CFP - Capstone - Retirement Planning

In a Rabbi Trust (Nonqualified Deferred Compensation), the participant has the same rights as? A.A secured creditor. B.An unsecured creditor. C.Any other employee. D.Any other officer of the company.

B.An unsecured creditor. The participant must not have greater rights than unsecured creditors.

The one-time election out of substantially equal payments allows a participant to switch from? A.Annuity to amortization method. B.Annuity to RMD method. C.Amortization to annuity method. D.RMD to amortization method.

B.Annuity to RMD method. The one-time election allows participants to switch from the annuity to RMD method.

Which type of retirement plans require QJSA (Qualified Joint and Survivor Annuity) for the plan participant spouse? A.Qualified Plans. B.Define Benefit Plans. C.Define Contribution Plans. D.Qualified Pension Plans.

D.Qualified Pension Plans. Qualified pension plans are DB, cash balance, money purchase, and target benefit plans.

Mrs. Smart, age 63, is taking early Social Security benefits of $1,200 per month. She continues to work part-time making $1,000 per month. How much will her Social Security benefits be reduced? A.$0 B.$200 C.$1,000 D.$1,200

A.$0 Her earnings (12000 per year) are less than the threshold. Her benefits will not be reduced. How much money can I make before my Social Security benefits are reduced? If you're younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. If you're younger than full retirement age during all of 2024, we must deduct $1 from your benefits for each $2 you earn above $22,320.

Jack works for ABC, Inc. If ABC defined benefits plan provides for a life annuity equal to 1.5% of earnings per year up to 30 years of service, how much will Jack get with an average annual compensation of $100,000 received as an annual pension after 20 years? A.$30,000 B.$45,000 C.$46,000 D.$100,000

A.$30,000 1.5% x 20 years = 30% $100,000 x 30% = $30,000

Mr. and Mrs. Tea now have $1,000,000 in retirement savings. If they can earn an average of 7.5% on the account, what kind of income can they expect at the beginning of each year if they retire now and completely use up 100% of income and principal over the next 25 years? A.$83,452 ± $1 B.$89,710 ± $1 C.$163,979 ±$1 D.$13,684 ± $1

A.$83,452 ± $1 Solve for payment (begin) $1,000,000 +_ PV 7.5i 25N

What is the permitted disparity with an integrated money purchase plan if the based contribution is 5%? A.5% B.5.7% C.10% D.11.4%

A.5% It is the lesser of the base (5%) or 5.7. The excess is 10%

Which of the following entities may not sponsor a 457 program? A.A church B.A private school C.A state college D.A governmental employer E.A hospital

A.A church

Plan loans are allowed in which of the following type(s) of plans? I. Money Purchase II. 403(b) III. Profit Sharing IV. Target Benefit A.All of the Above B.I, III, IV C.I, IV D.II

A.All of the Above All qualified plans and 403(b)s can make plan loans.

In a target benefit plan, which provisions are shared with defined contribution plans? A.Forfeitures may be reallocated or used to reduce employer contributions. B.Plan generally benefits older employees. C.Actuary determines the initial contribution level. D.Employer assumes the investment risk.

A.Forfeitures may be reallocated or used to reduce employer contributions. Employee assumes the investment risk.

Put in order the ordering rules for distributions from a Roth that contains both contributory and conversion contributions? I. Converted amount II. Contributed amount III. Earnings on converted contributions and contributory contributions. A.II, I, III B.I, II, III C.III, II, I

A.II, I, III Contributions are first followed by conversion contributions.

SEP contributions are from? A.The employer only. B.The employer only (deferral). C.Both answers A and B.

A.The employer only.

What is UBTI? A.Unrelated Business Taxable Income. B.Universal Bonus Tax Incentive. C.United Business Taxable Income. D.Uniform Benefit Target Income.

A.Unrelated Business Taxable Income.

Mark Johnson is self-employed. He has a Keogh money purchase plan. He will be turning 73 in June of this year. He plans to continue to work until age 75. Can he continue to contribute to the plan after age 73? A.Yes B.No

A.Yes He has to take distributions because he is more than a 5% owner, but he can continue to contribute to the plan.

With a Roth 401(k) contributions are held in two separate accounts: employee contributions and employer contributions. Are minimum distributions required when the account holder reaches the required beginning date? A.Yes, from both accounts. B.Yes, but only from the employee Roth 401(k) account. C.Yes, but only from the employer Roth 401(k) account. D.No

A.Yes, from both accounts. Yes both separate accounts require minimum distributions when the account holder reaches RMD. This is unlike Roth IRA which does not require minimum distribution.

Under a profit-sharing plan the minimum funding is? A.3% (DC plan) B.15% C.25% D.Substantial and Recurring

D.Substantial and Recurring The employer's contributions to each plan year can be a purely discretionary amount or nothing at all. But a profit-sharing plan is subjuect to a "substantial and recurring" requirement.

Carol, age 65, is a HCE. She has received salaries of $150,000, $175,000, and $200,000 for the last three years. What will be Carol's maximum benefit under a defined benefit plan if she retires at the end of this year? A.Unknown, she will get her account balance. B.$175,000 C.$265,000 D.1.5% times years of service times $265,000

B.$175,000 100% of the average compensation over the past three years. The maximum benefit is in answers C and D but does not apply.

Sherry Patts will be 73 on June 30th. Her IRA has a value of $477,000 at the beginning of this year. If she only takes a $9,000 distribution by April 1st of next year (for this year), what will be the amount of her penalty based on the uniform table distribution period of 26.5? A.$0 B.$2,250 C.$9,000 D.$18,000

B.$2,250 477,000/26.5=18000 18000-9000=9000 shortfall so 2250 penalty. The penalty is 25% on the amount by which a distribution in a given year falls short of of the minimum required distribution.

Tom and Sally Johnson plan to retire in 20 years. They feel they need $80,000 at the beginning of each year in income in today's dollars. They feel they can make 7% after tax on their investments and inflation will be 3%. What is the lump sum needed at the beginning of retirement if they expect to live 25 years after retiring? A.$2,291,599 ± $10 B.$2,374,004 ± $10 C.$2,380,594 ± $10 D.$2,389,394 ± $10

B.$2,374,004 ± $10

What is pension max? A.Getting the maximum dollars out of the client's pension each month. B.Electing a single life annuity and using part of the higher monthly benefit to purchase life insurance on the employee's life. C.Electing a joint life annuity and using part of the higher monthly benefits to purchase life insurance on the spouse's life. D.Planning to lengthen the number of years in retirement.

B.Electing a single life annuity and using part of the higher monthly benefit to purchase life insurance on the employee's life. Per definition in lesson#1. Getting the maximum payment out of the plan without leaving your spouse with anything from the pension.

A QDRO (Qualified Domestic Relations Order) applies to which type of retirement plan? I. Qualified plans like defined benefit. II. Retirement plans like SIMPLES A.I B.II C.Both I and II D.Neither I nor II

B.II QDROs apply to qualified plans only. IRA type plans are not subject to QDRO.

Kyle Adamson receives 1,000 ISOs to purchase AAA Corporation stock at $50 per share. Within two years of the grant dates, he exercises them when the stock is $100 per share. No AMT is due. Several years later, he sells 1,000 shares of AAA for $200 per share. Which of the following are true? There was a taxable event on the grant of the options of $50,000. He will have a long-term capital gain of $150,000 when he sells the stock. The bargain element (an AMT preference item) is $50 per share. He will have a long-term capital gain of $200,000 when he sells the stock. A.I B.II, III C.III, IV D.IV

B.II, III The gain (long term) at the time of sale is $150 (200-50). The bargain element is $50 (100-50)

Mr. Jackson, age 65, is retired and has an AGI of $50,000. Can he do a deductible or a non-deductible IRA? A.Yes, a non-deductible only B.No C.Yes, both a deductible and non-deductible IRA D.No, he can only do a Roth IRA

B.No There is no indication he receives any compensation. AGI in this case is only unearned income.

Matt Baker is age 69. His wife, Beth, is age 63. If he dies, what is her best option for his IRA if she wants to delay his distributions as long as possible? A.Keep the assets in his IRA and take distributions when Matt would have reached 72. B.Rollover his IRA into her IRA and take distributions based on her own required beginning date. C.Disclaim the proceeds. D.Fully deplete the IRA within ten years of Matt's death.

B.Rollover his IRA into her IRA and take distributions based on her own required beginning date. Beth is younger than Matt. She can delay his distributions until she turns 72.

In a defined benefit plan, which factor does not affect the amount of employer contributions? A.Participant's proximity to retirement age B.Forfeiture C.Salaries of key employees that exceed the salary cap D.Investment return assumptions

C.Salaries of key employees that exceed the salary cap Salaries above the salary cap have no effect.

Which of the following is considered a slower vesting schedule? A.1-year cliff B.3-year cliff C.5-year cliff D.2 to 6-year graded

C.5-year cliff 5-year cliff and 3 to 7-year graded are considered slower vesting schedules. A one-year cliff isn't a vesting scheduled; it is one year of eligibility.

Using the ratio percentage test (70%), if the plan covers only 50% of the HCEs, then up to _______ of the NHCEs could be excluded. A.35% B.50% C.65% D.70%

C.65% 50% x 70% = 35% 35% must be covered. 65% can be excluded.

Who is eligible for the lump-sum death benefit under Social Security? A.A dependent mother. B.A son or daughter. C.A spouse who was living in the same household. D.A dependent family member.

C.A spouse who was living in the same household. And the dependent child.

Railroad employees can be covered by all the following except? A.Medicare A and B after retirement. B.Group health insurance before retirement. C.Social Security D.Railroad Retirement pension plan.

C.Social Security They are excluded form socurity coverage.

Spouses qualify for Social Security in various ways. Which of the following spouses will not quality for Social Security payments? A.A surviving spouse of a deceased insured worker is age 61. B.A surviving spouse of a deceased worker is caring for an entitled child of the deceased who was disabled before age 22. C.A divorced spouse, age 62, who had been married to the insured worker for at least 10 years and has never been remarried. D.A spouse of a retired worker age 60.

D.A spouse of a retired worker age 60. A spoue of a retired worker has to be age 62 or over. Answer A is correct; the spouse could have qualified at age 60.

How many quarters of coverage are needed for a person to be fully insured under Social Security? A.NRA (Normal Retirement Age) B.6 C.65+ D.40 E.It depends on whether they are married or not.

D.40

Using ADP/ ACP testing if the ADP for the NHCEs employees for last year was 5%, then the ADP for the HCEs can be as high as? A.2% B.3% C.5% D.7%

D.7% The shorthand method is NHCE percentage plus 2%

Which of the following entities may not sponsor a 403(b) program? A.A church B.A private school C.A state college D.A governmental employer E.A hospital

D.A governmental employer A tax-exempt organization must be a 501(c)(3). Governmental do not qualify.

All the following are a type of retirement plan except? A.Money purchase B.403(b) C.ESOP D.FSA 125 plan

D.FSA 125 plan FSA are employee deferred plans for employee benefits not retirement.

A solo 401(k) will allow which of the following contributions? I. Elective deferrals II. Employer contributions III. Forfeitures IV. Catch-up (age 50 or older) A.All of the Above B.I, IV C.II, III D.I, II, IV E.I

D.I, II, IV There are no forfeitures in a solo 401k. The other contributions are allowed.