Financial Plans-Basics Flashcards
(26 cards)
What are the two requirements for a Roth IRA distribution to be “qualified” (tax-free)?
(1) Account open and funded for at least 5 years, AND (2) One of the following: Age 59½+, death, disability, or first-time home purchase (lifetime limit $10,000).
What is the lifetime limit for a first-time home purchase qualified distribution from a Roth IRA?
$10,000
Name four events that are both Roth IRA qualified distribution triggers and IRA penalty exceptions.
Age 59½+, death, disability, first-time home purchase (up to $10,000).
List all IRA 10% early withdrawal penalty exceptions.
Age 59½ or older
Death
Disability
First-time home purchase (up to $10,000)
Medical insurance premiums while unemployed
Substantially equal periodic payments (72(t))
Qualified higher education expenses
Unreimbursed medical expenses exceeding 7.5% of AGI
Birth or legal adoption (up to $5,000)
Terminal illness
Qualified federal disasters (up to $22,000 aggregate)
Do penalty exceptions make Roth IRA distributions tax-free?
No; not all penalty exceptions avoid the 10% penalty, but only qualified distributions are fully tax-free.
Who benefits most from Defined Benefit (DB) plans?
Older employees
Who bears the investment risk in a DB plan?
Employer
Are DB plans covered by PBGC?
Yes
What is PBGC?
Pension Benefit Guaranty Corporation is a federal government agency that protects the retirement incomes of workers with defined benefit pension plans in the private sector. Only covers DB and CB plans,
Can DB plans credit prior service before the plan was established?
Yes
What is the maximum annual benefit for a DB plan (2024)?
280,000
What is the maximum vesting schedule for a traditional DB plan?
5-year cliff or 7-year graded
Who benefits the most from Defined Contribution (DC) plans?
Younger employees
Who bears the investment risk in a DC plan?
Employee
Are DC plans covered by PBGC?
No
What is the maximum contribution for a DC plan (2024)?
70,000
What is the maximum vesting schedule for most DC plans?
3-year cliff or 6-year graded
What is the key funding difference between pension and profit sharing plans?
Pension plans require mandatory annual contributions; profit sharing plans have discretionary employer contributions.
What is the maximum percentage of employer securities allowed in pension plans?
10% of plan assets
Can participants take in-service withdrawals from pension plans before age 59½?
No, with limited exceptions under the SECURE Act.
When are in-service withdrawals allowed in profit sharing plans?
After 2 years of participation
What is the maximum percentage of employer securities allowed in profit sharing plans?
Up to 100% of plan assets
What is a Target Benefit Plan?
A DC plan using an actuary only at inception; after that, operates as a DC plan.
What is a Money Purchase Plan?
A DC plan with mandatory fixed employer contributions.
