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CFP Review > Retirement Planning > Flashcards

Retirement Planning Flashcards

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0
Q

All Plans are Integrated with

social Security Except

A

ESOP
Simples
SarSeps

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1
Q

Target Benefit Plans are Appropriate

A

Corporations that can’t afford a DB plan but have a substantial group of older Employees(50+) key employees

Not Guaranteed

Makes higher allocation to older employees

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2
Q

SERPS

4

A

1-Salary Continuation Plan

2- Subject to IRC 415

3-Exempt from ERISA

4-Used by C Corps

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3
Q

Medicare Part A

1

A

Benefits are for skilled nursing homes, Hospice, hospitals

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4
Q

Cafeteria Plans are appropriate when?

3

A

1- EmploEEs are mixed younger and older

2-EEs wants a choice of benefits

3- ERs has to be large enough to afford the expense

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5
Q

Cash Balance Pension Plan

4

A

1- Promises a benefit based on hypothetical account balances

2-Qualified plan

3- DB plan

4-ER guarantees contribution level for EEs

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6
Q

457 Plan Features

3

A

Not a Qualified Plan

Catch up 5500 like 401k

Limit is doubled last three years of retirement but then catch up can’t be used

Withdrawals are NOT subject to an early withdrawals

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7
Q

Target Benefit Plan

A

Is a DB plan that can be a DC plan as well

Uses benefit formula like other pension plans

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8
Q

HCE

3

A

Highly Compensated Employees

  • great her than 5% owner =6%
  • greater than 115,000 income
  • top 20 employees base
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9
Q

What formula does a DB plan use to calculate benefit

A

Benefit formula

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10
Q

Exemptions to avoid 10% early withdrawal penalty in a 403B

2

A
  • separation from service age 55

- QDRO Divorce agreement

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11
Q

What is the early withdrawal penalty for a SIMPLE IRA

2

A
  • 25% if it’s the first two years

- 10% anytime after with same ira rules

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12
Q

What is the non spousal RMD rule if decedent passes

A

Beneficiaries life expectancy in the following year preceding death. Reduced by 1 each subsequent year

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13
Q

Simple IRA withdrawals

4

A
  • distributions anytime with out delegation from service
  • 100 vesting right away
  • cannot be rolled to an IRA till 2 years
  • 25% withdrawal penalty in first two years
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14
Q

Types of Profit Sharing plans

6

A

Stock Bonus Plan

Profit sharing traditional

eSOP

401k

Simple 401k

New comparability

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15
Q

Defined Benefit Plans

4

A

DB plans

Cash balance

Target Benefit

Money purchase

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16
Q

Tax advantage plans

6

A

Ira

Roth IRA

Simple ira

Sep ira

SarSeps

403B

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17
Q

PBGC

3

A

Pension Benefit Guaranty Corporation

  • established by ERISA 1974 to protect employees from losing due to termination of a plan
  • max level of protect 59,318
  • ERs with 25 or more employees
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18
Q

Types of Retirement Needs Analysis

3

A

Pure annuity

Capital preservation

Purchasing power

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19
Q

Examples of IRDs

5

A

Distribution from IrAs

Remaining amount left at death in installment sales

Salary earned after death

Rental and interest income received after death

Annuities

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20
Q

Inclusion of Life Insurance in Gross Estate

5

A
  • estate is the beneficiary
  • die within three three if transfer
  • retain G0 of appointment
  • insurer has incidental ownership of policy
  • insured retained rights in policy
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21
Q

Incidental Benefit Rule

5

A

Life is permitted in a qualified plan

No more than 50% of employer contributions can be used to purchase whole life

No more than 25 percent for universal or term

Death benefit can’t exceed 100 times the expected monthly benefit for employee

Cash value is taxable to beneficiaries

22
Q

Key Employees

3

A

Greater than 170k income

Greater than 5 percent owner=6 percent or more

Greater than 1 % and over 150k income

23
Q

Currently insured definition for Social Security

A

6 social security credits for the full 13 quarters before death disability or retirement

24
Q

Fully insured definition under social security

A

40 social security credits or 10 years of work in system

25
Q

A retirement plan is too heavy when?

A

Provides more than 60% of benefits or account balances to key employees

SIMPLE IRAs or SIMPLE 401ks are exempt from too heavy calculation

26
Q

What is a leveraged employees stock ownership plan

LESOP

A

A qualified plan that borrows money from a financial institution to purchase employer stock

27
Q

457 plan is?

A

A NON Qualified plan for
Governmental units
Non church controlled, tax exempt organizations

28
Q

What are mandatory death benefit rules of a participant in a qualified retirement plan?

2

A

If the participant dies before retirement a QPSA(qualified preretirement annuity) must be offered

If the participant’s death occurred after retirement the plan must protect the spouse by requiring the normal form of distribution as a joint and survivor annuity(with the exception of certain PS plans)

29
Q

The PCBG can cancel a defined benefit plan

2

A

Unable to meet minimum funding standard

Unable to pay benefit

30
Q

What’s is the minimum number of employees that have to be covered in a define benefit plan?

A

50/40 rule

The lesser of 50 employees or 40% of all eligible EEs

Example 500 eligible =50 not the 40%

31
Q

A SIMPLE IRA can’t not be combined with?

A

Another qualified plan

32
Q

TSAs allow a special catch up provision

A

If the employer has 15 years of service with an eligible employer

33
Q

If disability is paid by your corporation

A

The benefit is taxable to you as income

34
Q

Cash forfeitures in DB plans

A

Have to be used to reduce costs

35
Q

Who can be excluded from discriminatory testing in qualified plans?

4

A

Section 401

Collective bargaining(union) employees

Part time who work under 1000 hours per year

Employees under 21

Employees under 1 year of service (if you use 2 years of service vesting is 100 percent)

36
Q

DC plans

A

Target benefit

Money purchase

Cash balance

401k

37
Q

Form 5500

3

A

Is the employer annual report of an employee benefit plan

Is required to be filed with employers with over 100 EEs

A schedule A must be filed if any benefit are provided by insurance

38
Q

Simple IrA ERs is required to?

A

Match dollar for dollar contributions up to 3%

Or contribute at least 2 percent non elective contribution for each soluble employee

39
Q

Social security credits

A

Workers receive 1 credit for each $1200 annual earnings to a maximum of 4 credits

40
Q

Loans on after tax contributions to a 401k are

A

Not permitted

41
Q

ESOP and stock bonus plans

4

A

Increase corporate cash flow because employers make cashless contributions to retirement plan

Creates a market for the stock

If stock drops drastically can create a ln admits teatime problem by requiring employer to repurchase options

Explores pay tax on shares contributed at distribution

42
Q

A qualified distribution from a Roth IRA doesn’t include

1

A

College tuition distinction

43
Q 
When is comes to the permitted disparity rule when qualified plans integrate with Social Security
A 
DB 
And 
DC plans can use which methods
A

DB plan can use the excess method
Or offset method

A DC plan can only use excess method because there is no promised benefit formula

44
Q

ACP test is used for which plans?

A

All plans that provide Employer matching contribution or Employee AFTER TAX contributions….

The ADP test is used for plans with Employee deferral contributions

45
Q

What two types of Qualified plans are covered by PBGC

A

Defined Benefit plans

Cash balance

46
Q

Simple plans have three basic rules?

A

Plan must cover any employee who earned $5000 in any of the previous two years and is reasonably expect to earn $5000 again in the current year

Employee must notify participants that they have 60 day election period just prior to the calendar year end in order to make salary deferrals or modify previous election

Contributions max at $12,000 and 14,500 for over 50 catch up

47
Q

Target Benefit Pension Plans a full descriptions:

A

Have a fixed contribution formula based on a actuarial calculation and the participants ages at plan inception.

Allows higher contributions for age

Is a defined contribution plan

It’s intentions is to find a TARGET BENEFIT based on participants age and number of year till retirement

Not guaranteed so it may or may not hit that goal

The plan sponsor doesn’t actuarial my adjust contribution percentage annually.

48
Q

The following contribution to a qualified plan are immediately vested:
3

A

Qualified non elective deferrals
Qualified matching contributions
Section 401k matching contribution to meet no discriminatory safe harbor rules

(NOT -Top heavy vesting contributions go on a vesting schedule)

49
Q

If someone reaches full retirement age…

A

They will not lose any social security based on their earned income

50
Q

Roth IRA qualified distribution rules

A

Only after 5 years have elapsed and one of the following reasons:

  • on or after age 59.5
  • death
  • disability
  • first time purchase of a home

(Five year period starts January 1st of the year the contribution was made FOR… So if you back contribute the year you contribute for counts)

51
Q

ESPP

A

Employee stock option plan

May be as low as 85% of the FMV
Must be held 2 year from grant date and 1 year from exercise date
Max 25000 a year
If your a > 5% owner you are not permitted

52
Q

Junior class shares

A

Separate class of common stock

Convertible to common

Favorable tax treatment-not taxed at issue date but taxed at conversion date as capital gain

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