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CFP > Retirement > Flashcards

Retirement Flashcards

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CFP® flashcards
1
Q

Tandem plans typically involve ________ and ________?

A
  • *Mon**ey purchase plans
  • *Pro**fit sharing plans
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2
Q

Which pension plans plan are subject to Pension Benefit Guaranty Corporation (PBGC) coverage?

A
  • *Defi**ned benefit plans
  • *Ca**sh balance pension plans
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3
Q

CODA plans are also known as ________?

A

401k plans.

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4
Q

How are Employment Stock Option Plan (ESOP) dividends taxed?

A

Ordinary income rates.

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5
Q

Are loans permitted in a SIMPLE IRA?

A
  • *No**.
  • *IR**As do not permit loans.
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6
Q

Pension plans have ________ funding formulas.

A

Fixed.

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7
Q

Does Rule 72(t) apply to IRAs or to employer sponsored retirement plans?

A
  • *Bot**h.
  • *Avo**ids the 10% early withdraw penalty.
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8
Q

What determines if an individual is an active participant in their retirement plan?

A
  • *I**f the individual contributed to the plan.
  • *I**f the individual’s employer contributed on the individual’s behalf.
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9
Q

What’s the early withdraw penalty for a SIMPLE IRA?

A

25%.

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10
Q

Are 457 plans eligible for catch up contributions?

A

Yes.

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11
Q

What are the requirements for an employee to be eligible for a SEP plan?

A
  • *Ag**e 21.
  • *Rece**ived at least $650 dollars in compensation.
  • *Wor**ked for the organization for 3 of the last 5 years.
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12
Q

What percent of company stock must an ESOP own after the creation?

A

30%.

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13
Q

What protection is offered for a client that rolls a 401(k) into an IRA?

A
  • *Bankr**uptcy protection.
  • *ERI**SA would provide protection while it is still a 401(k).
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14
Q

How often does an actuary required to review a defined benefit plan?

A
  • *Annua**lly.
  • *A**n actuary calculates the contribution calculation annually.
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15
Q

Profit sharing plans are funded by the ________?

A
  • *Emplo**yer.
  • *I**f there is a 401(k) component attached to a profit sharing plan, the employee can contribute to the 401(k).
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16
Q

Qualified plans offer ________ protection.

A

Creditor protection via ERISA.

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17
Q

What is the vesting schedule for Safe Harbor 401(k) plans?

A

Immediate vesting.

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18
Q

Integration levels cannot be higher than ________.

A

The social security wage base.

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19
Q

How long can an employee be held out of a SEP?

A
  • *3** years.
  • *Mu**st also be age 21 to participate.
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20
Q

What is a potential benefit of a profit-sharing plan that uses permitted disparity?

A

Allows for higher contribution rates.

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21
Q

How long does a client have to elect 83(b)?

A

30 days after grant.

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22
Q

Regarding catch-up contributions, which plans permit an additional contribution if the employee has 15 years of service?

A

403(b) plans.

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23
Q

What options does an employer have regarding SIMPLE contributions?

A
  • *2**% flat contribution for all eligible employees
  • *3**% match (100%).
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24
Q

Do allocation formulas need to be definite or indefinite in pension plans?

A

Definite.

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25
Q

A qualified distribution from a Roth IRA must meet the 5-year test as well as ________ (4 scenarios).

A
  • *Ag**e 59.5
  • *Dea**th
  • *Disab**ility
  • *Fir**st time home buyer (up to $10,000)
  • *Ta**ke time to understand these in-depth as they are likely to be tested.
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26
Q

What type of plan permits an addition catch-up provision in the final 3 years before normal retirement age?

A
  • *Ag**e 59.5
  • *Dea**th
  • *Disab**ility
  • *Fir**st time home buyer (up to $10,000)
  • *Ta**ke time to understand these in-depth as they are likely to be tested.
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27
Q

What is the employee limit for a business that wishes to establish an SIMPLE IRA?

A

No more than 100 employees.

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28
Q

If a client’s begins taking Social Security benefits 36 months before their normal retirement age, how much are benefits reduced?

A

20%.

  • *I**t is important to know how to calculate reduced Social Security benefits. If within the first 36 months, simply multiply the number of months by 5/9 (or .5556) to arrive at the reduction percentage. The maximum reduction within the 36-month window is 20%. If it is more than 36 months, multiple the number of months over 36 months by 5/12 (.4167) and add that percentage to 20%.
  • *Exam**ple: a client that takes Social Security benefits 45 months before normal retirement age would see a 23.75% reduction in benefits (45 – 36 = 9) (9 * 5/12 = 3.75) (3.75 + 20 = 23.75).
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29
Q

If a client contributes to a SEP, are they considered to be an active participant?

A

Yes.

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30
Q

When does the holding period begin for NQSOs?

A

At exercise.

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31
Q

What is the penalty for early distribution from an ESOP?

A

10%.

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32
Q

What type of plan(s) can include more than 10% of employer securities?

A

Most profit sharing plans.

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33
Q

Age of retirement must be specified in which type of plan?

A

Defined Benefit plan.

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34
Q

What is the non-elective contribution % for SIMPLE IRAs?

A

2%.

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35
Q

When does an employer recognize a deduction for NQSOs?

A

At exercise.

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36
Q

What are two scenarios that would cause an ISO to expire?

A
  • *1**0 years from grant.
  • *3** months from retirement/termination.
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37
Q

Regarding SIMPLE IRAs, what is the penalty if an employee takes a distribution within 2-years from participating in the plan?

A

25%.

38
Q

Which plans vest immediately?

A
  • *SE**Ps
  • *SIM**PLE IRAs
  • *Sa**fe Harbor 401(k) plans
39
Q

In a Defined Benefit plan, a higher return on investments within the plan may lead to a ________?

A
  • *Low**er required contribution from the employer.
  • *Alterna**tively, lower investment returns within the plan may require a larger contribution from the employer.
40
Q

What type of plan can be used to skew contributions in favor of older, highly compensated employees?

A

Cross-tested profit-sharing plans.

41
Q

What two types of assets can live in a 403(b)?

A
  • *Mut**ual funds
  • *Annui**ties
42
Q

What is considered to be earned income for IRA contribution purposes?

A
  • *W**2 income
  • *Sche**dule C income
  • *Alim**ony (for divorces finalized on or before December 31st, 2018)
  • *Gene**ral Partnership income
43
Q

Are in-service distributions available within a 457 plan?

A

Yes.

44
Q

ESOPs and ________ have unrestricted investment in employer securities.

A

Traditional profit-sharing plans.

45
Q

Unfunded deferred compensation agreements make an executive a ________ of the company.

A

General creditor of the company.

46
Q

Do SIMPLE 401(k) plans permit loans?

A
  • *Ye**s.
  • *SIM**PLE IRAs do not.
47
Q

A ________ year old employee with ________ years of service, can mandate that an employer diversity holding within their ESOP.

A
  • *55-yea**r-old.
  • *1**0 years of service.
48
Q

What would you suggest to someone who owns a Roth 401(k) but is no longer making contributions to the plan?

A

Potentially roll the 401(k) into a Roth IRA. This will avoid required mandatory distributions.

49
Q

Tax Sheltered Annuities (TSAs) are also known as ________?

A

403(b) plans.

50
Q

What type of plan would be a viable choice for a 52-year-old, self-employed individual that wants to maximize their retirement plan contributions?

A

A 401(k).

SEPs & SIMPLEs do not have catch-up contributions. Be careful with these types of questions as one or two words in the question can change the correct answer. If the question would have asked for the best plan for a 45-year-old individual, a SEP or SIMPLE may have made more sense due to the ease of setup and lower administrative costs.

51
Q

What are two questions you should ask yourself when determining if a Roth distribution is qualified?

A
  • *Ha**s the IRA been open for 5 years?
  • *I**s there a triggering event (age 59.5, death, first time home purchase, disability)?
52
Q

What is the Roth IRA income phaseout in 2022?

A
  • *Sin**gle $129k-$144k
  • *Marr**ied $204k-$214k
  • *Whi**le you should familiarize yourself with the phaseout number, don’t spend time memorizing them. They are provided in the exam.
53
Q

In a Target Benefit Plan, how is the retirement benefit determined?

A

It’s based on the value of the participant’s account at retirement.

54
Q

Which plans are not subject to the top-heavy rules?

A
  • *SIM**PLE 401(k) plans
  • *Sa**fe Harbor 401(k) plans
55
Q

In a SEP, an employee can be excluded for up to ________ years.

A

3.

56
Q

When recommending a retirement plan to a business, what should you keep in mind?

A
  • *Stabi**lity of cashflow.
  • *Argu**ably the most important aspect to consider.
57
Q

Most small retirement plans will eventually become ________ over time.

A

Top heavy.

58
Q

What can be used to rectify an ADP testing failure?

A

A qualified non-elective contribution (QNEC).

59
Q

When asked to calculate RMDs which life expectancy chart should you use?

A
  • *Sing**le.
  • *Yo**u would use a joint life expectancy if the spouse were listed as the beneficiary and is 10 years younger than the account holder.
60
Q

Would an outside contractor working for a business be eligible for incentive stock options (ISOs) or non-qualified stock options (NQSOs)?

A
  • *NQS**Os only.
  • *IS**Os can only be granted to employees.
61
Q

What is an exception to starting RMDs?

A

If you 1) are still employed with the company that owns the plans and 2) you do not own 5% or more of the company.

62
Q

When more than ________% of the plan assets are with ________, the plan is designated as being top heavy.

A
  • *60**%.
  • *Ke**y employees.
63
Q

Non-qualified stock options generate W2 income when ________.

A

They are exercised.

64
Q

How much money can be pulled out of a qualified plan for higher education and avoid penalty?

A
  • *$0**.
  • *IR**As only. Some exceptions are overlapping, and some are specific to IRAs OR qualified plans. Make sure you know which belong to each.
65
Q

________ do not permit in-service withdraws.

A

Pension plans.

66
Q

When asked for a plan recommendation that allows for an employee to save for their own retirement, what should you consider?

A

If the plan you are recommending has a deferral option (401(k), 403(b), SIMPLE, etc.).

Pay close attention to recommendation questions. There are typically 1 or 2 words within the sentence that can change the outcome. The CFP® Exam allows you to highlight areas within the question, use that to your advantage and highlight trigger words that are important to keep top of mind.

67
Q

When do employees begin accruing benefits?

A

At the plan entrance date.

You may see answers such as: 1) after competing their first 90 days, 2) once they reach age eligibility, 3) at their 2-year work anniversary, etc. While they look like they could be correct, an employee only begins accruing when at their plan entrance date. Remember that an eligible employee can only be held out of a plan for a maximum of 6 months (so plans typically have two entrance dates).

68
Q

Can 401(k) plans be converted to Safe Harbor 401(k) plans?

A

Yes, via a formal plan amendment.

69
Q

Can 401(b) plans permit in service withdraws?

A

Yes.

70
Q

Which pension plan has a guaranteed return associated?

A

Cash Balance Pension Plans.

71
Q

SEPs prohibit ________?

A
  • *Forfei**tures.
  • *Emplo**yees are immediately vested.
72
Q

Defined contribution plans cannot use the ________ method.

A

Offset method.

73
Q

Safe Harbor 401(k) plans are ________ to pass the ADP test.

A

Not required.

74
Q

Stock bonus plans are not subject to ________ at withdraw.

A

20% withholding.

75
Q

Are partial RMDs permitted the year an individual turns 72?

A
  • *Ye**s.
  • *Th**e full amount of the RMD must be taken by April 1st of the following year.
76
Q

What’s the benefit of a 401(k) over a 403(b)?

A

403(b)s usually have a lower barrier to entry.

77
Q

Who is responsible for taking an RMD?

A

The planner as well as the client.

78
Q

Only ________ plans use the offset method.

A

Defined Benefit plans.

79
Q

Can a client utilize a hardship withdraw when there are other funds available?

A

No.

80
Q

How much do social security benefits increase every year an individual delays?

A

8% until age 70.

81
Q

The 50/40 test is only applicable for ________ plans.

A

Defined benefit plans.

82
Q

What is the max loan permitted from a SIMPLE IRA for a 50-year-old with 15 years of contribution history?

A
  • *$0**.
  • *SIM**PLE 401(k) plans permit loans, not SIMPLE IRAs.
83
Q

Loans from qualified plans typically must be paid back within ________ years.

A

5 years.

84
Q

What is the difference between SERPs and excess benefit plans?

A

SERPs ignore covered compensations limits.

85
Q

Hardship withdraws are still ________.

A

Subject to a 10% early withdraw penalty.

86
Q

What is the maximum contribution an employee can make to a SEP IRA?

A
  • *$0**.
  • *SE**Ps only permit employer contributions.
87
Q

How are distributions from a Traditional IRA treated if there is existing basis within the account?

A
  • *Pro-r**ata.
  • *Ass**ume you have a Traditional IRA worth $50,000 and $10,000 of that amount is basis. A withdraw of $20,000 would include a $4,000 return of capital and a $16,000 taxable distribution ($10,000/$50,000 = .20. $20,000 * .20 = $4,000).
88
Q

In what situation would an ISO give an employer a tax deduction?

A

If it becomes a disqualified disposition.

89
Q

Can ISOs or NQSOs be gifted?

A

NQSOs only.

90
Q

Failure to payback a 401(k) loan under the agreed upon provisions is considered to be a ________?

A
  • *Taxa**ble distribution.
  • *10**% penalty if under 59.5.
91
Q

Which plans tend to favor older participants?

A
  • *Defi**ned benefit plans
  • *Tar**get benefit plans.
  • *Age-b**ased profit-sharing plans.
92
Q

Which type of business is exempt from PBGC coverage?

A

Professional service corporation with fewer than 25 employees.

CFP (7 decks)

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