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65 Final Prep > Retirement & Objective Based Plans > Flashcards

Retirement & Objective Based Plans Flashcards

1
Q

On what basis is a partial withdrawal from a non-qualified annuity taxed?

A

LIFO

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2
Q

To get the safe harbor, the employer must

A

agree to make annual matching payments into the plan of either:

4% of salary of participating employees
OR
3% of salary of all eligible employees

(it is not mandatory that each eligible employee participate)

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3
Q

A Supplemental Executive Retirement Plan (SERP)…

A

is a non-qualified plan designed to provide additional retirement benefits limited to a select group of management or highly compensated employees

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4
Q

In order to qualify for the safe harbor under 404(c)…

A

the portfolio selections must include at least 3 different asset classes (equity, debt, cash equivalent)

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5
Q

What would you expect to see in the investment policy statement (IPS) of a qualified plan?

A
  • how the investment performance of the plan is measured

- investment parameters and limitations to be followed by the portfolio managers

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6
Q

All funds within a Coverdell ESA must be used before the student reaches __ years of age

A

30

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7
Q

LIFO means

A

Last money (the earnings) In is the First Out (withdrawn)

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8
Q

Defined-contribution plan

A

A retirement plan that’s typically tax-deferred in which employee’s contribute a fixed amount or a % of their paychecks to an account that is intended to fund their retirement

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9
Q

Examples of a defined-contribution plan?

A
  • 401(k)
  • 403(b)
  • 457(b)
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10
Q

A 61 year old wanting to take a lump-sum distribution from his Keogh will…

A

be taxed at ordinary income rates

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11
Q

Keogh plan

A
  • a tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes
  • can be set up as a defined-benefit or defined-contribution plan (most set up as DC)
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12
Q

defined-benefit plan

A
  • an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as:
  • length of employment
  • salary history
  • the company is responsible for managing the plans investments & risk
  • typically employees cannot just withdraw funds
  • pays a specific benefit to participants at their normal retirement age
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13
Q

Qualified expenses under 529 plans include…

A

tuition for attendance at a foreign university

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14
Q

Examples of defined benefit plans?

A
  • Pension Plans

- Cash balance plans

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15
Q

Required minimum distributions (RMDs) from a traditional IRA must begin by…

A

April 1 the year after the owner turns 70 and a half

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16
Q

Section 529 plans & taxes

A
  • after tax going in
  • tax deferred while in
  • tax free on the way out
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17
Q

Donors contributing to a 529 plan can…

A
  • Make a 1 time lump sum contribution to a 529 plan equal to 5 years of contributions based on the annual gift tax exclusion
  • Each parent may contribute 5x the annual maximum ($15,000 x 5 or $75,000); a couple could double that amount ($150,000) without gift tax consequences
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18
Q

IPS is generally found…

A

in corporate qualified plans, such as the defined benefit or contribution plan

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19
Q

When an employer makes a contribution to a SEP IRA…

A

the employer gets the tax deduction & the employee’s account is enriched by that contribution

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20
Q

401(k) plans are…

A
  • defined contribution plans

- primarily funded by salary reduction employee contributions

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21
Q

3 features of a Safe Harbor 401(k) plan?

A
  • mandatory annual employer matching contributions
  • no annual “top heavy” benefits testing
  • immediate 100% vesting of employer-paid benefits
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22
Q

Max amount of loans for 401(k) plans?

A

Max amount to be borrowed from a 401(k) plan:

$10,000 or 50% of the account asset value, whichever is greater

Loans capped at $50,000

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23
Q

IR for loans of 401(k) plans?

A

the loan must have an IR that is based on current market rates & must be repaid within 5 years

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24
Q

401(k) & loan repayment?

A

loan repayment must be made in quarterly installments of “substantially equal amounts”

if a portion is not repaid, the unpaid amount becomes taxable income; if the account owner is under 59 and a half, the 10% penalty tax applies

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25
Q

An individual may withdraw from an IRA before age 59 and a half without a penalty tax…

A
  • in the case of death or disability

- for qualified education expenses for immediate family members

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26
Q

457 Plan

A

a non-qualified plan that is discriminatory

  • generally only available as an added benefit to higher earning government employees
  • amount contributed is salary reduction
  • earnings build tax deferred
  • when distributions are taken, they are 100% taxable
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27
Q

A QDRO (Qualified Domestic Relations Order) applies…

A

only to assets in a qualified employer plan

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28
Q

“Rule of 55”

A

applies to 401(k) and 403(b) plans

  • if an employee quits or is terminated between ages 55 & 59 and a half, the employee can take payments in equal installments over their life expectancy & avoid the 10% penalty tax
  • regular income tax must still be paid
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29
Q

When someone withdraws early from a tax-deductible IRA…

A

income tax is due

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30
Q

When someone withdraws early from a Roth IRA that is less than 5 years old…

A

income tax is due on earnings only

31
Q

What are allowable distributions from the benefit of the minor under UTMA & UGMAs?

A

optional expenses:

  • summer camp
  • vacation
  • sports league registrations
32
Q

The earnings in an IRA accrue on a…

A

tax-deferred basis

33
Q

403(b) plans are permitted to invest in…

A
  • mutual funds
  • fixed annuities
  • variable annuities
34
Q

When an IRA is left to a non-spouse…

A

the assets are transferred to an “inherited IRA” (IRA BDA) account, and must be depleted over the following 10 years

35
Q

Under what 2 circumstances can a non-taxable distribution be made from a 529?

A
  • beneficiary gets a full scholarship

- beneficiary goes to vocational school

36
Q

What are the 3 options for the surviving spouse upon the death of an IRA holder?

A
  1. Transfer the assets into an inherited IRA account
  2. Roll over the assets into the beneficiaries IRA
  3. Disclaim the IRA
37
Q

Regarding changing the beneficiary of a 529?

A

the beneficiary can be changed to another family member without tax consequences once every 12 months

38
Q

The first $10,000 of a first time home purchase expense can be…

A

withdrawn from an IRA prior to age 59 and a half without having to pay the 10% penalty tax

39
Q

403(b) retirement plans…

A
  • are for employees of non-profit institutions such as hospitals & universities
  • contributions are excluded from taxable income & must be used to purchase “tax sheltered” annuities or MFs
  • employees contribute via salary deduction
40
Q

What are precious metal investment that is permitted in an IRA?

A
  • Gold
  • Silver
  • Platinum
  • Palladium bullion
41
Q

Employee contributions to 401(k) plans…

A
  • reduce taxable income in the year contributed
  • are made w/ pre-tax dollars
  • are not taxed until distributed
42
Q

Retirement plan contributions…

A

do not reduce FICA (ever)

43
Q

FICA

A

Social security contribution and medicare tax

44
Q

Catch-up contributions are allowed to participants who are…

A

age 50 & over

45
Q

ERISA rule 404(c) requires…

A
  • the ability for employees to change their investments
  • the ability for employees to diversify their investments
  • a minimum of 3 different investment strategies with different risk & return characteristics
46
Q

Custodial accounts such as UTMA / UGMAs do not receive…

A

beneficial treatment when applying for financial aid

47
Q

A Safe Harbor 401(k) relieves the employer of…

A

having to perform annual benefits testing to show that the plan does not favor highly compensated employees

48
Q

Grantor Retained Annuity Trust (GRAT)

A

used in estate planning to minimize taxes on large financial gifts to family members

> irrevocable trust is created for a certain term or period of time
individual who established the trust pays a tax when the trust is established
assets placed under trust & annuity paid out yearly
when the trust expires the beneficiary receives the assets tax free

49
Q

What is the maximum annual limit of a Coverdell ESA?

A

$2000 & offers tax free growth

50
Q

For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions to…

A

a 401(k) & 403(b)

51
Q

Excess contributions to an IRA are subject to a __% penalty tax

A

6%

52
Q

Private Placements

A

Transactions resulting from offers to no more than 10 non-institutional persons (retail clients) in 12 months for investment purposes only

53
Q

A traditional IRA can be converted to a…

and what is the benefit & caveat?

A

Roth IRA

Benefit: to provide tax-free income in retirement
Caveat: immediately tax deductible at ordinary interest rates at conversion

54
Q

Coverdell Education Savings Account (ESA)

A

a tax-deferred trust account created by the US Government to assist families in funding educational expenses for beneficiaries who must be 18 years or younger when the account is established

55
Q

Advantages of 401(k) plans?

A
  • employees & employer may reduce current taxes
  • tax deferral on plan earnings for employees
  • employer may participate in the plan
56
Q

Health Savings Accounts (HSAs)

A

are only available to individuals who are covered by high-deductive health insurance plans

57
Q

Noncontributory Money Purchase Pension Plan

A
  • This plan has mandatory contributions of the employer

- No employee contributions

58
Q

Spousal IRA

A

an IRA established for a nonworking spouse with the permitted contribution being the same as for the working spouse

59
Q

Loans from 401(k) plans must be repaid within…

A

5 years

does not apply to loans taken for a home purchase

60
Q

Matching employer contributions in 401(k) plans…

A
  • are not taxable to the employee

- are deductible to the employer (pre-tax)

61
Q

An account balance in a Coverdell ESA that is not used by the beneficiary to pay for qualified educational expenses…

A

may be transferred to a Coverdell ESA for a qualifying sibling without any tax liability

62
Q

A distribution from an IRA taken in equal annual amounts over the owner’s life is…

A

not subject to the 10% premature distribution penalty even if started before age 59 and a half

63
Q

Contributions for both college savings & UTMA accounts are made with…

A

after-tax dollars

64
Q

Earnings in UTMA accounts are…

A

taxed each year

65
Q

What are the rules around making contributions & taking distributions regarding Roth IRAs?

A

Contributions: Can continue after age 72

Distributions: Are not required to be taken started at age 72

66
Q

Pension Benefit Guaranty Corporation (PBGC)

A

provides insurance for defined benefit plans formed under ERISA that are terminated that have an unfunded pension liability

67
Q

TIAA-CREF

A

Teachers Insurance Annuity Association - College Retirement Equity Fund

  • administers retirement plans for not-for-profits including school systems, universities, and hospitals
  • permits life insurance, fixed & variable annuities, mutual funds
  • must be managed by a professional managers
68
Q

Trust

A

has a fixed life - specified # of years in documents, or ends when the grantor dies

69
Q

Foundation

A

has an indefinite life - goes on until all of its assets are distributed

70
Q

Maximum income limits that reduce permitted contributions apply to…

A

Roth IRAs & Coverdell ESAs

71
Q

a 457 plan is unique in that…

A

it is the only tax-qualified retirement plan permitting withdrawal for any reason before age 59 and a half without penalty

72
Q

IRA contributions allowed?

A

$6,000 - Singles

$12,000 - Couples

73
Q

a 401(k) is a type of…

A

defined contribution plan

65 Final Prep (8 decks)

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