Retirement Flashcards
DB Benefit Formula: Final Avg. Method
- Avg. comp 3-5yr pre -R-
- Compensation considered capped at $345k
- Benefit still capped at $275k
(Sec 415 Limit)
Sec 415 Limit DB
Maximum annual benefit DB can provide
LESSOR:
$275k
or
Avg. of Highest 3 consecutive yrs. of comp.
$345k salary cap considered
ESOP Keys
- Company Stock is primary investment
- No Partnerships
- Employee ≥55yo. and 10yr in plan can diversify 50% of assets in plan (must be given min. 3 alternative options)
- Dividends may be employer deductible if paid out to employee or applied to plan
Safe Harbor 401k Contribution Choices
Elective Deferral:
100% of 3%; 50% of next 2%
Non-elective Deferral:
Flat 3% to all employees
Money Purchase Suitability
- Stable workforce
- Simple admin.
- Young, high-comp employees
- Risk is mandatory contribution, need stable cash flow
Money Purchase Keys
- Employer contribution only
- Mandatory fixed % cont. to all
- Cont. limit LESSOR:
100% Comp./ $69k
Defined Benefit Suitability
- Max. contribution for older employees
- Good for owner to max. own benefits
- Risk is mandatory contribution, need stable cash flow
Defined Benefit Keys
- Guaranteed benefit at -R-
- Employer bears investment risk
- Must add $ if benefit falls short
- Insured by PBGC
Cash Balance Pro/Con
Pro
- Cheaper/Simpler DB Plan
- Favors older, high-comp employees
Con
- Smaller benefit to older employees than DB Pension (uses avg. salary of all years, not highest earning)
- Risk is mandatory contribution, need stable cash flow
Cash Balance Keys
- Employer funded
- Guaranteed contribution and interest growth
- Act like pension, but has individual accts.
- Insured by PBGC
Profit Sharing Suitability
- Profits/Finances vary year to year
- Incentivize profitability
- Young employees
Profit Sharing Keys
- Discretionary Employer contributions (recurring and substantial)
- NO Employee contributions
- Cont. limit LESSOR:
100% Comp./ $69k - CAN be age-weighted
Target Benefit Keys
- Fixed employer contribution only
- Benefit NOT Guaranteed
- Investment risk is on the employee
- Cont. limit LESSOR:
100% Comp./ $69k - Forfeitures can reduce employer cont.
Target Benefit Suitability
- Cheaper, simpler than DB
- Adequate (not guaranteed) benefits to older employees
- Risk is mandatory contribution, need stable cash flow
85% SS Benefit Taxation MAGI
Single = > $34k
MFJ = >$44k
MAGI = Gross + muni int. + 1/2 SS benefit
50% SS Benefit Taxation MAGI
Single = > $25k
MFJ = >$32k
MAGI = Gross + muni int. + 1/2 SS benefit
PIA Reduction Formula, Early claim
(Months Early / 180) = % Reduced
Divorced Spouse SS Eligibility
- ≥ 62yo
- Married 10yr min.
- Divorced 2yr min.
- Not remarried
Spouse SS Eligibility: Deceased Worker
≥ 60yo
or
Has child in care:
- <16yo
- +16yo, disabled < 22yo
Spouse SS Eligibility: Retired/Disabled Worker
≥ 62yo
or
Has child in care:
- < 16yo
- +16yo, disabled < 22yo
DB Contribution Factors
↑
Older
Low Returns
Higher Salary
↓
Younger
High Returns
Lower Salary
Forfeitures
Sec 415 Limit DC
LESSOR:
100% comp.
or
$69,000** TTL*
$345k Salary cap considered
*employee+employer+forfeiture
**per employer if unrelated
NUA Taxation
DISTRIBUTION:
Cost basis = ord. inc. (phantom)
SOLD:
NUA taxable at LTCG (no matter holding period), additional growth subject to STCG or LTCG
NUA = FMV - Cost basis at distribution
Must be lump sum distribution in one tax year to qualify!
KEOGH/SE SEP Contribution Formula:
25% Plan (Aka Max Plan)
NET Income x 18.59%