Retirement Planning Flashcards
Basic Concept of SS
Coverage for nearly every worker. Except for:
Fed Employee who have been continueously employeed since 1984
Some Americans working abroad
Student nurses and student 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, religious orders
tribal councils
Types of Retirement Plans no vesting limited admin costs
SEP Simple Sar-Sep Thrift r saving plans 403B
Social Security fully insured worker eligibility and benefits
a worker is entitled to DI benefits if he/she is under age 65 and has been disabled for 12 months, and expected to result in death and has completed a 5 month waiting
a retired insured worker age 62 or over is entitled to retirement benefits.
Social Security - Spouse Eligibility and Benefits
The spouse of a RETIRED OR DISABLED worker qualifies for SS payments if they are
age 62 or over or
has a child in care under age 16 or
has a child age 16 and over an disabled
*The SURVIVING SPOUSE (including divorced) or a DECEASED insured worker qualifies for SS pmts if widower is age 60+
*The SURVIVING SPOUSE regardless of age qualifies if careing for an entitled child of the deceased who is either uner age 16 or disabled before age 22.
SS dependent/child eligibility and benefits
The SURVIVING DEPENDENT, unmarried child of a DECEASED OR DISABLED insured worker, qualifies for SS payments if the child is:
- under 19 and a full time elementary or secondary student
- under 18 or over but has a disability which began before age 22
SS Currently Insured Worker Eligibility and Benefits
lump sum death benefit - $255
surviving spouse’s benefit (if children are under age 16)
Dependent benefit
Social Security reduction of benefits
FRA is 66
working at FRA or older - you will keep all benefits
if younger than FRA - limited income if receiving full SS bene
if younger than FRA during all of 2013 - deduct $1 from benefits for each $2 earned above $14,640
if reach FRA in 2013 - deduct $1 for benefits for each $3 earned above $38,880 until mo on e reaches FRA
SS taxation
must include muni bond income to calculate MAGI If income + 1/2 of SS bene is above $25,000 = 50% of ss is included in income If above 44,000 = 85% total SS is included in income #s do not adj for inflation.
Disability Benefits
a worker is entitled to DI benefit if they
1) is insured for Disability benefits, is under age 65
2) has been DI for 12 months, and expected to stay that way for 12 more mo or death
3) has filed for DI benefit and completed a 5 mo waiting period
Nonqualified Plan Definition
any employer retirement, saving, or deferred compensation plan for employees that does not meet the tax an labor laws ERIA req.
there are major differences between Q and NQ plans
Components of a Nonqualified Plan
May Discriminate
exempt from most ERISa requirements
No employers Tax Deductions for contributions until employee is taxed
Plan Earning taxable to employer
Distributions taxable at ordinary tax rates
Components of Qualified Plan
May not discriminate
Must satisfy ERISA requirements
Immediate tax ded for contributions (may not be vested)
Earnings accrue tax deffered until distribution
Distributions are taxable at ordinary tax rates
Types of Qualified plans/ERISA vesting/Admin Costs/Exempt from creditors/ integrate with SS
Defined Benefit Cash Balance Money Purchase Target Benefit Profit Sharing Profit Sharing 401K Stock Bonus ESOP - CANNOT be integrated with SS or cross tested
Defined Benefit Qualified Plan
Favors OLDER employee/owner 50+
Certain retirement benefit; Max 200K (2012)
Meet a specific retirement objective
Company must have very stable cash flow
past service credit allowed
forfeitures MUST be applied to reduce employer contributions
PBGC insured (along with Cash Balance plan)
Qualified Plan Money Purchase
up to 25% employer deduction
fixed contributions - need stable cash flow
maximum annual contribution lesser of 100% of salary or 50K 2012
Qualified Plan Target Benefit
up to 25% employer deduction
Fixed contributions - need stable cash flow
Maximum annual contribution lesser of 100% of salary or 50K 2012
Favors older workers
Qualified Plan Profit Sharing
up to 25% employer deduction
FLEXIBLE CONTRIBUTIONS (must be recurring and substantial)
Maximum annual contribution lesser of 100% of salary or 50K 2012
Can have 401K provisions
Simple 401K exempt form creditors
Section 401K plan
Qualified profit sharing or stock bonus plan that allows plan participants to defer salary into the plan
Max 17,500 deferral for participants under 50
additional $5,500 catch-up for age 50 and over
Safe Harbor Nondiscrimination
a safe harbor 401K plan automatically satisfies the nondiscrimination test involving highly compensated employees with either an employer matching contribution or a nonelective contribution
solo 401K/uni-401k
not subject to coverage testing
nondiscrimination rules necessary for the typical 401K plan
plan allows the elective deferral up to 17,500 plus the employer contribution with cap of $50,000
catchup of 5,500 is allowed if participants age is 50+
corporate plan limitations are 25% of the owners compensation to a maximum of $50K (no catch-up)
Qualified Plan Stock Bonus/ESOP
up to 25% employer deduction
FLEXIBLE CONTRIBUTIONS
maximum annual contribution lesser of 100% of comp or 50,000 2012
100% of contribution can be invested in co stock
ESOP CANNOT BE INTEGRATED WITHSS OR CROSS-TESTED
THRIFT PLAN SAVING PLAN
employees are directly involved in contributing money to the plan
employer contributions on behalf of a particular employee are based on mandatory contribution by the employee
employer contributions are made on a matching basis
the plan may permit both the employer at its discretion to make additional contributions and the employee to make voluntary contributions
employees can only participate if they contribute a part of their compensation to the plan
Section 415 annual additions limit
lessor of 100% of compensation or 50K 2012
includes employer contributions, employee salary reductions, and plan forfeitures
Cash Balance Pension Plan
Plan is qualified employer plan that provides for annual employer contributions at a specified rate that hypo individual accounts that are set-up for each plan participant
employer guarantees not only the contribution level but also minimum rate of return on each participants account
Plan works like a money purchase plan, but money purchase does not guarantee rate of return
Qualified plan coverage requirements
ratio vs average benefit test
Ratio percent test: plan must cover a % of NHC EE that is at least 70% of the % of HCE covered. If the test is failed then the next test must be passed.
Average Benefit Test: Average benefits for all NHCE must be at least 70% of that for HCE
Qualified Plans Age and Service Rules
Max age and service are 21 and 1 year of service
Special provision allow up to 2 year service requirement
BUT then employee is immediately (2 year/100%)
Year of service is 1000 hours (including vacations, holidays, and illness time)
Highly Compensated Employee
A greater than 5% owner or
An employee in excess of 115,000 2011 during the preceding year
Key Employee
An individual is a key employee if at any time during the current year they have been one of the following:
A greater than 5% owner
an officer and compensation greater than 165,000 = 2012
greater than 1% ownership and compensation $165,000 = 2012
Vesting - Fast/Slow
Fast: Top-heavy plan/ All DC plans
3 yr cliff or 2-6 year graded or 100% vested after 2 years
Slow: Non-top heavy / DB plans only
5 year cliff or 3-7 year graded or 100% vested after 2 years
Defined Contribution Plans Integration with Social Security
Based % + Permitted Disparity = Excess %
Base % - DC plan contributions for compensation below integration level
Permitted Disparity - lesser of base % or 5.7%
Excess % - DC Plan contribution for compensation above integration level
