Retirement Planning 18% Flashcards
Payroll taxes
OASDI + Medicare
Qualified Plans ERISA protection
Anti-alienation protection of plan assets from being assigned, garnished, levied ,or subject to bankruptcy procedings while in plan
What defines a Highly Compensated Person
- more than 5% owner (including family owning stock)
- employee with compensation of more than $155k for current plan year
- employee with compensation in excess of $150k last year
General Safe Harbor Test
% NHC covered >= 70%
Ratio Percentage Test
%of NHC Covered/ %HC Covered >= 70%
Average Benefits Test
- AB% of NHC/AB% of HC >= 70%
- Nondiscriminatory Test
What is the lease generous graduated vesting schedule
2-to-6 year graduated vesting
The maximum annual addition to qualified plan accounts on behalf of employee
$69,000
Key employee
Decision makers who:
- greater than 5% owner
-greater than 1% owner with $150k
-officer with comp in excess of $220k
*Must be an owner or officer
Top-heavy plan
- DB plan key employees’ benefits exceed 60% of overall accrued benefits for all employees
- DC account balances of key employees exceed 60% of aggregate accounts of all employees
Parent Subsidiary Group Ownership Requirements
Owns 80% of at least one other corporation
Money Purchase Pension Plan
The business does not bar the investment risk of the plan assets
Target benefit pension plan
Assuming equal salaries, a target benefit pension plan would allocate a higher percentage of its current contributions to an older employee
Permitted Disparity
SS integration that can increase the contributions because compensation covered is limited to $345k
Negative Elections
A device where the employee is deemed to have elected a specific deferral unless the employee specifically elects out of such election in writing available for current and new employees
ADP test - 401(k)
Average Deferral Rate (NHC) % / Average Deferral Rate (HC) % >= 70%
Nonrecognition of gain treatment
must own stock for at least 3 years and reinvest within 12 months
What is the RMD Minimum distribution penalty - SECURE 2.0 Act
25%, can reduce penalty to 10% if make corrective distributon
Qualified Domestic Relations Order (QDRO)
Court order that divides retirement benefits between people during a divorce or dissolution
QDRO distributions
Not considered taxable distributions if deposited in the recipient’s IRA or qualified plan
Involuntary Termination of Qualified Retirement Plan
PBGC initiates a termination because the plan was determined to be unable to pay benefits from the plan
Distress termination of Qualified Retirement Plan
An employer is in financial difficulty and is unable to continue with the plan financially Generally occurs when the company has filed for bankruptcy, either Chapter 7 liquidations or Chapter 11 reorganization
Standard termination of Qualified Retirement Plan
the employer has sufficient assets to pay all benefits vested at the time but is distressed about it
Eligible Designated Beneficiary
Individual who inherits an IRA and is eligible for special treatment, can take withdrawals through their lifetime expectancy
Eligible Designated Beneficiary Requirements
- spouse or minor child
- diabled or chronically ill individual
- individul who is no more than 10 years younger than the deceased
trusts created to benefit disabled or chronically ill beneficiaries
What amount of Self-Employment Income is included in Self-Employment tax
92.35%
Subtract Payroll Tax Rate
7.65% = 6.2% SS and 1.45% Medicare
Self- Employment Tax
Net Earnings X 12.4% up to $168k (2.9% on all income)
SEP Contribution Limit
$69,000 up to 25% $345k (Defined Contribution)
Which plans permit employer matching and non-elective contributions
457(b), 401(k), 403(b)
ISO- Incentive Stock Options
Is a right given to an employee to purchase an employer’s common stock at a stated exercise price, exercise price is equal to FMV of stock, must be less than $100k based on grant price and must hold for at least 2 years from grant date or one year from exercise of ISO
* if done right only positive adjustment for AMT
Exercise of a NQSO
W-2 income on difference between market price and exercise price, no AMT adjustment
Phantom Stock Plan Characteristics
Benefits are paid in cash and there is no equity dilution from additional shares being issued.
ESPP - Employee Stock Purchase Plan Characteristics
The price may be as low as 85% of the stock value, there is an annual limit of $25,000 per employee, the gain in excess of W-2 income will be capital gain
When are losses permitted for Stock Options
When the right to the stock has been vested and 83(b) is elected right after it is vested
Dependent Care Assistance Program for
Dependent child under 13 years old, dependent child who is physically or mentally incapable of caring for themselves, employee’s spouse if the spouse is physically or mentally incapable of caring for herself
How much group term insurance can an employer provide an employee without the employee including in gross income
$50,000
Max number of employees a company has to not be subject to COBRA even if it has a health plan (continuation of health care coverage)
20 employees
Entity approach to fund a buy/sell agreement that requires surviving partners to purchase the partnership interest of any partner to die requires how many policies? (if there are 5 partners)
5 policies for the entity for each partner
Lean FIRE
minimalistic lifestyle where investment or supplemental income covers basic necessities
Barista FIRE
investment income and supplemental income may not fully cover annual expenses. One may use a part time job or accept lower pay and less stress to supplement lifestyle
Fat FIRE
Investment income and the supplemental income more than covers lifestyle expenses allowing one to enjoy retirement and “live it up”
