Section 11: Retirement Planning Flashcards
What is the NUA lump sum distribution rule?
Lump sum distribution means the entire account balance of the employer retirement plan must be distributed within one year. Not just all the stock, but all accounts sponsored by the same employer.
What is the NUA triggering event rule?
The lump-sum distribution must be made after a triggering event like death, disability, separation from the employer, or reaching age 59 and 1/2.
What is the NUA in-kind rule?
In-kind means the stock must be true employer stock, able to be transferred in-kind to another brokerage. It doesn’t count to sell the stock, transfer cash, and then repurchase the stock.
What are the practical drawbacks of NUA strategies?
The requirement that a client must take a lump-sum distribution of all retirement plan balances within a single year almost always makes NUA strategies impractical. The acceleration of ordinary income taxes on the remaining balances will likely push a client into a higher tax bracket and the client will forfeit future tax deferrals on those amounts.
What is the pro-rata rule?
The pro rata rule states that distributions from traditional IRAs cannot be separated into pre- and post-tax components.
Accordingly, if portions of the same IRA distribution end up in multiple destinations (e.g., a traditional IRA, a Roth IRA, the IRA owner’s pocket), each destination will generally receive a ratable amount of those pro-rata-allocated pre-tax and post-tax dollars.
What are the requirements for trust beneficiaries for RMD purposes to qualify as a designated beneficiary for a qualified look through trust?
-Trust must be valid under state law
-all trust beneficiaries must be identifiable
-Trustee must provide the IRA custodian with a copy of the trust or other required documentation
*If not qualified it must be distributed with in 5 years
What are qualified Charitable Distributions?
available after age 70.5 up to $100,000 per year- paid directly to qualified charity
What are the the typical annual adjustments and monitoring activities in portfolio management?
-Transfer RMDs
-Update asset location priority list
-Partial roth conversions
-Tax loss harvesting
-Tax gains harvesting (step up basis)
-asset allocation adjustments
What strategies are used to maximize retirement outcome?
- Asset allocation
- Asset location
- Tax equilibrium withdrawal strategy
What tax rates should you consider accelerating and deferring taxes?
10%,12%,22%,24%- consider accelerating based on situation
24%,32%,35%,37%- consider defer or avoid income here
*Annual use it or lose it buckets- don’t waste lower buckets
*Bring down average tax throughout retirement
What is the relative history of inflation?
1950-1992- avg 4.2%
1992-2020- avg slightly less then 3%
Next decade-?%
What could the possible S/S benefit reductions look like?
Direct reductions in s/s benefits
Increased taxation on s/s benefits
Later eligibility ages
Income tests for eligibility
Asset tests for eligibility
Increased taxation on other sources
What are the Defined Contribution plan options?
- Profit Sharing
- 401k
- Money purchase pension plan- requires set contributions unlike profit sharing w/ max $57k per year
- Target-benefit pension plan- hybrid of DC/DB plan- target is set by a formula based on actuarial valuations- limits are similar to Money purchase pension plan
What is the excess IRA contributions penalty?
6% per year as long as the excess remains
Confirm this!!!!
MAGI includes what income add backs?
- Student loan interest deduction
- Tuition and fees
- IRA deductions
- Domestic production activities deduction
- Qualified savings bond interest
- Foreign income excluded
What is the annuity bucket approach?
related to taking income
What is the bucket strategy?
related to portfolio withdrawals
What is the dynamic spending strategy?
What are spending ratchets?
