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CFP Study > Retirement Savings/ Income planning > Flashcards

Retirement Savings/ Income planning Flashcards

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1
Q

What are the 2 rollover methods for employer plans?

A

1.Traditional Rollover
Direct to participant
from

2.Direct rollover

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2
Q

What are the 2 rollover methods for employer plans?

A

1.Traditional Rollover- 1 per year
Direct to participant
from qualified plan - 20% fed tax withholding
60 days into IRA
If withholding amount is not replaced, considered distribution and subject to income tax and 10% penalty if under 59 1/2

2.Direct rollover- no limits
Direct to IRA
Participant does not take possession
no mandatory tax withholdings

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3
Q

What are the 3 types of inherited IRA beneficiary and distribution requirements

A

1.Eligibile designated beneficiary - take over life - except minors
2. Non-eligible designated beneficiary -10 year rule
3. Non designated beneficiary - 5 year rule

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4
Q

What are the 4 eligible designated beneficiaries for inherited IRAs?

A
  1. Spouse
  2. Minor
  3. Chronically ill or disabled
  4. Bene not more than 10 years younger than decedent
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5
Q

What are the 2 RMD rules for inherited Roth IRAs?

A

spouse - no RMDs
non-spouse - 10 year rule (follows rules for IRA accounts)

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6
Q

What are the 3 non-eligible designated beneficiaries for inherited IRAs?

A
  1. Non-spouse
  2. See-through trust
  3. Successor beneficiary
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7
Q

What are the 3 non-designated beneficiaries on inherited IRAs?

A
  1. Estate
  2. Charity
    3.Trust not qualifying as Designated bene
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8
Q

What are the early withdrawal penalty exceptions for qualified plans and Trad IRAS?

A
  1. Medical Expenses - unreimbursed >7.5% AGI - Both
  2. Education expenses - qualified higher education - IRA
    3..Age 59 1/2< - Both
  3. Death - both
  4. Disability - total and permanent - both
  5. Health insurance premiums paid while unemployed - IRA
  6. Equal payments - Rule 72t - both
  7. Home buyers - 1st time - 10k - IRA
  8. Separation from services - rule of 55 - QP
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9
Q

What portion of a distribution form an IRA or qualified plan prior to 59 1/2 7is subject to the 10% penalty?

A

taxable portion
total-basis

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10
Q

What are the 2 requirements for a Roth IRA qualified distribution? (tax free)

A
  1. hold for over 5 years from Jan of year contribution was designated
    2.Distribution must occur for reason:
    Death
    disability
    first time home 10k
    greater than 59 1/2
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11
Q

What are the 3 tax rules for non - qualified Roth IRA distributions?

A
  1. Account earning - subject to tax and 10% penalty
    2.Roth Conversion - no tax, within 5 year subject to 10% penalty
  2. Regular Roth contribution - no regular income tax , no penalty
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12
Q

If you withhold taxes in a Roth conversion are they subject to a penalty?

A

Yes, if under age 59 1/2 - 10%

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13
Q

What are two taxable base levels for SE tax and the tax rate of each?

A

< 160,200 =15.3%
>160,200 =2.9%

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14
Q

What are the 8 additional features of a Section 401k plan?

A

CALFEED%

1.Cash or deferred arrangement
2. Annual elective deferral lesser of 100% comp or $22,500
catch up of 50+ not included in annual addition
3. Loans and hardship withdrawals
4. Flexible contributions - employer not required to contribute
5. Elective deferrals are aggregated
6. Employer subject to ADP testing, Employee subject to ACP testing
7. Diversification alternatives - min of 3
8. 100% employer stock, can be invested in

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15
Q

What are the 6 additional features of traditional profit sharing plans?

A

FALNN%
1. Flexible contributions by employer (3 of 5 years)
2. Age weights - can be skewed to older participants
3. Loans and hardship withdrawals allowed
4. No yearly profit required
5. Not subject to QJSA
6. 100% can be in employer stocks

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16
Q

What are 6 additional features of a traditional defined benefit pension plan?

A

GAINCO
1. Guaranteed monthly pension
2. Accruing benefit is active participant for IRA deductions
3. If married , J+S unless waived by spouse
4. No individual accounts
5. Common formula - % of pay x years of service
6. Older, higher earning can have sub funding

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17
Q

What are the 5 additional features of money purchase pension plans?

A

DIMS%
1.Defined contribution - % of employer comp
2. In-service withdrawals not allowed until age 62
3. Mandatory employer contribution -100% funded
4. Subject to QJSA
5. 10% - no more in employer stock

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18
Q

What are the 4 additional features of a target benefit pension plan?

A

RAMS
1. Required employer contribution - 100% funded
2. Actuary determines contributions based on participant age at plan entry to reach target benefit
3. May invest no more than 10% in employer stock
4. Skew higher contribution to older participants

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19
Q

What are 10 common elements of Defined benefit plans?

A

GIVSNMAS$$
1. Guarantees final benefit
2. Insured by PBGC
3. Vesting schedule of 3 to 7 years graded or 5 year cliff
4. Sponsor bears risk, no participant directed accounts
5. No predetermined max deductible employer contribution
6. Must have J+S payout unless waived
7. Annual actuarial work required
8. Satisfy 50/40 rule
9. $330k - max comp in formula
10. $265k - max annual pension

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20
Q

What are 8 common elements of a Defined contribution plan?

A

PPNGV$$$%
1. Participant directed account
2. Participant bears investment risk
3. No guarantee of final benefit
4. Vesting schedule of 2 to 6 graded or 3 cliff
5. $66k - Combined EE/ER annual addition limit
6. $22,500 - Max elective deferrals
7. $330k - max comp in benefit formula
8. 25% - max deductible employer contribution of covered payroll

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21
Q

What are 6 additional features of a cash balance plan?

A

CHUGEC
1. Contribution based on pay credit + interest rate credit
2. Hypothetical accounts
3. Uniform
4. Guarantee benefit
5. Easier to understand than Traditional defined benefit
6. Convert cash balance to lifetime pension

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22
Q

What are 3 key features of a 457(b) plan?

A
  1. Special Catch up
  2. No deferral aggregation
  3. No active participant status
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23
Q

Are 457b plans considered an active particpant?

A

no

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24
Q

Is there a 10% penalty for early withdrawals from a 457b plan?

A

No

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25
Q

What is a tax-advantaged salary reduction retirement plan used by government and certain non-profit organizations?

A

457b

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26
Q

What is the nuance of a cash balance plan?

A

must use 3 year cliff vesting schedule

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27
Q

What is a pro and con of a traditionally defined benefit plan?

A

Pro- Highest level of guarantee
Con- Most expensive plan to admin

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28
Q

What type of defined contribution plan has features of both a defined benefit pension and money purchase plan?

A

Target benefit pension plan

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29
Q

What type of qualified defined contribution plan features flexible employer contribution provision?

A

Traditional profit sharing

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30
Q

What is the most common qualified plan that employees and employers can contribute to in the U.S?

A

401k

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31
Q

What is the 50/40 rule in defined benefit plans?

A

must benefit the lesser

50 employees

or

The greater of 40% all employees or 2 employees

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32
Q

What are the 2 types of defined benefit plans?

A

Traditional defined benefit plan and cash balance pension plan

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33
Q

What are the 6 types of defined contribution plans?

A

Traditional profit sharing
1. traditional profit sharing plan
2. 401k
3.ESOP
4. Stock bonus plan

Pensions
5. Money purchase pension plan
6. Target benefit pension plan

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34
Q

What does a traditional defined benefit plan guarantee?

A

Final monthly benefit

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35
Q

What is a fully insured defined benefit pension plan?

A

Funded exclusively by cash value life insurance or annuity contracts

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36
Q

What does a cash balance plan guarantee?

A

Final benefit at retirement age

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37
Q

What is a qualified plan where the sponsor defines contribution rather than guarantees a final benefit?

A

Defined contribution plan

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38
Q

What are forfeitures in employer Defined contribution plans?

A

money left when someone hasn’t fully vested

employers can reallocate funds

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39
Q

What are the 3 steps in the capital utilization calculation?

A
  1. Solve FV
  2. Begin mode - solve PV
  3. End mode - solve PMT
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40
Q

With defined contribution plans, what portion is aggregate and what is not?

A

Employee deferral election - $22,500
Employer amount/combo - $66,000

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41
Q

For defined contribution plans, how many years is “substantial and reoccurring”?

A

3 out of 5

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42
Q

Are you always 100% vested in your own contributions?

A

yes

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43
Q

What do the annual addition limits on defined contribution plans include?

A
  1. Employee elective deferral
  2. Employer Contribution
  3. Reallocated forfeitures
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44
Q

What type of participant (age wise) does defined contribution plans favor?

A

Younger

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45
Q

Are employer contributions mandatory for defined contribution plans?

A

Profit sharing plans - no
Pension plans - yes

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46
Q

What are the 3 steps in capital preservation and purchasing power preservation?

A
  1. Find PVAD
  2. Discount PVAD
    For capital preservation use nominal rate of return
    For purchasing power preservation use inflation adjusted rate
  3. Add step 1 and 2 together

Note: PVAD becomes FV. Solve for PV. Add both together

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47
Q

What rate does capital preservation use?

A

Nominal rate

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48
Q

What rate does purchasing power preservation use?

A

Inflation adjusted

(1+return)/(1+ inflation rate)

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49
Q

What is the inflation adjusted rate of return formula?

A

(1+return)/(1+inflation rate)

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50
Q

What are the two parts of the Self employment tax rate?

A
  1. 12.4% -Social security
  2. 2.9% - Medicare
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51
Q

What is the Social security calculation for Self employment tax? (the calculation of SE tax?

A
  1. multiply net earning from SE by 92.35% ( 100%- 1.2 SE tax)
  2. Multiply this by 15.3%
    15.3% if wage base is under $160,200
    2.9% if over $160,200
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52
Q

What is the 3 step process to determine max retirement plan contribution for Self Employed?

A
  1. Subtract 50% of SE tax from net earnings from Self - employment
  2. Adjust contribution rate for SE (plan contribution rate/ (1+contribtuion rate)
    3.Multiply Step 1 by step 2
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53
Q

What is the employees role in a SEP and SIMPLE IRA? (annual filing requirements)

A

SEP - no annual filing requirements for employer
SIMPLE - no annual filing requirements for employer - financial institution handles paperwork

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54
Q

What are the employer contribution options for SEP and SIMPLE IRAs?

A

SEP - employer decide to make contributions year to year
SIMPLE - Employer must make matching contributions or contribution of 2% of eligible employee compensation

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55
Q

What are the minimum employee coverage requirements for SEP and SIMPLE IRAs?

A

SEP - offered to all employees 21 or older, employed by employer 3 of 5 years, and had compensation of $750
SIMPLE - All employees $5k or greater compensation in any prior 2 years and expected to earn at least 5k in current year

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56
Q

What are the withdrawal, loans, and payments for SEP and SIMPLE IRAs?

A

SEP - Withdrawal permitted anytime subject to federal income tax and early withdrawal penalty. NO LOANS
SIMPLE - Withdrawal permitted anytime subject to federal income tax and 10% early withdrawals. Within 2 years of enrollment, subject to 25% penalty . NO LOANS

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57
Q

What is the active participant status for Defined contribution, defined benefit, and other plans?

A

DC - Anyone who received any annual additions (EC, EE, Forfeitures)
DB - Anyone who is eligible for plan
Others - All participants except 457 plans

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58
Q

What is tax consisting of Social Security and Medicare taxes primarily for individuals classified as Self Employed called?

A

Self employment tax

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59
Q

What is the self-employment tax rate?

A

15.3%

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60
Q

What are the two easiest and least expensive employer sponsored retirement plans?

A

SIMPLE and SEP IRA

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61
Q

Does a SEP and SIMPLE allow employee contributions?

A

SEP - NO
SIMPLE - yes

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62
Q

What are the key advantages of a SEP and SIMPLE IRA?

A

SEP - easy to set up and maintain
SIMPLE - salary reduction plan with little admin paperwork

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63
Q

What are Employers eligibility for SEP and SIMPLE IRAs? (number of employees required)

A

SEP - Any employer with 1 or more employees
SIMPLE - 100 or fewer employees without another retirement plan

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64
Q

What are the contributions to the plan for SEP and SIMPLE IRAs?

A

SEP - employer only
SIMPLE - employee salary reduction and employer contribution

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65
Q

What is the max annual contribution (per participant) For SEP and SIMPLE IRAs?

A

SEP - Lesser of 25% of covered compensation or $66,000
SIMPLE - Employee - $15,500
Age 50_ $3,500 additional
Employer- match contribution 100% for first 3% (as low as 1% in any 2 of 5 years) or contribute 2% of each employees compensatoin

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66
Q

What is the vesting of SEP and SIMPLE IRAs?

A

100% immediately vested

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67
Q

What type of qualified plan guarantees a specific monthly pension?

A

traditional defined benefit plan

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68
Q

What is the special catch up for section 457b plans?

A

Last 3 years of service to retirement age, unused deferrals from past service, up to $45,000 max. 50+ catch up can’t be used in same year.

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69
Q

What are the 2 key features of 403b plans?

A
  1. Special catch up - 15+ years of service $3000 catch up
  2. Limited to mutual funds and annuities
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70
Q

Are 403b deferrals aggregated with other plan defferals?

A

Yes

71
Q

What are two considerations for IRA contributions deductions?

A
  1. MAGI
  2. Active participant
72
Q

What is the special catch up for 403b plans?

A

15 years of service at same employer, $3000 extra a year
may be used with 50+ catch up
no age limit

73
Q

What is a tax-advantaged salary reduction retirement plan used by section 501c3 organizations and public schools?

A

403b

74
Q

For Roth iras, when does the 5 year holding period begin?

A

Jan 1st of the year the first contribution is designated

75
Q

What type of plans are used to provide benefits to top executives that exceed limits available through qualified plans?

A

Non-qualified deferred compensation

76
Q

What are 3 things nonqualified deferred comp plans are referred to?

A
  1. Top hat plans
  2. Excess benefit plan
  3. Supplemental executive retirement plans (SERP)
77
Q

What type of NQDC plan mirrors a qualified plan benefit formula but is not subject tot the limits?

A

Excess benefit plan

78
Q

What type of NQDC plan typically promises to pay an executive additional compensation of a specified amount for a specified period contingent on them remaining with the company or meeting certain goals such as sales?

A

SERP - supplemental executive retirement plans

79
Q

For NQDC plans what are the 2 goals to avoid and what must there be?

A
  1. Constructive receipt
  2. current taxation

must be substantial risk of forfeiture

executive doesn’t receive income and employer doesn’t receive deduction until the risk is gone

80
Q

What type of trust provides a security to executive in safeguarding promised deferred compensation and why does substantial risk exist?

A

Rabbi trust

Accessible by corporate creditors in event of insolvency

81
Q

What type of trust is not subject to company’s creditors but results in immediate compensation recognition?

A

Secular trust

82
Q

What 3 elements help choose between a qualified and nonqualified plan? If 2 of the 3 were chosen, what would be the selection?

A
  1. Currently deductible employer contribution
  2. Benefits not currently taxable to employee/ participant
  3. Employer can limit participation to select individuals ( pick and choose)

If 1+2 = QP or Tax advantage plan
If 1+3 = Nonqualified section 162 bonus plan
If 2+3 = NQDC plan

83
Q

What is a NQ section 162 bonus plan?

A

executive bonus plan. Funds life insurance through bonuses paid directly to carrier Employee owns all rights of the policy

84
Q

What are the 3 stages of Non-qualified stock options? (NQSO’s)

A
  1. Grant - employer awards executive with option to purchase shares at specific price . No tax consequence, subject to vesting schedule
  2. Exercise - Employee purchases the employer stock at price specific. Bargain element is taxable amount, employer claims deduction
    Bargain element = FMV on date of exercise - Strike price(exercise price)
  3. Sale - stock is sold
    Basis is FMV on date of exercise.
    Sale - basis - taxed as capital gain
85
Q

What is a tax favored plan for compensated executives by granting options to buy company stock at a specific exercise price?

A

Incentive stock options (ISOs)

86
Q

If an ISO meets the requirements of IRC section 422, when is the executive taxed?

A

Only at sale (potential of alternative minimum tax (AMT)

87
Q

What are 3 rules for ISO’s?

A
  1. Corporation may not receive a deduction
  2. May create AMT
  3. No more than 100k per year may be granted
88
Q

What are the 3 stages of an ISO?

A
  1. Grant - non-taxable event Strike Price= MV
  2. Exercise - stock purchased for Strike price (granted price)
    positive AMT adjustment in amount of bargain element
    Bargain element is not subject to taxation
  3. Sale
    Negative AMT adjustment
    If price of stock is greater than or equal to price at time of exercise, Negative AMT will be same amount as positive AMT adjustment

Regular capital is FMV at sale - SP

89
Q

What are the 2 rules for a Qualifying disposition of ISOs? (capital gain or loss)

A
  1. 2 years from Grant
    and
  2. 1 year from exercise
90
Q

For disqualifying disposition of ISO’s, what are the 2 taxation options for ISO’s?

A

1.stock bought and sold in same year
Ordinary income and FICA
Employer deduction
2.Stock sold within one year, but not same calendar year
ordinary income

91
Q

What are the 2 types of stock options and 3 elements under each?

A
  1. NQSO - Non qualified stock options
    subject to vesting
    can be transferred to family, trust, or charity
    Corporation receives deduction
  2. ISOs - Incentive stock options
    Corporation may not ever receive deduction
    may create AMT
    No more than 100k per year may be granted
92
Q

What are the taxation for grant, exercise, and sale timeframes for NQSO and ISO’s?

A

1.NQSO
Grant- no taxable event
Exercise- bargain element subject to w-2 taxation
Sale - capital gain or loss = difference between SP and W-2 income received at exercise (FMV)

  1. ISO’s
    Grant - no taxable events
    exercise - bargain element preference item for AMT
    Sale- Cap loss or gain on Qualified disposition
93
Q

What 3 things does social security provide benefits for?

A
  1. Retirement
    2.Survivors of deceased workers
  2. Disability
94
Q

How are social security benefits funded?

A

7.65% EE and 7.65% ER up to $160,200

1.45% paid on unlimited income

95
Q

How are social security credits earned and what is the max per year?

A

One quarter earned for each $1640
4 max per calendar year

96
Q

How many earned credits does social security required for fully insured?

A

40 earned credits ( min 10 years)

97
Q

What are the qualifications for the 3 different Social security benefit types?

A
  1. Retirement - 62 and older - 40 credits<
  2. Disability - 18 or older - unable to work at least 12 months or result in death
  3. Survivor benefit - family members of deceased workers who qualified for social security
98
Q

What are average indexed monthly earnings (AIME) based on, what adjustments are made, and what does it calculate?

A
  1. 35 best years of Social security earnings
  2. adjusts each years earnings to present day dollars
  3. calculates average monthly earnings in current dollars
99
Q

What is AIME used to calculate?

A

Primary insurance amount PIA

100
Q

What is social security PIA and how does it break down average earnings?

A

Primary insurance amount - the monthly retirement benefits at full retirement age (FRA)

Breaks average earnings down based on “Bend points”

$1,115 and $6,721

101
Q

What is the social security benefit formula?

A

90% of first $1,115
+ 32% of next $5,608 ($6721-$1115(
+ 15% of excess above $6721

102
Q

What is the earliest age to claim social security benefits and do benefits increase if selected?

A

62, and no it is permanent

103
Q

What percentage do benefits increase by per year beyond FRA up to age 70?

A

8% and cannot go beyond 70

104
Q

For social security what is the reduction or delayed formula applied to PIA?

A

36 months prior to FRA decreased by 20%
24 months further to 62 another 10%

Up to 24% increase for 36 months above FRA to age 70

  1. Early - 5/9% for each month first 36
    5/12% for each month over 36 months up to 24 months
  2. delayed
    increased by 2/3% each month following FRA up to 70
105
Q

What is the impact on Social security claiming while having earned income from 62 to FRA?

A

$1 social security benefits withheld for every $2 earned in excess of $21,240

106
Q

What is the impact on social security of claiming while having earned income in FRA year?

A

$1 Social security benefit withheld for every $3 earned in excess of $56, 520

107
Q

Is income earned prior to claiming social security considered in the first year of claiming?

A

no

108
Q

What are 3 elements in play when analyzing social security benefits?

A
  1. Claiming prior to or after FRA
  2. Impact of earned income prior to FRA
  3. Taxation of benefits
109
Q

Is the tax structure for Social security benefits the same for retirement, survivor, and disability?

A

yes

110
Q

What is the inclusion of income for Social security tax purposes based on ?

A

Provisional income

111
Q

What is provisional income formula for social security?

A

1/2 SS benefits + tax exempt income + AGI

112
Q

What is the greatest percentage of a workers social security subject to income tax?

A

85%

113
Q

What are the AGI limits for social security benefits taxation for MFJ, single, and MFS? (memorize)

A

MFJ 0-32k = 0% 32k-44k 50% 44k+ 85% taxable

Single 0-25k = 0% 25k-34k= 50% 34k+ =85% taxable

MFS = 85% taxable

114
Q

For spousal Social security benefits, does the worker/ current spouse need to be receiving benefits?

A

current - year
former - no

Age 62 for both

115
Q

What is the max spousal payment of FRA?

A

50%
benefits reduced prior to FRA

116
Q

If a spouse can receive their own social security and spouses, what are they required to do and what will they receive?

A

file for both benefits
receive the higher of the 2

117
Q

What happens to spouse claiming spousal benefits that receives government pension?

A

social security taxes not paid, benefit reduced by 2/3rd the government pension amount

118
Q

Are social security benefits to former spouses included in the max family benefit?

A

no

119
Q

What is the spousal social security benefit reduced by prior to FRA and increased by for delaying?

A

Reduced by 8.33% year + 5% a year beyond 3 years early

no delayed retirement credit past FRA

120
Q

What are the entitlement rules for social security benefits for married and divorced spouses?

A
  1. Married - workers must file
    must have been married for 1 year
    must still be married
  2. Divorced - worker must be at least age 62
    must have been married for 10 years currently unmarried and divorced for at least 2 years
121
Q

What is the federal healthcare program funded by payroll tax?

A

Medicare

122
Q

What are the 4 parts of Medicare?

A

A- hospital
B- medical (non-hospital)
C - Medicare advantage
D - Prescription drugs

123
Q

What is the cost of Medicare Part A?

A

most pay no premium
65 or older paid into for 10 years
Day 1-60 flat per hospital deductible
61-90- co pay
over 90 days to 180 lifetime reserve days
180+ paid by individual

124
Q

Is Medicare part B optional and what does it cost?

A

Yes, premium, higher income= higher premium
annual deductible : after deductible Medicare pays 80%, individual pays 20%

125
Q

For Medicare Part C what does it provide, what is the cost, and what are the rules?

A

Alternative to A and B, usually lower premiums with Medicare supplement (Medicap) insurance policy

some have zero premium

Gatekeepr - must be in network provider

126
Q

What are 2 information points of Medicare part D?

A

optional - required premium, Medicare advantage may include
Deductible and copays can be paid by Medicare supplemental policy

127
Q

Does enrollment in Medicare happen for Part A and B automatically?

A

Part A - yes
Part B - yes - but can delay

128
Q

Do you have to be enrolled in Medicare Part A and B to qualify for Part C?

A

Yes

129
Q

Does a person auto enroll in Medicare at age 65? (not from study material)

A

Yes if getting Social security benefits A and B
If not, no

130
Q

If you don’t enroll in Medicare during the initial enrollment period, when can you sign up? (Not from study material)

A

General enrollment period from Jan 1st to march 31st every year

131
Q

How long is the initial enrollment period for Medicare? ( not from study material)

A

7 months, starting 3 months prior to month turning 65

132
Q

How do you qualify for premium-free Medicare part A? What’s the penalty if you have to buy and don’t? (not from study material)

A

65 or older eligible for social security or railroad benefits

If you don’t buy- monthly premium may go up to 10% (if still on employer plan, must enroll within 8 months of leaving)

Pay this twice the number of years you didn’t sign up

133
Q

What is the Medicare part B enrollment penalty? (not from study material)

A

10% each year you could have signed up but didn’t

special circumstances waive this

134
Q

What is the Medicare part D late enrollment penalty? ( not from study material)

A

1% each month if you don’t have creditable drug coverage and don’t qualify

For not joining when first getting Medicaid

135
Q

What is covered by Medicare part A?

A

Hospital insurance

Inpatient hospital stays
care in skilled nursing facility
hospice care
some home health care

136
Q

What is covered under Medicare Part B?

A

medical insurance

Certain doctor services
outpatient care
medical supplies
preventive services

137
Q

What is covered under Part C of Medicare?

A

Medicare advantage

Everything under A and B sometimes D

Sometimes Dental, vision, OTC items, prescriptions

138
Q

What is covered by Medicare Part D?

A

Prescription Drugs

Offered by private companies

139
Q

What are the requirements for a child to receive social security benefits?

A

under age 18 or 19 if high school, adult disabled before Age 22

worker must be receiving benefit

benefit subject to reduction under family max benefits rule

140
Q

What 3 people may receive Social security benefits from 1 workers record?

A

Spouse
Former Spouse
Child

141
Q

What is the rule for social security benefits for a former spouse with a child? (not from study material)

A

If unmarried and caring for a child under age 16, can claim benefits before 62

142
Q

What 5 people can receive Social security survivor benefits? ( not from study material)

A

1widow(er) 60 or older
2widow(er) 50 or older and disabled
3widow(er) any age caring for child under age 16 or disabled child
4unmarried child under 18, 19 in school, or 18 or older and disabled
5Parents - dependent on worker for at least half of support

143
Q

Can you have Medicare and employer health care coverage? (not from study material)

A

yes

144
Q

Do you have to provide notice of delaying part a and b Medicare? (not from study material)

A

No, unless you’re receiving social security benefits. You’ll need to notify delaying part b benefits. By law, if you are receiving social security, you must have Medicare part A

145
Q

What is the wage replacement calculation for social security benefits?

A

PIA/AIME

146
Q

What is the penalty for missed RMDs?

A

25% of amount not paid

147
Q

What is the deadline to take the first RMD from an IRA and 401k?

A

IRA - April 1st of the year after you turn 73 (must take 2 RMDs if you wait)

401k - the later of April 1st or the year of retirement

148
Q

What is the rule for RMDs for multiple accounts for IRAs and 401ks?

A

IRA - can aggregate accounts and take from one account

401ks must take an RMD from each account

149
Q

What is a nontaxable distribution from a traditional IRA to an eligible charitable organization?

A

Qualified charitable distribution (QCD)

150
Q

What is the min age to make a QCD?

A

70 1/2

151
Q

What is the max annual exclusion for QCDs?

A

100k

only for funds in IRA that would be taxable

152
Q

What form is a QCD reported on and what is it reported as?

A

Form 1040
IRA distribution
Reported as 0 and “QCD” next to the line

153
Q

What is a special tax advantage treatment in qualifying lump sum distributions for employer stock?

A

Net unrealized appreciation (NUA)

154
Q

What is a qualified lump sum distribution for NUA?

A

100% of employees account within 1 year

155
Q

For NUA, what is the employer contribution basis taxed as?

A

Ordinary income

156
Q

How is NUA calcualted?

A

difference at the time of a lump sum distribution between FMV and Employer basis

157
Q

Does the remaining NUA portion receive a step up in basis at death?

A

No

158
Q

What is NUA taxed as?

A

Capital Gains

159
Q

What is a judgement, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights?

A

Qualified domestic relations order(QDRO)

160
Q

How does a recipient report QDRO benefits?

A

As if they are the plan participant

161
Q

Can QDROs be rolled over to an IRA or qualified plan?

A

Yes

162
Q

Is there a penalty to taking distributions under QDRO prior to 59 1/2?

A

No

163
Q

What does a Section 83(b) election for restricted stock allow the recipient of a grant of restricted stock to do?

A

Pay taxes at the time of the grant based on the value of the stock at time of grant

Beneficial if stock is expected to increase significantly prior to becoming vested

164
Q

For the qualified plan nondiscrimination testing, what are three benefit tests that a qualified plan MUST meet one of?

A

Safe harbor test - plan must cover at least 70% of non highly compensated employees

The ratio percentage test - plan must cover a percentage of non-highly compensated employees equal to at least 70% of the percentage of highly compensated employees covered

The average benefits test - percentage of benefits received by non-highly compensated employees must equal at least 70% of the percentage of benefits received by highly compensated employees

165
Q

What is the social security taxable wage base?

A

$160,200

166
Q

What does social security integration of a qualified plan provide?

A

Additional Contribution or benefit for income above the integration level (160,200)

167
Q

What are the two methods to integrate social security?

A
  1. Excess integration - defined contribution plans or defined benefit plans
  2. Offset integration- defined benefit plans only
168
Q

What social security integration method is a base contribution rate is made for all plan participants on compensation up to the integration level and an additional contribution rate is applied to compensation above the integration level, u p to the qualified plan covered compensation limit?

A

Excess integration

169
Q

What social security integration method in a defined benefit plan a fixed amount or formula amount reduces the plan formula to represent the existence of social security retirement benefits?

A

Offset integration

170
Q

What is a one participant 401(k) plan called?

A

Solo 401(k)

171
Q

What amount a can a person contribute to a solo 401(k) plan?

A

$66k max
can include elective deferrals and employer nonelective contributions

Elective deferrals
22500
7500 catch up

employer
25% covered compensation
self employed must adjust comp

172
Q

When is a qualified plan considered top heavy?

A

provides more than 60% of the aggregate accrued benefits (defined benefit plans) or 60% of the aggregate account balances to key employees(defined contribution plan)

173
Q

What are the 3 qualifications to be considered key employees?

A
  1. Officers with earnings of more than $215k
  2. owners of more than 5% of the business
  3. owners earning over $150k and holding more than 1%
174
Q

What effect does a top heavy status have on a plans vesting schedule and minimum benefits allocated to non-key employees?

A

vesting - 2-6 year graded or 3 year cliff

defined benefit - 2% compensation multiple by years of service up to 10 years

Defined contribution - min of 3% of covered compensation

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