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retirement Flashcards

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CFP® flashcards
1
Q

Basic Concepts of Social Security

A

Coverage: Nearly every worker is covered under OASDI.

Employment categories not covered by Social Security include:

Federal employees who have been continuously employed since before 1984.
Some Americans working abroad
Student nurses and students working for a college or college club
Railroad Employees
A child, under age 18, who is employed by a parent in an unincorporated business
Ministers, members of religious orders and Christian Science practitioners if they claim an exemption
Members of Tribal Councils

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2
Q

Social Security

Reduction of Benefits

A

Age 62 - FRA (Full Retirement Age): Benefits reduced $1 for every $2 earned over $17,640 (2019 threshhold)

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3
Q

Social Security

Taxation

A

Must include Muni Bond Income to calculate MAGI
If income (MAGI) plus ½ of Social Security Benefits is:
Above $25K for a single taxpayer, then 50% of the total Social Security is included in Income.
Above $44k for MFJ, then 85% of the total Social Security is included in Income.

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4
Q

Types of Qualified Plans / ERISA

Vesting /Admin Costs / Exempt from Creditors / Integrate with Social Security

A 
Defined Benefit
Cash Balance
Money Purchase
Target Benefit
Profit Sharing
Profit Sharing 401(k)
Stock Bonus ESOP (NOT integrated with Social Security or cross-tested)
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5
Q

Types of Retirement Plans

No Vesting / Limited Admin Costs

A 
SEP
SIMPLE
SAR-SEP
Thrift or Savings Plans
403(b)
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6
Q

Defined Benefit - Qualified Plan

A

Favors older employee/owner (50+)
Certain retirement benefit; Max $225k (2019)
Meet a specific retirement objective ​
Company must have very stable cash flow
Past service credits allowed
Forfeitures MUST be applied to reduce employer contributions
PBGC Insured (along with Cash Balance Plan)

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7
Q

Money Purchase - Qualified Plan

A

Up to 25% Employer Deduction
Fixed Contributions
Need stable cash flow
Maximum Annual Contribution lesser of 100% or salary of $56k (2019)

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8
Q

Target Benefit - Qualified Plan

A 
Up to 25% Employer Deduction
Fixed Contributions
Need stable cash flow
Maximum annual contribution less of 100% of salary or $56K (2019)
Favors older workers
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9
Q

Profit Sharing - Qualified Plan

A

Up to 25% Employer Deduction
Flexible contributions (must be recurring and substantial)
Maximum Annual Contribution lesser of 100% of salary or $56K (2019)
Can have 401(k) provisions
SIMPLE 401(k) exempt from creditors

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10
Q

Section 401(k) Plan

A

Qualified profit sharing or stock bonus plan that allows plan participants to defer salary into the plan.

Max $19,000 (2019) deferral for participants under 50 (subject to FICA)
Additional $6,000 catch-up for age 50 and over (2019)

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11
Q

Section 415 Annual Additions Limit

A

Lesser of 100% of compensation or $56,000 (2019)

Includes employer contributions, employee salary reductions and plan forfeitures

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12
Q

Safe Harbor Non-Discrimination

A

A Safe Harbor 401(k) plan automatically satisfies the non-discrimination tests involving highly compensated employees (HCEs) with either an employer matching contribution or a non-elective contribution.

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13
Q

Safe Harbor Match / Vesting

A

The statutory contribution using a match is $1/$1 on the first 3% employee deferral and $0.50/$1 on the next 2% employee deferral.

If the employer chooses to use the non-elective deferral method, the employer must contribute 3% of all eligible employees’ compensation regardless of whether the employee is deferring or not.
Employer contributions must be immediately vested.

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14
Q

Stock Bonus / ESOP - Qualified Plan

A

Up to 25% employer deduction
Flexible contributions
Maximum Annual Contribution lesser of 100% of salary or $56K (2019)
100% of contribution can be invested in company stock ESOP cannot be integrated with Social Security or cross-tested

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15
Q

Net Unrealized Appreciation (NUA)

A

NUA Example:

Stock is contributed to the retirement plan with a basis of $20k. The stock is distributed at retirement with a market value of $200k. The NUA, $180k, is not taxable until the employee sells the stock, but the $20k is taxable now as ordinary income.

The $180k is always LTCG. If the client sells the stock for $230k, the $30k of extra gain is either STCG or LTCG depending on the holding period after distributed at retirement.

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16
Q

Keogh Contribution

A

Only for sole proprietor and partnerships
Self-Employment Tax must be computed and a deduction of one-half of the Self-Employment Tax must be taken before determining the Keogh deduction.
Shortcut below takes into account Self-Employment Taxes:

If contribution 15%: multiply by 12.12% of net earnings
If contribution 25%: multiply by 18.59% of net earnings

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17
Q

SIMPLE Plan

A

fewer than 100 people
employer cannot maintain another plan
participants Fully vested
easy to administer and funded by employee salary reductions and employer match

18
Q

SEP (Simplified Employee Pension)

A

NO SALARY DEFERRALS–employer contribution only

Up to 25% contribution for owner (W-2)/ treated like KEOGH contribution for self employed

max of $56k
account immediately vests
can be integrated with Soc. Sec.
special eligibility–21+ years old, paid at least $600/yr and worked 3 of 5 years

19
Q

Tax-Deferred Annuity (TDA)

Tax Sheltered Annuity (TSA)

403(b)

A

for 501(c)3 org and schools
Subject to ERISA only if employer contributes
salary reductions limit to 19000 plus $6k catch up over 50

20
Q

Age and Service Rules - Qualified Plans

A

max age and service are 21 and 1 year
special provision-2years of service, BUT immediately vests
year of service is 1000 hrs (includes vacation and sick time)

21
Q

HCE

A

a greaater that 5% owner OR

an employee earning over 125,000 in PRECEDING year

22
Q

key employee

A

individual if at any time during the year is one ofthe following
greater that 5% owner
officer and paid $180,000 or more
greater than 1% owner and paid $150000

23
Q

vesting–fast/slow

A

fast
DB Top heavy Plans/ALL DC Plans
3 yr cliff or 2-6 graded or 2yr/100% vest

slow
NON TOp Heavy DB ONLY
5 yr cliff or 3-7 graded or 2 yr/100% VEST

24
Q

Defined Contribution Plans

Integration with Social Security

A

Base % + permitted disparity=% excess

base %-DC plan contribution for comp below integration level
Permitted Disparity-Lesser of base% or 5.7%

Excess %-DC plan contribution for compensation above integration level

25
Q

Defined Benefit Plans

Integration with Social Security

A

Base % + permitted disparity=% excess

base %-DB plan contribution for comp below integration level
Permitted Disparity-Lesser of base% or 26.25%
Excess %-DB plan contribution for compensation above integration level

26
Q

Multiple Plans 2019

Elective Deferrals

A

Elective defferals–More than one employer
ELect defferals to multi plans ALWAYS aggregate

401k/403b/SIMPLE/SARSEP
19000 pplus 6k catch over 50

SIMPLE and other SIMPLE
13000 plus 3,000 catch up over 50

457 plans are NOT pat of aggregate amounts

27
Q

Life Insurance as a Funding Vehicle

A

treasury regulations–life ins, benefits must be incidental to the primary purpose of the paln
-aggagate premiums paid for a participants insured death benfit are all time less than the following % of plan cost
Ordinary life insurance–50%
Term–25%
universal life-25%
The participant’s insured death bene must be no more than 100 times the expected Monthly benefit (DB plans–100 times)

28
Q

Rollovers NOT Permitted

A

transfer to another 457 plan for NON govt tax exempt organization
hardship distributions can’t roll to another qualified plan
RMD can’t go to another plan

29
Q

Qualified PlanEarly (age 59½) - 10% Tax Penalty Exceptions

A

death
disability
substantially equal periodic payment following separation from service

distribution after 55 and sep from service

distribution in accordance with QDRO

Medical expenses in excess of 10% AGI or health insurance while unemployed

pay health insurance after sep from service (must file for unemployment)

30
Q

Required Beginning Date (RBD) for

IRAs / SEPs / SARSEPs / SIMPLEs

A

april 1st the year following 70.5 then dec 31

31
Q

Required Beginning Date (RBD) for

Qualified Plans / 403(b) / 457 plans

A

april 1st of the following year after 70.5

5% owners must take distribution, but can still contribute to plan

32
Q

IRA Deductibility Keys

A

deductible if
neither spouse active participant with empoyer
if one spouse active, the other spouse can deduct if AGI less than 193k
Both active–AGI limit 103k
Single 64K

Employer plans that affect participation include all but 457

33
Q

IRA Exceptions to 10% Penalty for Early Distributions before age 59½

A 
death
substantially equal payment
disability
1st home--$10k
qualified eduction exp
medical expense over 10% AGI
insurance premiums if unemployed( received unemployment comp for 12 weeks)
34
Q

Roth IRA

Ordering Rules for Distribution

A

comes out–
contributions first
conversions second
earnings last

35
Q

Roth IRA

Required Minimum Distributions

A

bene other than spouse–
within 5 years OR over life expectancy o designated bene with distributions starting prior to the end of the calendar year following death

SPouse–delay until orginal owner would have been 70.5 OR roll to their ROTH

36
Q

Non-Qualified Deferred Compensation Plans

A

salary reduction plan–uses portion of employee’s current comp to fund the ultimate compensation benefit

salary continuation plan–uses employer contributions to fund ultimate benfit

37
Q

Rabbi Trust

A

KEY WORDS–merger, acquisiton, change of ownership

assets in rabbi trust available for creditors
fear that ownership may change before defferred comp is paid

38
Q

Incentive Stock Option (ISO)

Holding Period

A

1 year from exercise and 2 years from Grant before sell ISO

if violate either rule–DISQUALFY DISposition

39
Q

Section 457

Deferred Compensation Plan

A

non qual deffered comp plans of govt angency and non-chiurch controlled org.

defferal limit $19000 or 100% of comp–catch up of $6k over 50 in GOVT plan only

salary defferal NOT aggregated with other plans

non GOVT plans can only roll to another 457

40
Q

IRA Keys

SIMPLE, SEP, SARSEP

A

no loans
no life insurance

immed vesting
may not be creditor protected

59.5 NOT 55 for no 10% penalty

must take RMD at 70.5

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