate payee (spouse, former spouse, child, or another dependent of a participant).
