Retirement Flashcards

1
Q

DB Benefit Formula: Final Avg. Method

A
  • Avg. comp 3-5yr pre -R-
  • Compensation considered capped at $345k
  • Benefit still capped at $275k
    (Sec 415 Limit)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Sec 415 Limit DB

A

Maximum annual benefit DB can provide

LESSOR:
$275k
or
Avg. of Highest 3 consecutive yrs. of comp.

$345k salary cap considered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

ESOP Keys

A
  • 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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Safe Harbor 401k Contribution Choices

A

Elective Deferral:
100% of 3%; 50% of next 2%

Non-elective Deferral:
Flat 3% to all employees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Money Purchase Suitability

A
  • Stable workforce
  • Simple admin.
  • Young, high-comp employees
  • Risk is mandatory contribution, need stable cash flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Money Purchase Keys

A
  • Employer contribution only
  • Mandatory fixed % cont. to all
  • Cont. limit LESSOR:
    100% Comp./ $69k
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Defined Benefit Suitability

A
  • Max. contribution for older employees
  • Good for owner to max. own benefits
  • Risk is mandatory contribution, need stable cash flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Defined Benefit Keys

A
  • Guaranteed benefit at -R-
  • Employer bears investment risk
    • Must add $ if benefit falls short
  • Insured by PBGC
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Cash Balance Pro/Con

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Cash Balance Keys

A
  • Employer funded
  • Guaranteed contribution and interest growth
  • Act like pension, but has individual accts.
  • Insured by PBGC
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Profit Sharing Suitability

A
  • Profits/Finances vary year to year
  • Incentivize profitability
  • Young employees
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Profit Sharing Keys

A
  • Discretionary Employer contributions (recurring and substantial)
  • NO Employee contributions
  • Cont. limit LESSOR:
    100% Comp./ $69k
  • CAN be age-weighted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Target Benefit Keys

A
  • Fixed employer contribution only
  • Benefit NOT Guaranteed
    • Investment risk is on the employee
  • Cont. limit LESSOR:
    100% Comp./ $69k
  • Forfeitures can reduce employer cont.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Target Benefit Suitability

A
  • Cheaper, simpler than DB
  • Adequate (not guaranteed) benefits to older employees
  • Risk is mandatory contribution, need stable cash flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

85% SS Benefit Taxation MAGI

A

Single = > $34k

MFJ = >$44k

MAGI = Gross + muni int. + 1/2 SS benefit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

50% SS Benefit Taxation MAGI

A

Single = > $25k

MFJ = >$32k

MAGI = Gross + muni int. + 1/2 SS benefit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

PIA Reduction Formula, Early claim

A

(Months Early / 180) = % Reduced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Divorced Spouse SS Eligibility

A
  • ≥ 62yo
  • Married 10yr min.
  • Divorced 2yr min.
  • Not remarried
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Spouse SS Eligibility: Deceased Worker

A

≥ 60yo

or

Has child in care:
- <16yo
- +16yo, disabled < 22yo

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Spouse SS Eligibility: Retired/Disabled Worker

A

≥ 62yo
or
Has child in care:
- < 16yo
- +16yo, disabled < 22yo

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

DB Contribution Factors

A


Older
Low Returns
Higher Salary


Younger
High Returns
Lower Salary
Forfeitures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Sec 415 Limit DC

A

LESSOR:
100% comp.
or
$69,000** TTL*

$345k Salary cap considered

*employee+employer+forfeiture
**per employer if unrelated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

NUA Taxation

A

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!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

KEOGH/SE SEP Contribution Formula:
25% Plan (Aka Max Plan)

A

NET Income x 18.59%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
KEOGH/SE SEP Contribution Formula: 15% Plan
NET Income x 12.12%
26
SIMPLE Vesting/Dist. Keys
- 100% Vested, always - 25% early withdrawal penalty for 1st 2yr
27
SIMPLE Keys
- ≤ 100 Employees - Employee defer. cap: $16k - + $3,500 catch up - Mandatory employer contribution - No discrimination testing
28
SEP Keys
- Employer cont. only - No annual cont. required - NO LOANS - Cont. limit LESSOR: 25% comp. or $69k
29
Roth Distribution Order
1 - Contributions = Tax free always 2 - Conversions = 10% penalty if <5yr OR no special circumstance - 5yr clock separate per conversion 3 - Earnings = Tax & penalty if <5yr AND no special circumstance
30
IRA Early Withdrawal Penalty Exception
- Death/TTL Disability - S.E.P.P. - Med. > 7.5% AGI - Health ins. premiums (unemployed) - 1st Home ($10k limit) - $5k Birth/adoption - Higher EDU
31
Qualified Plan Early Withdrawal Penalty Exception
- Death/TTL Disability - S.E.P.P. - Separation of service ≥ 55yo - QDRO - Med. >7.5% AGI - Health Ins. Premium (unemployed) - $5k Birth/adoption
32
LI Premium Limit "Incidental test" DB
Death benefit < 100x Expected monthly retirement benefit
33
LI Premium Limit "Incidental Test" DC
Premium % limit of TTL. contribution to participant: - Whole = 50% - UL = 25% - Term = 25%
34
What plans CAN'T integrate with Social Security? (Discriminate based on wages)
- ESOP - SIMPLE - 401k SIMPLE - 403b/457
35
ADP Deferral Threshold (Actual Deferral Percentage)
Still capped at $69k ttl NHCE HCE 0-2% x2 2-8% +2
36
ISO Qualified Holding Requirement
“EGG” ≥ 1yr from exercise ≥ 2yr from grant *Non-qualified ISO treated as comp to employee (employer can deduct)
37
ISO Annual Exercise Limit
$100k
38
Social Security Earned Income Reduction
*earned income* Before FRA: (-)1 per $2 over limit Year of FRA: (-)1 per $3 over limit
39
Unit Benefit Formula
(% x YRS Service) x Avg. Comp
40
HCE/Key Employee Defintion
> 5% owner - Key employee also officer >$220k comp (+ Related employees: Spouse, parent, child, grandparent; NO SIBLING)
41
Qualified Plan Service Eligibility Req.
- 1 Year - 1,000hr Min. 500hr/yr for 3 consecutive years qualifies
42
Age & Service Requirment
21 and 1 - Max age requirement is 21 - Max service requirement is 1yr* *May require 2yr but then 100% vested day 1
43
RSU Taxation
VESTING: FMV taxed as comp. = ord. inc. + FICA SOLD: Sale Price (-) Vest Price = ST/LT CAP Gain
44
Average Benefit Test (ADP Discrimination)
Avg. NHCE Benefit ≥ 70% of HCE Benefit Must pass if Ratio % Test failed
45
Ratio % Test (ADP Discrimination)
% of NHCE covered ≥ 70% of HCE covered If failed, must pass Avg. Benefit Test
46
Top-Heavy Minimum Benefit/Contribution to Non-key employee
DB → Benefit 2% min. "B2" DC → Contribution 3% min. "C3"
47
When is a plan top-heavy?
h-E-avy = k-E-y > 60% TTL Benefits/Account Balance allocated to Key Employees Key / (Key + Other) = >60%
48
Top-heavy DB / All DC Vesting
- 3yr Cliff - 2-6yr Graded - 100% @ 2yr service
49
Non top-heavy DB Vesting
- 5yr Cliff - 3-7yr Graded - 100% @ 2yr service
50
Rabbi Trust Keys
- Protects deferred comp. from merger/acquisition/hostile employer - Tax deferred comp. to employee - Assets vulnerable to creditors due to employer insolvency
51
Secular Trust Keys
NON - QUALIFIED - Protects deferred comp. from employer AND creditors - Employee pays tax when funds contributed (funded) - Cont. irrevocable - employer can't reclaim
52
Sec. 162 LI Taxation/Keys
- Employer own policy/is beneficiary - Premiums not deductible ↓ - DB Pays to employer tax-free ↓ - Employer pays DB to employee survivors - Deductible to employer, taxable to survivors as ord. income
53
Unfunded Plan Keys
- Can be naked promise: no current assets allocated to benefit - Can be informally funded: assets held for employee benefit, but owned by employer & subject to creditors
54
Salary Reduction v Salary Continuation
Salary Reduction ("pure deferred") = Deferred benefit funded from employee comp/salary Salary Continuation = Employer funds ultimate benefit to employee
55
Required Beginning Date for RMD
IRA, SEP, SARSEP, SIMPLE, >5% Owners of all plans: April 1st, year after turning 73 Qualified Plan, 457, 403b if still working: Can delay RMD until April 1st, year after -R-
56
403b Keys
AKA Tax-deferred Annuity, Tax-sheltered Annuity - 501(c)3, Public Schools - Employee deferral limit $23k - If employer contributes, subject to ERISA & $69k TTL cont. - YES Loans
57
403b Catch Up
+ $7,500 if >50yo + $3,000 if 15yr with same company Can take both catch up if meeting both req.
58
Qualified Plan Loan Keys
- LESSOR: 50% vested balance or $50k - Repaid within 5yr, unless principle home purchase - Repay quarterly at min. or entire dist. is taxable
59
Elective Deferral Aggregation
$23,000 +$7,500 catch up: 401k 403b SIMPLE SARSEP $16,000 +$3,500 catch up: SIMPLE and another SIMPLE
60
Sec. 404c Employer Deduction Limit
Employer deductible contribution limited to: 25% of ALL eligible comp.
61
DB SS Integration
Base Deferral % + LESSOR OF (Base% or 26.25%) = Excess Deferral %
62
DC SS Integration
Base Deferral % + LESSOR OF (Base% or 5.7%) = Excess Deferral % TTL Contribution CAP is still $69k
63
DB Minimum Participation Requirement
LESSOR: 50 employees or 40% of eligible employees
64
When is a Non-qualified DC plan appropriate?
Employer wants to provide additional DC benefit to Exec who has already maxed. Qualified benefits
65
SARs Taxation
FMV Exercise (-) FMV Grant = Ord. Inc. Paid to Employee
66
SARs Keys
- Bonus tied to stock appreciation, paid in cash - Employee doesn't own the stock, just benefits from price increase - Taxed as ordinary income at exercise
67
NSO Taxation
GRANTED: No Tax (If SRF exists) EXERCISED: FMV (-) Exercise Price = Ord. Inc. SOLD: Sale Price (-) FMV Exercise = ST/LT Cap Gain
68
NSO Taxation (Sec. 83b)
GRANTED: FMV Grant (-) Strike = Ord. Inc. EXERCISED: No Tax SOLD: Sale Price (-) FMV Grant = Cap Gain
69
ISO Taxation
GRANTED: No Tax EXERCISED: No Tax Bargain element = FMV at exercise (-) strike price (Bargain element is AMT add back, AMT paid + to basis) SOLD: Sale (-) Strike = Cap Gain
70
Substantial Risk of Forfeiture Keys
- Employee doesn't own comp./benefit until conditions are met (tenure, performance, etc.) - Tax on the benefit is deferred until constructive receipt
71
RSUs Keys
- Company grants stock that vests over time or after meeting conditions - No upfront purchase needed - Employee doesn’t own shares until they vest. - Taxed as ordinary income when vested. (YES FICA)
72
NUA Keys
- Applies to company stock in Qualified plans (e.g., 401(k)) - Taxes the stock’s cost basis as ordinary income when withdrawn. - Must be a lump-sum distribution of the entire account. - Stock must be held after withdrawal to benefit from NUA treatment.
73
Who is NOT eligible for SS?
- Student nurses - Student working for college - Railroad Workers - <18yo working for parent, unincorporated - Minister if chooses exclusion - Tribal leaders
74
Roth Special Purpose for withdrawal
- >59 1/2yo - Death/Disability - S.E.P.P. - Med. > 7.5% AGI - Health ins. premiums (unemployed) - 1st Home ($10k limit) - $5k Birth/adoption - Higher EDU
75
Surviving DEPENDENT SS eligibility
- Unmarried - <19 and FT student - >18 but disabled before 22yo
76
SSID Req.
- Insured and under <65 - Disabled 12mo OR expected disabled 12mo - Filed and completed 5mo wait
77
401k Keys
- AKA CODA Plan - Added to profit sharing plan - Employee deferral cap $23,000 - YES FICA/FUTA
78
401k suitability
- Add a qualified benefit for minimal expense - Employees want to save more tax-deductible
79
457 Keys
- No churches - No coordination with other plan types - Deferral LESSOR: 100% or $23,000 - Non-govt only rollover into other non-govt 457 - Gov't 457 = +$7,500 catch up +5-yo
80
Hardship withdrawal keys
- Elective deferrals and vested profit-sharing cont. - Ord. income + 10% penalty
81
Are ERISA plans exempt from creditors?
YES
82
72(t) Keys
S.E.P.P. - Paid LONGER OF: 5yr or 59 1/2yo - PMT is fixed and at least annual - Allowed one-time switch from annuity/amortization to RMD - Penalty recapture is for dist. before 59 1/2yo
83
412(i) Keys
- DB plan funded 100% with LI - Exempt from min. funding - Good for employer who needs LI - Plan return typically lower than other DBs
84
NO FICA/FUTA
- Employer HSA, Non-qual DC, 401k match - Employee FSA - SS Bene - IRA Dist. - Roth earnings
85
SERP Keys
Supplemental Executive Retirement Plan - Informally funded - benefits greatly exceed normal -R- plan - AKA "Top Hat" plan - Only for mgmt. or HCE
86
Plans that CAN use SS integration
"4DC - SEP" - Target Benefit - Money Purchase - Profit-sharing - Stock bonus - SEP
87
ESOP/Stock Bonus Suitability
- Business continuity - Broaden ownership/mkt of stock - Worker sense of ownership
88
Keogh Keys (HR-10)
- Sole prop/ Partnership - May operate as DB, Money Purchase, Profit Sharing - Contribution based on NET income - Cont. tax deductible
89
Roth 401k Keys
- 401k, 403b, Gov't 457 only - Max. deferral $23,000 + $7,500 catch up - Dist. earning tax-free after 5yr AND > 59 1/2yo/death/disabled
90
ABLE Keys
Disabled <26yo - Cont. Iimit $18,000/yr (NON DEDUCTIBLE) - Qual. expenses tax-free - Exempt from Medicaid test assets - Rollover from 529 for same bene allowed (counts toward annual cont.)
91
QCD Limit
$100,000/yr
92
ESPP
Employee Stock Purchase Plan - Can purchase stock for up to 15% off - $25k/yr Max purchase