Retirement Management

Question 1

This projection helps, evaluate the trade-offs between risk and return without the limitations inherent to a linear forecasting model? 

Answer 1

Monte Carlo simulation 

Question 2

What are the three most typical methods of Monte Carlo Carlo simulation? 

Answer 2

Parametric, nonparametric and economic models. The most commonly use is parametric.
The parametric method puts a range around the expected return, which is variable.

Question 3

What IRS code requires distributions to be taken for the longer or five years or until age 59 1/2

Answer 3

72T, substantially equal periodic payments

Question 4

What are the three methods to calculate payments for 72T distributions?

Answer 4

Annuitization
Amortization
Life expectancy

Annuitization and amortization results in similar payment calculations. 

Question 5

What is the penalty for not taking RMD’s? 

Answer 5

The penalty for not taking RMD’s is 50% of required amount not taken plus applicable taxes .

Question 6

What is the required minimum distribution rules starting in 2023? 

Answer 6

Minimum distributions must be taken by April 1 of the year, following the year in which the owner turns 73, per secure at 2.0.

Question 7

How do you calculate the RMD?

Answer 7

Prior year ending account value
/ table factor = RMD

Question 8

The person designated to receive a benefit by the QDRO is called what?

Answer 8

Alternative payee

Question 9

What is a transfer incident to divorce? 

Answer 9

It is used to split assets between divorcing couples for IRAs.

Question 10

Minimum distributions for the deceased IRA owner for the year of death must be paid to?

Answer 10

The designated beneficiaries.

And IRA owner, who dies after April 1 of the year following age 73, is required to receive a minimum distribution for the year of death.

Question 11

When is the uniform lifetime table use for RMD’s?

Answer 11

Pg. 60 conflicts with IRS

It’s used to determine RMD’s based on the owners age if:

•to calculate RMDs for an unmarried owner’s own withdrawals
•beneficiary is a spouse with LESS THAN 10 years age difference.
•married owners whose spouses aren’t the sole beneficiaries

Question 12

Which life expectancy table is used to calculate RMD‘s for an owner and a much younger spouse (by 10 years or more )

Answer 12

Joint life and last survivor table

Question 13

Who can be designated beneficiary’s in regards to IRAs?

Answer 13

Must be an individual

Do not have to be identified by name but must be identifiable as of designation date (September 30 of the year following death of the IRA owner)
Certain trust can qualify for see-through treatment.
Estates, charities, partnerships, corporations, or LLCs DO NOT QUALIFY

Question 14

What are the five rules in order for a trust to qualify for “see-through treatment”

Answer 14

-Trust must be valid understate state law

-Beneficiaries must be identifiable from trust documentation

-Trust must be irrevocable upon death of the participant

-Required documentation must be provided to the plan administrator by October 31 of the year following the calendar year that the IRA owner died

-All beneficiaries of the trust must be individuals

Question 15

Up to what percentage percentage of Social Security benefits can be taxed based on income?

Answer 15

85%

Question 16

What is the 2023 Social Security wage base?

Answer 16

$160,200

Employee and employer portion of the tax is 6.2% each and 12.4% total.

Question 17

What is the 2023 Medicare wage base?

Answer 17

•there is not a max wage

•All earned income is subject to Medicare tax. The employee and employer portion is 1.45% each and 2.90% if self-employed

•Income over 250,000 MFJ & 200,000 single is charged an additional .9% Medicare tax

Question 18

Calculate present value 

Answer 18

PV = FV/(1+ R)^n

The present value of a fix some is determined by taking the future value of a sum of money, and calculating what it is worth today using a discount rate. The more frequent, the compounding, the smaller, the present value.

Question 19

Calculate the future value

Answer 19

FV = PV/(1+ R)^n

The future value of a fixed sum is the amount invested today that will grow over time when it is compounding interest.

Question 20

Calculate net, present value

Answer 20

The initial cost of a project is entered as negative CF0, the subsequent cash flows are enter as CFJ, the interest is entered as i, and then you solve for net present value.

CFO = 1st year capital outlay
CFj= each subsequent periods cash flow
i = cost of capital / interest
THEN solve for NPV

Net present value is considered better than the internal rate of return, because it measures profitability in terms of dollars added to shareholder value. In contrast, IRR measures profitability as a rate of return. That present value assumes the reinvestment rate of cash flows is the cost of the capital, while IRR assumes the reimbursement rate is the IRR. When the IRR is equal to the cost of capital then in PV will be zero. 

Question 21

What’s the difference between an ordinary annuity and an annuity due?

Answer 21

An ordinary annuity is when cash flow begins at the end of each year. And annuity do is Win cash flow begins at the beginning of the investment.

Change the HP 12 C to (g BEG) for an annuity due .

Question 22

What’s considered a jumbo mortgage in 2023

Answer 22

A jumbo mortgage is a mortgage greater than $726,200.

Jumbo mortgages typically carry a higher interest rates compared to conventional mortgage is.

Jumbo mortgages typically in for stricter qualification standards and rules

Jumbo mortgages typically require higher, down payments, 20% minimum 

Question 23

What are the determinants of a capital needs analysis? 

Answer 23

Contributions/savings
Time
Spending
Inflation adjusted rate of return

Question 24

How do you calculate the real rate of return?

Answer 24

Real rate of return =
(1 + nominal rate/1 + inflation rate) - 1× 100

Question 25

A highly compensated employees is defined as one who meets at least one of the five following criteria.

Answer 25

Individuals who are 5% owners during the current or previous year

Individuals earning income of at least $150,000 in the year 2023

Individuals in the top 20% of all employees

Note: employers with a large group of employees who earn more than $150,000 in 2023 are able to select those individuals whose earnings put them in the top 20% of all employees instead.

Question 26

In what type of retirement plan is an employer, not allowed to deduct the contributions made to the plan until the benefits are received by the employees. And the employees are allowed to defer income taxes until the receipt of the benefit.

Answer 26

Nonqualified plan

Question 27

What is a “top hat“ plan?

Answer 27

A nonqualified plan limited to participation by executives or senior management team.

ERISA refers to this type of arrangement as a TOPHAT plan which is not permitted for qualified plan eligibility

Question 28

What are the advantages of a nonqualified plan?

Answer 28

Discrimination is allowed. This restriction would allow the plan to be made available to a small number of employees, or even limited to just a single employee.

There are unlimited benefits. Subject to the reasonable compensation requirement for deductibility.

They are customizable and versatile. The employer may provide different benefit amounts for different employees based on different terms and conditions.

There are minimal regulatory requirements

Taxes may be deferred by employees. The employers deduction is also deferred. 

Question 29

Timely re-characterizations are not allowed for what type of retirement accounts?

Answer 29

Timely re-characterizations are not allowed for Roth IRA conversion contributions. An investor may no longer recharacterize a Roth conversion to reverse a conversion contribution. A strategy that is attractive if the Roth IRA balance drops shortly after being converted from a traditional IRA.

Question 30

What is a 10B5–1 plan

Answer 30

Rule 10b 5-1 allows insiders to sell company stock by setting up a predetermined plan that specifies, in advance, the share price, amount and transaction date.

10 B 5–1 plans are insider trading plans, establish by the SEC exchange act rule.

This rule provides an affirmative defense for corporate insiders and companies to buy and sell company stock as long as they adopt their trading plans in good faith before becoming aware of much material non-public information.

Question 31

What security and exchange act states that any profits made by an insider from transactions involving a purchase and sale of company stock within a six month. Must be returned to the company.

Answer 31

Section 16 A, known as the short swing trading violation

Regardless of how long the shares being sold have been held, or whether the executive inside possessed material, non-public information. The amount of profit earned will be calculated by the method producing the highest recovery for the company: the highest sale price will be match with the lowest purchase price in the.

Question 32

This type of qualified retirement plan is treated as a defined contribution plan, and that the benefits are based on separate participant accounts. It is treated as a defined benefit plan with respect to the remaining portion of plan benefits. This type of plan includes a definitely determinable employee retirement benefit for when the employer retires.

Answer 32

Hybrid plan 

Question 33

What is a type of unfunded nonqualified plan that is subject to the claims of the employers general creditors, but the employer is barred from accessing the participants funds?

Answer 33

Rabbi trust.

Unlike a traditional unfunded plan, like a secular trust, the employer is barred from assessing participant funds in a rabbi trust. 

Question 34

What is the “designation date” for IRA death distributions

Answer 34

It’s the date IRA beneficiaries are determined.

September 30 of the year following death of the IRA owner.

Non “Designated Beneficiaries” should be removed before than

Question 35

If a qualified retirement plan participant dies at age 60 without a designated beneficiary, distributions must be made…

Answer 35

Under the five-year rule

Question 36

What are the stretch IRA rules?

Answer 36

• can be used with any traditional or Roth IRA
• Roth IRA‘s must be held for five years, distributions are tax-free a death
• some qualify plans allow stretch option
• You can select primary and contingent beneficiaries
• Can choose a designated revocable or irrevocable trust as beneficiary, but revocable trust must be irrevocable at death
• Can have one IRA with multiple beneficiaries and split the IRA after death

Question 37

What are exceptions to 10% penalty rule for early withdrawals from both qualified retirement plans, and IRAs?

Answer 37

Unreimbursed medical expenses

72t Series of substantially equal payments

Death or disability

Qualify education expenses are allowed without penalty from IRA distributions only not QRP‘s. Age 55 separations of service is only for QRPs.

Question 38

What are the distribution requirements for qualified retirement plans?

Answer 38

Age 65 and termination of employer service?

Question 39

What are exceptions to the 10 year stretch IRA distribution secure act rules?

Answer 39

Spouse, disabled, or chronically ill, no more than 10 years, younger than account, owner, or minor child.

Question 40

Inherited IRAs are not exempt from bankruptcy proceedings

Question 41

Why would a surviving spouse establish an IRA to roll over a deceased spouse qualified plan or IRA benefits?

Answer 41

Extended period of time for minimum required distributions

Replace deceased spouse contingent beneficiaries

Find a better IRA sponsor

Delay the required beginning date for RMD‘s

Question 42

For a surviving spouse to qualify for rolling over an inherited retirement account to their own individual, IRA they must be directly named. A bypass trust for the spouses benefit does not qualify, even if deemed a “See-through“ trust.

Question 43

How long can a spouse leave an inherited IRA in the name of the deceased spouse?

Answer 43

Indefinitely. The surviving spouse also doesn’t need to start taking post death RMD’s until the year of the original decedent would have reach age 73.

Also, a spouse younger than age 59 1/2 would not receive the 10% penalty from an inherited IRA that has yet to be rolled over.

This is also beneficial for and older surviving spouse, who can then take RMD’s based on the deceased, spouse, life expectancy, rather than their own. Which would result in a more favorable stretch.

Question 44

Is it more favorable to roll over an inherited IRA rather than leaving it for stretch purposes?

Answer 44

Because a spousal roll over uses the uniform life table based on joint life, expectancies of an irate owner and a beneficiary who is 10 years younger instead of an inherited IRA single life expectancy table. It will virtually always be more favorable to roll over the inherited IRA account, rather than leave it as an inherited IRA for stretch purposes.

Question 45

If an inherited retirement account is left in the name of the decedent, and not rolled over any money, withdrawn from the inherited account would be…

Answer 45

NOT subject to the 10% early withdrawal penalty. Distributions after death of original owner is an exception to the early withdrawal penalty.

Question 46

Can the IRA payout. Under the minimum distribution rules be extended by a QLAC qualified longevity, annuity, contract?

Answer 46

Yes.

QLACs are deferred annuities that can be purchased with a lump sum from the IRA and Payments can be delayed until the tax payer is 85 years old

The amount used to purchase the QLAC reduces the amount of the retirees RMD

QLACS limitations typically may not exceed a dollar amount of $125,000 and a percentage limitation of 25% of the participants account balance.

Question 47

A qualified retirement plan must provide that the payment of benefits under the plan will begin no later than the 60th day after:

Answer 47

The participant retains the age 65 or normal retirement age specified in the plan

The participant marks, the 10th anniversary of enrollment in the plan

The participant terminate service with the employer