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FPQP Certification 2019 > Module 7: Retirement Planning > Flashcards

Module 7: Retirement Planning Flashcards

1
Q

401k plan

A

plan that allows EE to defer salary to tax-deferred profit sharing plan

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2
Q

403b plan

A

AKA tax-sheltered annuity; available to EEs of certain charitable, religious, education and other 501c3 nonprofit organizations

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3
Q

Adoption agreement

A

a portion of the master or prototype plan document that contains all alternatives and options that may be selected by adopting ER

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4
Q

Advance funded

A

refers to pension plans; pension plan is advanced funded when money in excess of the amount required to fund current pension payouts is allocated to the plan by an ER. ER is funding future benefits as well as current benefits.

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5
Q

Age-weighted profit-sharing plan

A

type of qualified retirement plan that allocates ER contributions based on compensation and age.

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6
Q

Average Indexed Monthly Earnings (AIME)

A

Average monthly earnings of worker used by social security to calculate worker’s Primary Insurance Amount (PIA). This amount is adjusted for inflation to reflect an average in today’s dollars

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7
Q

Cash balance pension plan

A

a defined benefit plan that provides for specific annual employer contributions that accumulate at guaranteed investment return.

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8
Q

Cash or deferred arrangement (CODA)

A

pertains to IRS code section 401k, which allows special provisions to be included in a profit-sharing or stock bonus plan. Under a CODA, participants may elect to reduce compensation received currently & contribute the amount of salary reduction to a pension or profit-sharing plan.

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9
Q

cliff vesting schedule

A

a vesting schedule in which the EE is 0% vested until either after 3 0r 5 yrs of service, at which time EE will be 100% vested

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10
Q

closely-held business

A

a small business that is sole proprietorship, partnership, or close corporation

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11
Q

Contributory retirement plan

A

a retirement plan to which participant can make contributions

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12
Q

Currently insured (pertaining to social security)

A

A worker is currently insured if they have been credited with at least 4 qtrs of coverage during the 13 calendar quarters ending with the quarter in which worker dies or becomes entitled to retirement or disability benefits. Currently married status is needed for survivors to be eligible for benefits if deceased was not fully insured.

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13
Q

Deductible IRA

A

IRA that allows the owner to deduct the amount of contribution from current federal income taxes

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14
Q

Deferred Compensation Plan

A

A nonqualified pension arrangement whereby an executive or highly compensated EE may have current compensation deferred until a later date, presumably when retire. To receive future benefit, EE must have met certain requirements established by ER; ER has enforceable obligation to pay agreed-upon benefits to EE.

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15
Q

Defined benefit pension plan

A

pension plan in which benefits that EE will receive upon retirement are specified in plan. Ex. EE may be told monthly pension benefit will equal 60% of compensation. To fund plan, ER take promised compensation into account, length of time until retirement, EE’s projected earnings, prevailing level of interest rates, and numerous other factors.

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16
Q

Defined contribution plan

A

plan in which contribution that will be made is specified, such as profit-sharing plan. Ex. ER may specify intention to contribute 10% of EE’s salary to pension plan. Benefit that EE ultimately receives will be function of the amount that was contributed by ER, length of time that contributions were made on EE’s behalf, and investment returns.

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17
Q

Direct transfer

A

trustee to trustee transfer

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18
Q

Early distribution

A

distribution that is received before age 59 1/2 and often results in 10% early withdrawal penalty

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19
Q

Elective deferral

A

A deferral of compensation made by EE in 401k, 403b, 457 or SIMPLE plan

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20
Q

ERISA

A

federal law governing the operation of most private retirement plans. provides protection for EE whose retirement assets will be protected even if ER goes bankrupt.

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21
Q

ESOP

A

Employee stock ownership plan
A defined contribution plan in which EE may buy stock of ER corporation at discount. FT employees must meet certain eligibility requirements to participate

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22
Q

Employer contributions

A

includes matching contributions, nonelective contributions, discretionary ER profit sharing contributions, and required ER contributions to qualified plan

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23
Q

Forfeitures

A

Unvested benefits left in a retirement plan by departing plan participants

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24
Q

Full retirement age (FRA)

A

age at which soc sec benefits are available range from 65 to 67 depending on year person was born

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25
Q

Fully funded pension plan

A

A pension plan in which ER contributes amount each year that is adequate to fund current and future pension payouts (liabilities).

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26
Q

Fully insured (pertains to SS)

A

person considered fully insured if earned 40 quarters of coverage under SS; fully insured person eligible for survivors benefits of qualified spouse

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27
Q

Graded vesting schedule

A

EE becomes vested in 20% increments over a period of time. 2 to 6 year graded schedule

28
Q

Keogh plan

A

an adjective used to describe a qualified retirement plan available for unincorporated businesses. Can be a defined benefit plan, profit sharing plan, or ESOP.

29
Q

Longevity risk

A

risk that one may outlive savings

30
Q

Matching contribution

A

made by ER to match a contribution (deferral) that was made by EE. EE must contribute to receive match

31
Q

Medicaid

A

public assistance program designed to provide broad medical expense benefits, such as LTC to certain categories of needy people

32
Q

Medicare (hospital and medical)

A

A SS benefit available to person age 65 who are eligible for SS benefits. Provides medical expense coverage including hospital & supplementary medical insurance. Hospital ins available PART A. Part B covers medical.

33
Q

Medigap

A

insurance intended to supplement medicare coverage

34
Q

Money purchase plan

A

type of defined-contribution plan; ER contributions are mandatory each yr.

35
Q

Net unrealized appreciation (NUA)

A

the amount of gain above and beyond any contributions made to purchase employer stock. The gain is called NUA & is taxed as LTCG instead of ordinary income.

36
Q

Noncontributory pension plan

A

a pension plan in which only ER makes contributions

37
Q

Nonelective contribution

A

A contribution made by ER into company retirement plan for all eligible EE’s whether they have contributed or not.

38
Q

Nonforfeiture

A

Refers to amount in retirement plan that EE would not have to forfeit if they were to leave ER, EE’s vested amount

39
Q

Nonqualified plans

A

A retirement plan that has fewer restrictions than a qualified plan and that doesn’t cover all employees

40
Q

Normal retirement age

A

In qualified plans -normal retirement plans- normal retirement age is earlier of the following: NRA specified in plan or age 65 or five years after plan participation began

41
Q

OASDHI program

A

stands for old age, survivors, disabilty, and health insurance program. Provides protection for qualified participants and their benes against losses associated with retirement, death, disability, and illness. common known as SOCIAL SECURITY.

42
Q

Pension benefit guaranty corporation (PBGC)

A

A federal corporation that guarantees basic pension benefits in covered defined benefit plans.

43
Q

Pension plan

A

Two types of plans: defined benefit pension plans & defined contribution pension plans.

44
Q

Defined contribution pension plan

A

qualified retirement plan that usually provides for periodic contributions specified in a written formula and an unspecified retirement benefit that is equal to value of participant’s account balance at retirement

45
Q

Defined benefit plan

A

qualified retirement plan that provides a specified retirement benefit to participants.

46
Q

Primary Insurance Amount (PIA)

A

Amount of monthly social security income available at FRA equals a worker’s PIA.

47
Q

Profit-sharing plan

A

A defined contribution plan in which ER is not required to make a set contribution amount each year, although contributions should be “substantial and recurring”.

48
Q

Qualified pension plan

A

A pension plan that receives favorable income tax treatment by virtue of meeting federal requirements, such as nondiscriminatory funding practices.

49
Q

Qualified plan fiduciary

A

An individual or organization that has discretionary authority or control over a qualified plan trust, its assets, or its administration, or that-for compensation - provides investment advice regarding plan assets.

50
Q

Quarter of coverage

A

Pertains to SS; A quarter of coverage is a measurement used to determine a worker’s insured status (fully or currently) and therefore, the amount and type of benefits available under SS.

51
Q

Restricted application

A

A technique available to spouses who have both reached FRA. Enables a spouse to receive a spousal SS retirement benefit while allowing their own SS benefit to continue to grow.

52
Q

Roth IRA

A

Withdrawals are not taxable if left in for 5 years and owner is 59 1/2. Owner may continue to make contributions (if earning income) after age 70 1/2 and no required beginning date for withdrawals.

53
Q

SIMPLE

A

Savings incentive match plan for employees;
An ER sponsored retirement plan that can be either an IRA for each EE or part of a 401k plan. 100 or fewer EEs who earn at least $5K a year and who have no other qualified plans.

54
Q

Self-employment tax

A

The OASDI and HI tax imposed on self-employed individuals.

55
Q

Shifting the tax burden to others

A

A tax reduction strategy that involves shifting assets from individuals in high tax brackets to ones in low tax brackets.

56
Q

SEP

A

Simplified employee pension plan;
A retirement plan used by small businesses that is relatively easy and inexpensive to administer. IRAs are registered in EE’s name and ER makes contributions in accordance with established agreements. Only ER contributions can be made to a SEP, no EE contributions.

57
Q

Social Security

A

A gov’t program whereby covered workers meeting certain past-service requirements are eligible for limited retirement, medical, disability, and death benefits. funded thru special tax on covered workers.

58
Q

Sole proprietorship

A

A closely held business in which there is a single owner.
The business is not considered a separate entity from the person for tax, liability,
or other purposes

59
Q

Spousal IRA

A

An IRA established for a non-working spouse using the earned

income of the working spouse to meet contribution eligibility requirements

60
Q

Stock bonus plan

A

A defined contribution plan whereby employees can purchase

stock in the employer corporation.

61
Q

Stock option

A

An employee’s right to buy some of the employer’s stock at a set
price. This right is formed when the employer gives a stock option as a fringe
benefit

62
Q

Stock retirement (entity) agreement.

A

A type of buy-sell agreement that obligates
a closely held corporation to purchase the interest of any deceased stockholder.
This agreement is funded by insurance, and the corporation is the applicant,
premium payer, owner, and beneficiary of policies on all stockholders.

63
Q

Tax-sheltered annuity (TSA)

A

A special form of retirement plan under Internal
Revenue Code Section 403(b) that is available only to full-time or part-time
employees of public school systems or nonprofit organizations (under IRC
Section 501(c)3).

64
Q

Trustee of a qualified plan

A

A party named in the plan document (or in the trust
instrument itself) that is authorized to hold (or invest) the assets of the plan for
the benefit of its participants. The trustee has a fiduciary responsibility toward
the plan and its participants.

65
Q

Vesting

A

Gives the employee nonforfeitable rights to employer-provided
contributions over time. Vesting gives the employee an incentive to perform well
and remain with the company.

66
Q

Delayed Retirement Credit

A

Each year after FRA, there is an 8% increase up to age 70

FPQP Certification 2019 (6 decks)

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