Retirement Flashcards
(30 cards)
What are the key items of consideration for financial need at retirement?
- Living Cost
- Gifting (Charity and Bene) Objectives
- Medical csots (including LTC)
- Investment Risk ( Assuming flat % of return(stright line) vs. using monte carlo (probability)
- Pure Annuity vs. Capital Preservation
- Pension Maximization Application (aka pure life annuity) (Life insurance needs = pure life annuity - joint/survivor payout)
What are some ways to address shortfalls?
- Saving morein pre-retirement year
- Increasing investment risks to achieve higher returns
- Retiring later than expected
- Working part-time in early retirement years
What’s a Pure Life Annuity?
- AKA straight life annuity
- Provides hightest payment to retiree for his/her lifetime; no benefits for the spouse
- PMT stop when retiree dies
- Joint and Survivor Annuity will need to be used to provide for surving spouse
When planning for retirement what assumptions should be made?
- Inflation
- Retirement Period & Life Expency
- Lifestyle in Retirement
- Total Return in retirement years
- Income sources for retirement funds
What are potential income sources for retirement?
- Current Savings & Investments
- Future Savings
- Reverse Mortgage
- Social Security Benefits
- Inheritence
- Downsizing
- Equity from sale of home (Renting vs. Owning)
What are the tax consequences of retirement assets at death?
When you die, if you leave your retirement assets to:
* Charity = No Income tax ; No Estate Tax
* Spouse = Deffered Income tax (they can roll it over into their accounts); No Estate Tax (due to unlimited martital deductions)
* Others = Income tax due and estate tax due
What are the two types of requirements must each QUAL plan meet?
Eligiblity
* Age and Service (= 21 or older AND 1 yr service ( 1000 hour in 12 months or 500 hrs in 3 yrs)
(Special provision = 2 yr service + immediate vesting <- Not available for 401K plans)
* Can enroll (1) 6 months after meeting the reqs or (2) 1st day of the 1st plan yr after being eligiblex
Non-discrimination = Coverage
*Safe Harbor Test = PASS = > 70% of NHCE are covered
*Ratio Test = PASS = ( % of NHCE / % of HCE) >= 70%
- Avg. Benefit Coverage Test = PASS = (Avg. Benefit % of NHCE / Avg. Benefit % of HCE) >= 70%
- MINIMUM Participation Test = aka 50/40 Test => LESSER OF 50 EEs covered or 40% of EEs are covered
When does Roth IRA distributions considered qualifid?
REMEMBER: Ordering of Distrubtions for Roth IRAs
- Contributions are withdrawan first (Not taxable - regardless of when contributed, no 5-yr rule)
- Conversion amount is withdrawn second (No 10% penality if funds held for 5 yrs or more OR taken out for special purpoes)
- Earnings are withdrawn last ( special rules apply for taxabiliyt and penality)
Who is an HCE and Key EE?
HCE (relates to plan discrimination test - ADP/ ACP)
Either Greater than 5% owner OR
an EE earning > $160K in precedding year
Key EE (relates to plan vesting)
In the current year, Any of the following:
* Greater than 5% owner OR
* Officer AND comp > $230K
* Greater than 1% owner AND comp > $160K
When is a plan top heavy?
If total benefits of account balances of Key EE total to more than 60% of the overall plan balance or benefits provided
(Total Benefits or Total Account Benefits to Ke EE) / (Total plan benefit or total plan balance) = if this is more than 60%; plan is top-heavy
**REMEMBER: ** for DB plans the comp limit is $350K for calculation
What is ADP / ACP Testing?
ADP = Actual Deferral Percentage
ACP = Actual Contribution Percentage
If NHCE’s avg. defferal % is between 0 to 2% (x 2 rule), max allowed defferal for HCE = NHCE Avg. Defferal % X 2
If NHCE’s avg. defferal % is between 3 to 8% (+ 2 rule), max allowed defferal for HCE = NHCE Avg. Defferal % + 2
What’s the formula for DB plan integration with Social Security?
Excess Benefit % = Base Benefit % + Permitted Disparity % (Lesser of Base Benefit % OR 26.25%)
What’s the formula for Defined Contribution Plan integration with Social Security?
Excess Benefit % = Base Benefit % + Permitted Disparity % (Lesser of Base Benefit % OR 5.7%)
What are the different types of formula’s used to determine retirement benefits for DB plans?
- Flat-%-of-earnings = X% of final avg. salary (no factoring years of service)
- Flat-amount-per-year of service = Fixed $$ for each year of service (no factor of salary increases or decreaes)
- Unit-Benefit = COMMONLY USED in DB plans = % (unit) X $$$ (earnings) X ## of years of service
- Flat-Benefit-% = same as 1 = Flat % of earnings (no factor of years of service)
What situations impact Employer contributions for Money Purchase?
REMEMBER : Have FIXED % of Salary and Mandatory ER Contributions requirements; Each EE has their own account (i.e Not pooled)
- If Key EE is replaced by a clerical employee = ER contributions DECREASES (Becuase ER Contra are % of EE Comp)
- If forfeitures are recalled to EEs = ER contributions DECREASES (they count towards fixed ER contra)
- If EE salaries INCREASE = ER Contra INCRESES
Investment retruns have no impact on ER Contributions (fixed and mandatory contributions to each EE’s account)
What are the 3 main types of controlled groups?
1. Parent-Subsidiary = One Business (parent) owns at least 80% of voting stock or value of another business (sub)
2. Brother-Sister = Two or more businesses with 80% common ownership test AND 50% identital onwership test
3. Combined / Common Control = Three or more businesses is mix of both above
Parent-child is NOT a control group
Can ESOP be integrated with Social Security?
No. ESOP Cannot be integrated with SS
Can be integrated: SEP, Stock-Bonus, DB, Target Benefit plans
What’s the short cut to calculating max retirement contribution for SE?
For 25% Plan Contributions : 18.59% X Net Income
For 15% Plan Contributions: 12.12% X Net Income
What’s the max employee deferrals across plans across multiple ERs?
Elective Deferrals to multiple ER plans are aggregated:
401(k) / 403(b) / SIMPLE / SARSEP = $23,500 + $7,500 (catch-up over age 50)
SIMPLE + SIMPLE = $16,500 + $3,500 (catch-up over age 50)
How do Annual Additionas Limit work across related and unrelated ERs?
MAX Annual Aditions Limit = LESSER of 100% of EE comp or $70K
If ERs are RELATED = Annual Additions limit aggregate across ER plas
If ERs are UNRELATED = NO aggregation; each seperate
What’s the minimum benefit or contribution a top-heavy plan provide to Non Key EEs?
DB Plans: 2% X # of yrs of service
DC Plans: 3% of Non Key EE’s comp
Under what requirements can a loan be taken tax-free from a QUAL plan?
- Enforceable agreement requiring repayment
- Total Loan = LESSER of 50% of vested plan benefits or $50K (small accounts can borrow up to $10K - no % limit)
- Repayment in 5 years (Exceptions = loan is used acquire principal residence or less than 1 yr leave of absence)
- Repayments must be level at least quarterly. If repayments are not made, entire loan is taxable as OI + 10% penality if made before 59.5
Loan interest = Consumer interest for EE and not deductible as Itemaized deduction (unless princple residence)
Which retirement plans cannot provide loans?
IRAs (Traditiona and Roth)
SEPs
SIMPLE IRAs
Roth Accounts
(403(b)/TSA plan can offer loan)
