Retirement Flashcards
(24 cards)
Employment categories NOT covered by Social Security
- Railroad employees
- A child, under age 18, employed by a parent in an unincorporated business
- Ministers etc who claim an exemption
- Members of tribal councils (native Americans)
- Student nurses working for a college or college club
Worker benefits for Social Security
- A retired fully insured worker age 62 is entitled to retirement benefits
- A worker is entitled to DISABILITY benefits if they are UNDER 62 & has been disabled for 12 months, is expected to be disabled for at least 12 months, or has a disability expected to result in death. ***Has a 5-month waiting period
Currently insured workers
(6 quarters of coverage) are eligible for
- Lump sum death benefit of $255 for spouse OR dependent
- A surviving spouse’s benefit (if children are under 16)
- A dependent benefit
Spouse Benefits
Spouse of a retired or disabled worker qualifies for SS payments if they meet ANY of these requirements:
1. Is age 62
2. Has a child under age 16
3. Has a child age 16 and over & disabled before age 22
Surviving Spouse (including a survived divorced spouse)
- Surviving spouse of a deceased insured worker qualifies for payments if the widow(er) is 60 or over
- Surviving spouse can claim payments at any age if caring for a child of the deceased* who is 16 or became disabled before 22*
Divorced Spouse
- Must have been married to the worker for at least 10 years & generally not remarried (been divorced for 2 yrs)
- Must be at least 62
- Can claim even if worker hasn’t claimed benefits
Dependent benefits
A surviving dependent, unmarried child of a deceased, disabled or retired insured worker qualifies if:
* Under 19 and a full-time elementary or secondary school student
* Age 18 or over but has a disability which began before age 22
Lump-sum benefit
$255 for
* Spouse living in the same household as the deceased at the time of death
* Dependent child
***Only 1 can get it, not both
Taking SS BEFORE FRA
Primary insurance amount (PIA) is reduced
PIA - [ #of months before FRA/180] X PIA
This gives the reduced amount.
$1000 - [24/180] X $1000 = $133.33
So payment would be $866.67
*Calculation only works up to 36 months early
Working after Retirement
- Younger than FRA gov’t deducts $1 for every $2 earned above $21,240
- Reach FRA during 2023 gov’t deducts $1 from benefits for every $3 earned above $56,520
Taxation of benefits
50%
If a person’s income plus 1/2 of their SS benes is more than $25,000 single & $32,000 MFJ then 50% of the ss benes will be taxed
*Muni bond interest counts as income
Taxation of benefits
85%
If a person’s income plus 1/2 of their SS benes is more than $34,000 single & $44,000 MFJ then 50% of the ss benes will be taxed
*Muni bond interest counts as income
Defined Benefit Pension
Qualified plan/ERISA/PBGC
* Favors older employee/owner (age 50+)
* Guaranteed retirement benefit amount
* Requires very stable cash flow
* Past service credits allowed
* Spouse determines beneficiary
DB Max Contribution - Stuff it like a PIG
Cash Balance Plan
Qualified plan/ERISA
* A pension type of DB plan - *PBGC
* *Employer guarantees not only contribution level but also a minimum rate of return on each participant’s acct
* May allow for past service credits
* Spouse determines beneficiary
Money Purchase
Qualified plan/ERISA
DC - Pension plan
1. Up to 25% employer deduction
2. Fixed contributions
3. Stable cash flow needed
Only first $330k of salary can be taken into account
Max contribution $66k ($73,500 if age 50+)
No salary deferral
No company match (bc no deferral)
Yes company plan
Yes forfeitures
When to use Money Purchase
- Employer wants stabble work force (wants to retain key young employees)
- Employer wants a plan that is simple to administer & explain
- Employer must have stable cash flow & profit to make the annual fixed contributions
Target Benefit
Qualified plan/ERISA
DC - Pension plan
1. Up to 25% employer deduction
2. Fixed contributions
3. . Stable cash flow needed
4. ***Favors older employees
Max contribution $66k ($73,500 if age 50+)DC - Pension plan
No salary deferral
No company match
Yes company plan 25% deductible
Yes forfeitures
Target Benefit provisions shared w/ DC
- Maximum contribution is lesser of 100% of comp or $66k
- Retirement benefit is determined by each participant’s acct balance
- Employee assumes investment risk
- No annual actuarial determination for contributions (initial contribution only)
- Forfeitures may be reallocated or used to reduce employer contribution
Target Benefit provisions shared w/ DB
- Plan generally benefits older employees
- Actuary determines initial contribution level with fixed mandatory contributions
Forfeitures in DC Plans
They can be reallocated to the participants OR applied to reduce employer contributions
Forfeitures in DB & Cash Balance
Must be used to reduce contributions
Profit-Sharing plan
Qualified plan/ERISA
* DC with FLEXIBLE employer contribution provisions - can be purely discretionary amount or nothing.
* Employer can deduct 25% of all participants’ compensation
* Only first $330k of each employee’s comp can be considered
* Employer contributions are not mandatory but must be substantial and recurring
* Each participant has an individual acct & balance consists of employer contributions, investment returns & forfeitures.
* Forfeitures are usually added to the remaining participants’ acct balances
No salary deferral
No company match
When to use Profit Sharing
- When an employer’s profits vary from year to year
- When an employer wants to adopt a qualified plan w/ an incentive feature to motivate employees to help the company make a profit
- When employees are young, well paid, & have substantial time to accumulate retirement savings
401(k) only
Yes salary deferral
Yes company match
No company plan
Only have forfeitures if there’s a company match
