Retirement Management Flashcards
What is the focus of retirement planning for high-net-worth individuals?
Addressing distribution strategies, asset location, withdrawal methods, and plan-specific issues like Roth conversions and RMDs.
What key metrics influence retirement needs analysis?
Savings, time, spending, rate of return, and inflation.
What is a 401(k) plan?
A profit-sharing plan allowing employees to defer a portion of their salaries into a tax-deferred account.
What are 2024 contribution limits for a 401(k)?
$23,000, plus $7,500 catch-up for those aged 50+.
What triggers the 10% penalty for early withdrawals from a 401(k)?
Withdrawals before age 59½ unless exceptions like disability or hardship apply.
What is a profit-sharing plan?
A defined contribution plan allowing discretionary employer contributions based on company profits.
When are profit-sharing plans useful?
For cyclical businesses or as a supplement to defined benefit plans.
What is an age-weighted profit-sharing plan?
A plan favoring older employees by allocating higher contributions to them.
What is a defined benefit plan?
A retirement plan guaranteeing specific payouts at retirement, funded by employer contributions.
How are contributions to defined benefit plans determined?
Actuarial calculations based on benefit goals, investment returns, and employee demographics.
What is the 2024 annual benefit limit for defined benefit plans?
$275,000.
What is a cash balance pension plan?
A defined benefit plan mimicking a defined contribution plan with hypothetical individual accounts.
Why might employers favor cash balance plans?
Simpler to explain to employees and offers guaranteed returns without market risk.
What defines a hybrid retirement plan?
Combining features of defined benefit and defined contribution plans.
How are benefits calculated in a hybrid plan?
Based on both employer contributions and a guaranteed retirement benefit.
What is Monte Carlo Simulation in retirement planning?
A statistical tool modeling uncertain outcomes to estimate the probability of retirement success.
What key inputs are required for Monte Carlo simulations?
Expected returns, standard deviation, and spending needs.
What is Section 72(t)?
IRS rules allowing penalty-free early withdrawals using substantially equal periodic payments.
What are the penalties for failing to take RMDs?
25% penalty, reduced to 10% if corrected within two years (starting 2023).
How are Roth IRA conversions taxed?
The amount converted is taxable in the year of conversion, but future growth is tax-free.
When must RMDs begin under Secure Act 2.0?
By April 1 of the year following the year the participant turns 73.
What changes did Secure Act 2.0 make to Roth IRAs?
Eliminated RMD requirements for Roth IRAs starting in 2024.
What are sustainable withdrawal rate methodologies?
Approaches like baseline, bull/bear market adjustments, and inflation smoothing.
What is the tax-efficient ‘bracket stacking’ strategy?
Filling lower tax brackets with withdrawals while deferring excess funds.
What is NUA?
A strategy to convert ordinary income tax on retirement assets to long-term capital gains.
What is required to use NUA?
Electing a lump-sum, in-kind distribution of employer securities.
How does the SECURE Act affect stretch IRAs?
Limits most inherited IRA distributions to 10 years, with exceptions for certain beneficiaries.
What qualifies a trust as a designated beneficiary for stretch IRAs?
It must be irrevocable and name identifiable individual beneficiaries.
What is the goal of asset location?
Minimizing taxes by placing assets in appropriate accounts (e.g., taxable, tax-deferred, tax-exempt).
What assets are suited for taxable accounts?
Index funds, municipal bonds, and tax-managed funds.
Which assets are better for tax-deferred accounts?
Dividend stocks, taxable bonds, and high-turnover funds.
What is the full retirement age for those born in 1960 or later?
67.
How much of Social Security benefits may be taxable?
Up to 85%, depending on income.
When can early retirement benefits begin?
At age 62, with permanent reductions.
What is Income in Respect of a Decedent (IRD)?
Income the decedent had the right to but never received, subject to income and estate tax.
How are RMDs calculated for inherited IRAs?
Using the Single Life Table, based on the beneficiary’s age.
What is the formula for present value (PV)?
PV = FV / (1 + r)^n.
What is the formula for future value (FV)?
FV = PV × (1 + r)^n.
How is the inflation-adjusted rate calculated?
Real Rate = (1 + Nominal Rate) / (1 + Inflation Rate) - 1.
What is the difference between an ordinary annuity and an annuity due?
Ordinary annuities pay at the end of each period; annuities due pay at the beginning.
What is the future value of a $1,000 ordinary annuity for 15 years at 10%?
$31,772.
