Retirement Savings / Income Planning

Question 1

“Traditional” Rollover

not something that happens often

Answer 1

• Only one allowed a year
• 60 days to deposit funds into an IRA or different employer plan
• 20% federal tax withholding by the employer. When the amount is deposited it is given back. If it is not deposited within 60 days, it is considered a distribution and subject to 10% penalty.

Question 2

Direct Transfer Rollover

The rollover that happens today

Answer 2

• No annual limit to number of transfers
• Transfers happen directly between institutions. Participent does not take possession of funds.

Question 3

When can you rollover a Simple IRA

Answer 3

After two years… unless going directly to another Simple IRA.

Question 4

Inherited IRA - Spouse as Beneficiary

Answer 4

• Can be either Traditional IRA or Inherited IRA.
• Can combine with current IRA.
• If taken as Inherited IRA, they can take income for lifetime.

Question 5

Inherited IRA - Non-Spouse Beneficiary

Answer 5

10 Year Rule

If the account was already in RMD status when inherited, it requires annual RMD’s and must be drained by the start of year 10.

Question 6

Eligible Designated Beneficiary

For Inherited IRA

Answer 6

Can take distributions over life of beneficiary, except for minors

Question 7

Who are Eligible Designated Beneficiaries?

Answer 7

• Spouse
• Chonically Ill Bene
• Disabled Bene
• Minor Children (under age 21)
• Beneficiaries NOT more than 10 years younger than the IRA owner

Once minor child comes of age, they are no longer eligible and the 10 year rule applies

Question 8

(Non-Eligible) Designated Beneficiary

Ten Year Rule Generally Applies

Answer 8

• Non-Spouse Beneficiary
• See-Through Trusts
• Successor Beneficiaries

Question 9

Non-Designated Beneficiaries

FIVE YEAR RULE APPLIES

Answer 9

• Estate
• Charities
• Trust not qualifying as a designated beneficiary

Question 10

Early Withdrawal Exceptions
(Qualified Plans)

Will NOT incur a 10% early withdrawal penalty

Answer 10

• Medical Expenses (unreimbursed med exp up to 7.5% AGI) - Yes
• Education Exp (qualified higher education exp) - No
• Disability (total & permanent disabitlity) - Yes
• Health Insurance (paid while unemployed) - No
• SSEP - Yes
• First Time Home Buyers Credit -** No**
• Separation From Service (during or after the year they turn 55) - Yes

Question 11

Early Withdrawal Exceptions
(Traditional, Roth, SEP, Simple IRA)

Will NOT incur a 10% early withdrawal penalty

Answer 11

• Medical Expenses (unreimbursed med exp up to 7.5% AGI) - Yes
• Education Exp (qualified higher education exp) - Yes
• Disability (total & permanent disabitlity) - Yes
• Health Insurance (paid while unemployed) - Yes
• SSEP - Yes
• First Time Home Buyers Credit - Yes
• Separation From Service (during or after the year they turn 55) - No

Question 12

Qualified Roth IRA Distributions

Answer 12

• Must be made after the five year period.. AND
• The distribution must occur in relation to one of the following circumstances…
  1. Acct owners death
  2. Acct owners disability
  3. First time home purchase (lifetime, 10k max)
  4. Made on or after age 59 1/2

Question 13

Non-Qualified Roth IRA Distributions

Answer 13

• Acct Earnings - Subject to regular income tax and 10% penalty
• Roth Conversion Contribution - No income tax, Distributions within 5 years of conversion = 10% penalty
• Regular Roth Contribution Amt - No income tax or penalty

Question 14

Nonqualified Deferred Compensation

Answer 14

These plans are used to provide retirement benefits to top executives. (top hat plan, excess benefits plan or supplemental executive retirement plan (SERP))

Question 15

Excess Benefit Plan

Answer 15

Mirrors a qualified plan benefit formula but is not subject to fund or benefit amount limits

Question 16

SERP

Answer 16

Promises to pay an executive additional compensation for achieving certain goals.

Can select which executives are included.

Merely a promise to pay, there is no formal funding.

Substantial Risk of forfeiture.

Occasionally informally funded using cash value life insurance policies

Question 17

Rabbi Trust

Answer 17

Provide security to the executive for the payment of the unfunded promise of nonqualified deferred compensation benefits.

Question 18

Choice between a Qualified Plan and a Non-Qualified Plan can be determined by the employers ranking three common elements…

Answer 18

1. Currently Deductible Employer Plan Contributions
2. Benefits not currently taxable to the employee
3. Employer can limit participation to select individuals

• If Employer chooses options 1 & 2 = Tax Qualified Plan Tax - Advantaged Plan
• If employer chooses options 1 & 3 = Non-Qualified Section 162 Bonus Plan
• If Employer chooses 2 & 3 = Non-Qualified Deferred Compensation Plan

Question 19

Non-Qualified Stock Options (NQSOs)

Answer 19

Provides a right to purchase chase of company stock at a stated price that is the option price for a given period.

Question 20

NQSOs Tax Consequences

Answer 20

• Difference between Strike Price/Exercise Price and FMV at Exercise = Taxed at Compensation Income
• Difference between FMV at Exercise & FMV at Sale = Taxed at either STCG or LTCG

Question 21

Incentive Stock Options (ISOs)

Answer 21

a tax favored plan for compensating executives by granting options to buy company stock at specific prices.

Question 22

ISOs Tax Consequences

Answer 22

• Difference between Strike Price/Exercise Price and FMV at Exercies = AMT (positive)
• Difference between FMV at Exercise and FMV at Sale = AMT Adjustment (negative)

If Qualifying Disposition then the gain from Strike price to FMV at sale is taxed at Capital Gains rates.

Question 23

What is a Qualifying Disposition for an ISO?

Answer 23

The sale occurs at least…
* Two Years from grant AND
* One Year from Exercise

If not, it is considered a DISQUALIFYING Disposition and is taxed like an NQSO

Question 24

Primary Insurance Amount (PIA)

Answer 24

The Social Security payment paid at full retirement age (FRA)

Uses highest 35 years of earnings

Question 25

Average Indexed Monthly Earnings (AIME)

Answer 25

Based on 35 best years of social security earnings. Used to calculate the Primary Insurance Amount (PIA) Wage base limit of 160k

Question 26

Social Security Benefits are increased 8% each year ONLY between...

Answer 26

the ages of 67 and 70 if you waited to take social security at age 67. ## Footnote They are called delayed retirement credits and they DO NOT apply beyond age 70.

Question 27

Decreased Social Security Benefit...

Answer 27

5/9% for each of the first 36 months prior to FRA (Max 20% reduction) PLUS 5/12% for each month over 36 months worker is claiming benefits prior to FRA up to 24 months. (Max 10% Reduction) ## Footnote Total Max Reduction is 30%! Remember, this applies to people taking social security earlier than age 67 which is FRA.

Question 28

Earned Income between age 62 and 67 and taking social security benefits...

Answer 28

$1 of social security benefits is withheld for ever $2 earned in excess of $21,240

Question 29

Claiming benefits while having earned income in the year FRA is attained...

Answer 29

$1 of Social Security Benefits is withheld for every $3 earned in excess of $56,520. THERE IS NO INCOME LIMIT AFTER ATTAINMENT OF FRA

Question 30

In the first year of claiming benefits, income earned prior to claiming benefits is not considered... However, a special "First Year" rule applies...

Answer 30

Benefits can be paid in any month in which the earned cinome is less than 1/12th of the applicable yearly limit.

Question 31

What is the maximum amount of a workers Social Security that could be taxed?

Answer 31

85%

Question 32

Provisional Income =

Answer 32

50% of Social Security Benefits + tax-exempt income + AGI (without social security) = provisional benefit MFJ: If Provisional Income is over 32k (50% taxable) if over 44k (85% taxable) Single: If Provisional Income is over 25k (50% taxable) if over 34k (85% taxable) MFS: All Provisional income is 85% taxable

Question 33

Elgibility for Social Security Spousal benefits...

Answer 33

Benefit amount: 50% of worker's PIA (MAX is 50% at spousal claimant FRA) If Divorced: Must have been married for at least 10 years and currently unmarried and at least age 62.

Question 34

Medicair Part A (Hospital Insurance)

Answer 34

* Covers inpatient hospital stays * Care in skilled nursing * hopsice care * home health care ## Footnote No Premiums... must be age 65 or older.

Question 35

Medicare Part B: (Medical, non-hospital)

Answer 35

Preventative Services Outpatient Care Medical Supplies Certain Dr. Services

Question 36

Medicare Part C: (Medicare Advantage/Medi-Gap)

Answer 36

Lower premiums than A & B An "all in one" alternative with bundled plans with A, B & D.

Question 37

Medicare Part D: (Prescription Drugs)

Answer 37

Prescription Drugs. Offered by private companies, approved by medicare.

Question 38

RMD's

Answer 38

First RMD is delayed to April 1st following the year after they turn 73. But need to take 2nd by end of that same year. ## Footnote 25% penalty if not taken Remember to divide end of year balance by RMD factor amount to determine RMD

Question 39

Qualified Charitable Distribution (QCD)

Answer 39

A non-taxable distribution from a Traditional IRA to an eligible charity. Must be at least 70 1/2 to do this At most $100,000 per taxpayer Entered on form 1040 ## Footnote Not an itemized deduction

Question 40

Qualified Plan Net Unrealized Appreciation (NUA)

Answer 40

If Qualified Plan account holds employer securites, special tax advantaged treatment is available. Stock Basis Taxed at Ordinary Income Rate + Gain taxed at LTCG Rates Subtracted from total balance = NUA

Question 41

Qualified Domestic Relations Order (QDROs)

Answer 41

A judgement, decree or order for a qualified retirement plan to pay child support, alimony or marital property rights to a former spouse or child. If QDRO 401k, may roll it over into a IRA. If not rolled over, it is taxed as ordinary income. Acct owner is not taxed on the distributions due on the order. QDRO payment to a child is taxed to the owner.

Question 42

Traditional Defined Benefit Pension Plan

Answer 42

Employers have a whatever it takes funding ability and creates the largest tax deduction for employers