Retirement Planning Flashcards
(17 cards)
Defined Contribution Plans
Only DC plans have participant directed accounts
$69,000 combined limit is per employer
Must be 3 year cliff or 2-6 year vested
Maximum compensation considered is $345,000
Maximum deductible by corporation is 25% of covered payroll
Tend to favor younger participants with more years to accumulate higher balances
Profit Sharing Plan
Flexible contributions must be substantial and recurring
Can be nothing in any given year, does not depend on profit of company
Typically allows in service withdrawals and loans
Only plan that may be 100% employer stock
“Age weighted” plan can skew higher contributions for older participants
401k plan
AKA CODA - Cash or Deferred Arrangement
Catch up contributions are not included in $69,000 limit
Plans often let participants withdrawal for hardship and loan
Must have at least 3 diversification options
EE deferrals are aggregated across plans
401k Loan
Max loan - lesser of vested balance or $50,000
Loan is charged interest
Repaid loans within 12 months are also included in eligible amount
Max loan is 5 years for primary residence
Default or separation from service is considered a distribution
Money Purchase Pension Plan
DC plan
Mandatory annual employer contributions
EE contributions not allowed
Default payout is QJSA unless spouse waives
Employer wants a plan that is easy for participants to understand with guaranteed contributions
Employees bear investment risk
Census has younger participants
Target Benefit Pension Plan
Requires annual ER contributions
EE not able to contribute
Actuarial work is only required up front, not annually
Contributions can skew high to older participants
Defined Benefit Plans
DB Plans guarantee final benefit
Max annual pension - $245,000
Max compensation covered in formula - $345,000
Must vest at least as generously 5 year cliff or 3-7 year graded
Must have joint and survivor payout unless waived
ER bears investment risk
No max deductible ER contribution
Annual actuarial work required
Must satisfy 50/40 rule
Skews to older participants
Traditional DB Pension Plan
Plan guarantees final monthly payment
Good for older / key employees
Company must be established and profitable
Expensive to administer
Cash Balance Pension Plan
Guarantees cash balance at retirement - participant can convert to monthly pension
Hypothetical accounts for record keeping only
Pay credit plan contribution based on % of compensation
Interest credit - earnings
Easier to understand than traditional DB
403B (TSA)
Special catch up - After 15 years of service with same employer, can defer an additional $3,000 / year
Amounts aggregated with other plan for applying annual maximums
Limited investment choices of Mutual Funds or Annuities
457b
Special catch up - during last 3 years of service, can use unused deferrals from past service. Can be up to double the annual max - $46,000
50+ catch up can not be used in the same year as special catch up
No 10% penalty for distributions prior to 59.5
Not aggregated with other plans for annual maximums
Not considered active participant for IRA contributions
SE Tax
Total - 15.3%
EE - 7.65%
SS 6.2% up to $168,000
Medicare - $1.45%
ER - 7.65%
SS 6.2% up to $168,000
Medicare - $1.45%
One half of SE tax is an adjustment to income deduction on Schedule 1 in calculating “for AGI”
SE Tax Calculation
Net Earnings * .9235
Take this number * 15.3%
For earnings about $168,600, only 2.9% Medicare is used
Inherited IRA
Age of majority is 21
Eligible designated beneficiaries: spouse, minor child of decedent, chronically ill, other benes not more than 10 years younger
SIMPLE IRA
Penalty of 25% if distribution happens within 2 years of opening plan
Exceptions to 10% penalty - Qualified plan
medical expenses > 7.5%
After reaching age 59.5
Death
Total and permanent disability
Substantially equal payments
Employee separates from service during or after the year the employee turns 55
Exceptions to 10% penalty - IRA
medical expenses > 7.5%
Qualified higher ed expenses
after reaching 59.5
death
Permanent and total disability
Health insurance premiums paid while unemployed
substantially equal payments
First time home buyers, up to $10,000
