Retirement Flashcards
(52 cards)
Spouse A is more than 10 years younger than Spouse B and Spouse B is 73. Spouse B wants to receive RMDs as slow as possible. Which distribution choice is best option?
Take distributions with spouse using joint and last survivor table
This is more favorable than new uniform life expectancy table, which is based on 10 year spread
Best asset to pledge as collateral for margin account loan - muni bonds, common stock or IRA
Common stock
Loan interest deduction disallowed when muni bonds are pledged - muni income is not investment income
If IRA pledged it disqualifies the IRA
When can an employee avoid receipt of taxable income when participating in an nonqualified deferred comp plan?
Where there is a substantial risk of forfeiture to the compensation that was deferred
Disability insurance benefits with SIS rider - $10k per month coverage and $1k SS rider (SIS benefit). How much receive after 90 day waiting period?
$11k per month ($10k + $1k)
SIS payments start at time as base policy benefit
Once start receiving payments from SSA, those reduce amount of SIS payment - usually 5 month waiting period for SS payments
When MFS, can spouse A receiving alimony (no other income) and not active participant of workplace plan contribute to IRA or Roth IRA and deduct it if spouse B is active participant of workplace plan?
Although alimony is considered earned income, the phaseout is $0 - $10k -
1) for Roth IRAs when MFS - can’t contribute if earned income is above phaseout; Roth contributions never deductible
2) when MFS, spouse A can contribute to IRA but can’t deduct contribution if earned income is above phaseout and Spouse B participant in workplace plan
Ways to protect assets in case of malpractice claim
Invest future earnings in variable annuity or cash value life insurance because creditor protected
Raise deductible and increase coverages as much as possible for malpractice insurance
Each year take all profits out of business as salary - makes business less valuable and can put the cash into cash value life insurance or variable annuity
Which of these plans allow catch up contributions - profit sharing 401k, money purchase plan and Target benefit plan?
Only profit sharing 401k does
Does a graded vesting schedule allow the 21 and two eligibility requirement?
No, must use 21 and one with a graded vesting schedule (which is employees who are 21 and have completed one year of full time service (or 500 hours 3 consecutive years)
20% withdrawal from profit sharing 401k to purchase home - employee is under 59 1/2 and there is a 10 years of service requirement for in service withdrawals (employer has been there 8 years) - what penalty and income tax tax if any are imposed in this situation?
10% early withdrawal penalty and taxed at ordinary income
If 59 1/2 10% penalty would not apply as long as met years of service requirement
Hasn’t met 10 year of service requirement for in service withdrawals so 10% penalty applies
$40k loan from profit sharing 401k to purchase home - employee is under 59 1/2 and there is a 10 years of service requirement for in service withdrawals (employer has been there 8 years) - what penalty and income tax tax if any are imposed in this situation?
No penalty or income tax if follow plan guidelines
Loans are not subject to ordinary income tax or 10% early withdrawal penalty
Not matter if home not principal residence
Loan must be the lesser of 50% of employee’s vested plan benefit or $50k
Corrective actions required when top heavy profit sharing plan and effect on non-key employees contributions
Employer must make corrective distributions representing the greater of 3% for all eligible employees or the percentage contributed for any key employee receiving a contribution of more than 3%
A top heavy plan has 2 years to complete the corrective action
Circumstances when not subject to the RMD penalty if 73 or older
Must still be an active participant of a workplace retirement plan and can’t be a 5% or more owner of the company
What can you do if projected joint and survivor annuity amount is less than need to retire in 5 years when spouse is 10 years younger?
Explore pension maximization so pension payout can be based on employee’s life expectancy only and not both employee and significantly younger spouse who is pulling payout amount down
This is only permitted if spouse signs a consent to waive her rights
Parent is self employed and daughter work for parent earning $5k per year. Does parent have to withhold federal income taxes and/or FICA?
No federal income taxes need to be withheld because earned income is under standard deduction
No FICA needs to be withheld because working for parent’s unincorporated business (only if incorporated business)
Disability policy benefits - coordinating with Social security benefits vs no social security coordination
Coordination = offset by SS payments
No coordination = no offset of SS Payments (full amount of both disability and SS payments)
When can ex-spouse A receive social security benefits if ex-spouse b dies?
If age 60 or older, was married to ex-spouse b for at least 10 years and never remarried
How ESOP and stock bonus plan differ from traditional profit sharing plan?
Stock bonus and ESOP are way to finance company operations
Profit sharing plans can invest in company stock, but limited to up to 10% of plan assets
Can take distributions in cash for ESOP and stock bonus plan like can with profit sharing plan so not a difference
Cash balance plan and economy/market is doing poorly - should employee be worried about her ultimate account balance?
No, because employer guarantees the contribution and a minimum rate of return; if company fails, the PBGC takes over the pension obligation
Tom (age 50) owns ABC, Inc. and has no other workers. Annual salary ranges between 300-500k. ABC, Inc. normally retains $25k in excess earnings each year and has accumulated $155k in retained earnings. If Tim adopts a profit sharing plan, what’s max the company can contribute?
The 415 limit of $70k - Tom is not self employed he owns a corp.
Is an IRA distribution exempt from a 10% early withdrawal penalty if taken for a qualified loan for first home purchase?
No, because loans from IRAs are not allowed. It would be treated as distribution and 10% penalty would apply
Jerry owns an S corp and takes a salary of $2k per month. Corp typically has additional earnings of $200k. Basis in corp is zero so K1 usually reflects additional $200k of unearned income. What is max amount company may contribute on Jerry’s behalf for a money purchase plan?
$6k - under 415 limits can contribute 100% of comp. However, under section 404 he can only receive 25% of comp.
Are inherited Roth IRAs by a child of owner subject to required minimum distribution rules if: 1) death before RBD and 2) death after RBD?
Yes for both. Only a Roth and Roth inherited by a spouse is not subject to RMD rules
For 2025, what is the maximum permissible contribution amount to a defined benefit plan?
It is actuarially determined. It’s not 70k
Note: However the benefit can only be based on compensation up to 350k. The max annual benefit is 280k, but the contribution could exceed 300-400k per year (stuff it like a pig)
On what is the maximum deductible contribution in a target benefit plan based?
A maximum of 25% of the aggregate eligible compensation of all covered participants. It’s not based on total payroll, but eligible compensation or payroll.
Although an actuarial calculation is made when a plan is first installed, the max deductible contribution is always limited by the above
