Retirement Planning Flashcards

Question

What Is Net Unrealized Appreciation?

Answer 1

Net unrealized appreciation (NUA) is the difference between the original cost basis and current market value of shares of employer stock. The IRS offers a provision that allows for a more favorable capital gains tax rate on the NUA of employer stock upon distribution, after certain qualifying events. The downside is that ordinary income tax must be paid immediately on the cost basis of the shares of employer stock.

Answer 2

Non qualified; Government (Public), Tax Exempt Entities (Private) *Not integrated with other salary deferral plans, can max out one of those PLUS 457(b) Loans permitted on public 457(b), but not private A Public 457(b) Plan participant is NOT subject to a 10% penalty for withdrawals prior to age 59½ when the participant retires, or upon termination of employment. All withdrawals are taxable as ordinary income

Answer 3

Non qualified; Public Schools, co-op hospitals, nonprofit, tax-exempt, ministers

Answer 4

an employer-sponsored retirement, savings or deferred compensation plan for certain employees that does not meet the tax and ERISA requirements for qualified plans *For those who do not receive an adequate wage replacement ratio (WRR) from qualified plan caps (305k, 245k)

Answer 5

is an employer retirement, savings or salary deferral arrangement for key executives that does not meet the tax and ERISA requirements for qualified plans

Answer 6

Salary Reduction Plans Death Benefit Only Plans Excess Benefit and Excess Contribution Plans Supplemental Executive Retirement Plans (SERPs)

Answer 7

Death benefits are taxed as ordinary income, Death benefit not included in decedent’s estate, The sponsor’s tax deduction for the plan is deferred

Answer 8

insurance policy (life or disability) paid by employer on key employee

Answer 9

is another form of a deferred compensation plan for key executives SERPs are often used to recruit and retain key executive talent ABC Corp. is anxious to hire John as the new CFO. He is offered a SERP that provides an annual retirement benefit of $500,000 to be offset by his retirement income from other sources. At retirement, John receives $200,000 from other sources. As his total retirement income will be $500,000, the remaining $300,000 will come from the SERP.

Answer 10

Imagine you have a birthday party and your friends gave you presents, but you didn't open them yet, so you didn't really receive them yet. But your friends already gave them to you, so it's like you already got them. That's how constructive receipt doctrine works in taxes. We can generally avoid constructive receipt if the funds are subject to a “substantial risk of forfeiture.” A substantial risk of forfeiture exists if the employee’s rights are contingent on continued service with the employer until retirement

Answer 11

It's like if your parents give you an allowance, and they put it in a piggy bank for you. Even though you haven't taken the money out of the piggy bank yet, you can use it to buy things you want. So it's like you already have the money. That's how the economic benefit doctrine works in taxes.

Answer 12

They can provide for deferral of taxation until the benefit is received They CAN NOT provide for fully secured benefit promises They CAN NOT give an employer an immediate tax deduction and an employee a deferral of tax

Answer 13

the plan allows participants to choose from an available menu of benefits

Answer 14

a multi-employer welfare benefit trust that is used for funding employee benefits with favorable income tax results must include at least 10 separate sponsors The level of annual contributions to a VEBA in order to fund benefits is determined actuarially

Answer 15

the cost of the first $50,000 of life insurance is income tax-free to the employee. At least 70% of all employees must be covered No more than 15% of the participation is by key employees The coverage is part of a cafeteria plan

Answer 16

a type of employer-sponsored health care plan that reimburses employees for out-of-pocket qualified medical expenses Employees may not defer compensation into an HRA; only the employer may contribute, Employer contributions are excluded from the employee’s total gross income, The employer determines the plan terms and conditions, such as maximum amount of out-of-pocket medical expenses that will be reimbursed per year, and There is no custodian or trustee; the employer administers the HRA

Answer 17

Elimination Period (6-12 Months) Benefits may be taxable to employee / excludable from income / deductible for the employer If employee pays 100% premiums, the benefits are tax-free If employer pays 100%, benefits are taxable to employee If split, it's a ratio

Answer 18

Elimination Period (6-12 Months) Benefits may be taxable to employee / excludable from income / deductible for the employer If employee pays 100% premiums, the benefits are tax-free If employer pays 100%, benefits are taxable to employee If split, it's a ratio

Answer 19

The typical initial benefit term is 26 weeks The maximum and minimum amount of weekly unemployment benefits vary by state but are related to the worker’s previous earnings Benefits are generally includable in the individual’s taxable income FILE FOR UNEMPLOYMENT FIRST THING

Answer 20

Payments from the employer are deductible as employee compensation and are generally non-taxable to the employee. Services must be solely for dependent care the dependent care plan can be funded using employee salary reductions under a Flexible Spending Account (FSA) Employees can exclude up to $5,000 (2022, not indexed)

Answer 21

pays or reimburses employees for expenses incurred in educational programs that are intended to improve job-related skills Education assistance may not be provided as part of a cafeteria plan Benefits are deductible by the employer ($5,250 per year) must not discriminate in favor of HCEs no more than 5% of the total amount paid annually by the employer under the plan may be provided for employees who are shareholders or owners of at least 5% of the business

Answer 22

pays for or reimburses employees for qualified adoption expenses incurred in connection with the adoption of a child YR 2022 AMOUNT $14,890 PHASEOUT RANGE $223,410 - $263,410 An eligible child must be: Under age 18, or Physically or mentally incapable of caring for himself or herself Qualified adoption expenses include: Reasonable and necessary adoption fees Court costs Attorney fees Traveling expenses while away from home Other expenses directly related to the legal adoption of a child

Answer 23

“non-qualified” because they offer limited tax benefits. They are essentially a form of deferred compensation The price paid by the executive for the shares plus ordinary income recognized becomes the cost basis. Capital gains treatment is available if the stock is held for the requisite period and sold at a gain over the cost basis (otherwise it is ordinary income)

Answer 24

No more than $100,000 of ISOs can vest per person per year; any amount beyond $100,000 becomes non-qualified The term of the option may not exceed 10 years and the employer’s Board of Directors must authorize the ISO ISOs have tax benefits that include the deferral of gain at exercise date and the conversion of ordinary income into capital gains To receive their special tax treatment (Long Term Capital Gains), the shares may not be disposed of within two years of the date of grant or one year after the option is exercised

Answer 25

A SAR gives an employee the right to be paid additional compensation equal to the appreciation in the employer’s stock. Be aware that no stock actually changes hands

Answer 26

are non-qualified, employer-sponsored benefit plans designed to provide the advantages of restricted stock plans to all employees Employees pay no taxes until the stock is sold at a gain Sold <2 years, ordinary income, if longer, capital gains (long-term)

Answer 27

any compensation or other benefit received by an employee that is not in the form of cash

Answer 28

parachute payments, are payable in the event of an actual takeover or merger resulting in the executive’s loss of employment Parachute payments are generally deductible by the employer and taxed as compensation income to the executive without penalty

Answer 29

20% excise tax paid by the executive

Answer 30

6.2% up to $147,000 (OASDI) - DOUBLE if Self-Employed 1.45% Medicare -- DOUBLE if Self-Employed 0.9% Additional Medicare (Above 200/250) 3.8% Net Investment Income Medicare

Answer 31

67, Early is 62; Special treatment if pushed to age 70

Answer 32

US Treasury Dept, NOT FICA

Answer 33

Unable to perform "substantial work" for at least one year, monthly benefit for 2022 is $1350 (more if blind)

Answer 34

1.65% FICA

Answer 35

Primary Insurance Amount; the retirement benefit that the worker would receive if the worker retires at full retirement age

Answer 36

Average Indexed Monthly Earnings Calculated during the 35 years in which the applicant earned the most

Answer 37

5/9 of 1% for the first 36 months, 5/12 of 1% for each month additional May begin at age 62, even though full benefits would be age 67

Answer 38

increased benefit; but should consider what COLA (cost of living adjustments) are made

Answer 39

Anyone 65 & older, disabled/ permanent kidney failure at any age Individuals 65 & older and receiving Social Security are automatically qualified Individuals receiving disability benefits for at least two years also automatically qualify

Answer 40

A - Hospital Insurance, Hospice, Nursing Home B - Physicians (optional) must pay premiums -optional- Part D - Prescription Drug Coverage

Answer 41

C - Hospital, Hospice, Nursing Home, Physicians -optional- Part D- Prescription Drug Coverage *must also be enrolled in Medicare A&B

Answer 42

Hospital - 150 Days Maximum 1-60 is a 'benefit period deductible' of $1556 61-90 is per diem coinsurance of $389 91-150 is 'lifetime reserve' coinsurance of $778 per day & loss of lifetime reserve days (must be kept up with)

Answer 43

Skilled Nursing- 100 Days Maximum 1-20 $0 coinsurance 21-100 $194.50 coinsurance per day

Answer 44

Initial: 3 months before, the month of, or 3 months after your 65th birthday (7 months) Open Enrollment: Oct 15 - Dec 7 annually Jan 1 - March 31 (later = higher premiums, coverage begins July 1)

Answer 45

Policies that provide gap coverage until Medicare coverage begins; also can provide coverage in gaps associated with copays and deductibles

Answer 46

assures monthly income for needy elderly, disabled or blind persons; financed by general tax revenues (Treasury)

Answer 47

Special rule to prevent overpaying of SS benefits to those who did not pay into the system (pension that did not have OASI taxes)

Answer 48

Reduction of benefits based on another pension received

Answer 49

Overview: provides health-related services for impoverished Americans Benefits: Hospital, Physician, Transportation, other optional are prescription, dental Funding Source: Jointly funded by state and federal governments Eligibility: varies from state to state; low-income and (65+, blind, permanent disability, pregnant, child or caretaker of a child) * Note that a look-back period of 5 years (60 mo) will occur to make sure there has been no significant transfer of assets

Answer 50

provides benefits to persons on beneficiaries with special needs; Not considered for purposes of Medicaid eligibility (exempt asset) Structured to provide benefits that other governmental assistance will NOT provide (medical treatment, therapy, education, travel)

Answer 51

The spouse can receive a maximum of 50% of the worker’s PIA at the spouse’s NRA and will receive less if spousal benefits are taken before NRA

Answer 52

The spouse of the worker is entitled to spousal benefits at any age if caring for an eligible child (Unmarried, and Under age 16, or Any age, if disabled before age 22)

Answer 53

permanently reduced benefit

Answer 54

Currently Insured: You must have earned from 6 to 20 credits in recent employment; the exact requirements vary by age. The IRS refers to this test as the “Recent Work” test. Fully Insured: You must have earned a minimum of 6 to 40 credits during your working career; the exact requirements vary by age. The IRS refers to this test as the “Duration of Work’” test.

Answer 55

Survivor benefits can be paid to the dependents of a deceased worker who is either fully insured or currently insured (value equivalent to roughly 350,000 in private life insurance)

Retirement Planning Flashcards

(81 cards)