(not mine) CFP Retirement Planning Final

SS Quarters of Coverage (Money per Quarter)

$1,320 = 1 Quarter

6 Categories of SS Benefit (Death Benefit)

$255 Lump Sum - Not indexed for Inflation

Eligibility for a SIMPLE (IRA)

$5,000 earned last 2 years. + expected to make $5,000 this year / NO age requirement

Fiduciary

- Exercises any discretionary authority or control over the management of a plan, or over the management or disposition of plan asserts - Renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan - Has any discretionary authority or discretionary responsibility in the administration of such plan. - ERISA defines fiduciary not in terms of formal title but rather in functional terms of control and authority over the plan

Medicare Part A - Hospital Cost

1. $1,340 Deductible 1st 60 days. $335 per day Coinsurance next 30 days. $670 High per day coinsurance next 60 days 2. Each benefit period end when patient out of hospital 60 consecutive days

Medicaid Eligibly

1. $2,000 Single. Or $3,000 Married of Countable Assets. 2. US Citizen or Permanent Resident Alien

The Penalty Tax

1. 15% of the amount involved, imposed each year until transaction corrected 2. An additional 100% tax is imposed if the transaction is not corrected within the required time period

403(b) Tax Deferred Annuities - Contribution Limits / Special Catch Up

1. 18,500 + $6,000 Catch Up 2. Special Catch Up for employees of health, education, and religious organizations - $3,000 per year during final 5 years of employment

SIMPLE 401k Plan

1. 401k plan that has adopted requirements for employer contributions of a SIMPLE 2. Employer can either (a) make dollar for dollar matching contributions on the first 3% of deferred salary or (b) make 2% non-elective contributions for all eligible employees 3. $12,500 plus $3,000 catch up for 50+ 4. Employer may not sponsor any other type qualified plan, Tax deferred annuity, or SEP

6 Categories of SS Benefit (Disability Benefit)

1. 5 month waiting period - 2. Disability must last longer than 1 year - 3. Unable to do any work for which he or she is suited

Prohibited Transaction (Fiduciary) (6)

1. A transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person 2. Any act of a fiduciary by which plan income or assets are used for his or her own interest 3. The receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets 4. The sale, exchange, or lease of property between a plan and a disqualified person 5. Lending money or extending credit between a plan and a disqualified person 6. Furnishing goods, services, or facilities between a plan and a disqualified person

Safe Harbor 401k

1. Adopts a Specific Design, Provides 100% vesting in return for exception from non discrimination testing 2. Employee contribution $18,500 3. Employer contributions either (a) 100% of 1st 3% and 50% next 2% of deferred salary or (b) 3% for all participating and non participating

Medicare Eligibility

1. Age 65 or older, eligible to SS Part A $0. Part B — Monthly Premium based on AGI 2. Those receiving SS benefit prior to age 65 automatically enrolled in Medicare Part A and B at 65

Premature. Distribution Check List - Exemptions

1. Are made to a beneficiary following death 2. Occurs following the disability of the participant 3. Are part of a series of substantially equal periodic payments 4. QDRO - Qualified Domestic Relations Order 5. Medical Expenses Over 10% AGI 6. Separation from service after age 55 7. 1st time home buyer - Less than or equal to $10,000 8. Higher education costs 9. Medical Insurance for unemployed

Cross Purchase Agreement

1. Buy Sell Agreement between respective owners not business entity 2. Each owner buys a policy on the other. 3. Calculation - n X (N-1) 4. Good if the goal is to achieve fairness 5. Bad if there is multiple owners 6. May be forced to adopt if a line of credit or outstanding loan needs to be paid

Entity Purchase Agreement

1. Buy Sell agreement where the (entity/ Corporation/ partnership) and the individual owners have a deal for the entity to purchase the policy on the owner and pay out the estate if need be 2. Good when multiple owners to have less policies 3. May be preferred if the owners individually are in higher income tax brackets than firm

Spend Down Strategies

1. Buying exempt Property (Car or Home) 2.Medicaid Qualified Annuity

Qualified Plans Cannot be assigned or garnished EXCEPT

1. Collect Federal Income Taxes 2. Participant may direct benefits to third party QDRO

Profit Sharing Plan

1. DC Plan 2. Profits not Required 3. Non discriminatory allocation of contributions - Compensation formula / Service Formula / Age-weighted 4. Employer contribution must be Substantial and recurring 5. Employer contributions up to 25% payroll looking at only 1st $275,000 6. No more than the lesser of $55,000 or 100% compensation to each participant account

Target Benefit Plan

1. DC Plan - Actuary Required 2. Age weighted Money Purchase Plan 3. Employer required to make contributions based on total compensation 4. Employee bares all investment risk 5. Employer deduct 25% payroll looking only at 1st $275,000 6. No more than the lesser of $55,000 or 100% compensation to each participant account.

Money Purchase Plan

1. DC Plan - NO Actuary 2. Mandatory contribution based on specific formula in plan 3. Employer deduct up to 25% payroll looking only at first $275,000 4. No more than lesser of $55,000 or 100% compensation to each participant account 5. Employee bares all investment risk 6. Ideal Client - Stable Cash Flow

Medicare Part B Costs

1. Doctor's visits / Home health care not covered by A 2. $183 Yearly deductible then 20% co-payment

Qualified Plans / FICA and FUTA Taxes

1. Employer contributions are not subject to FICA or FUTA 2. Employee contributions are subject to FICA and FUTA

Defined Benefit Plan

1. Employer promises to pay benefit at retirement 2. Employer bears all investment risk 3. Individual accounts not established 4. Funding Formulas (a)Flat Amount (b) Flat Percentage (c) Flat amount per year of service (d) Unit Benefit 5. Maximum Benefit - Lesser of $275,000 or 100% of average compensation highest 3 years

Withdraw Strategies

1. Flat Rate - Fixed Dollar amount for LifeTime 2. Inflation Adjusted - Annual withdraw changes with inflation 3. Performance based income - Withdraw based on performance of investments 4. Combination - Might take increase based on inflation if the portfolio performance was enough to cover it

Tax Rules for NSO's - At Grant / Exercise / Sale

1. Grant - No Tax 2. Exercise - Ordinary Income on amount Fair Market Value is greater than Exercise Price - Ordinary Income subject to FICA / FUTA 3. Sale - Capital Gain (Sales Price > Fair Market Value at Exercise

Tax Rules for ISO's - At Grant / Sale / Sale

1. Grant - No Tax / Exercise (Basis = Grant Price) 2. Sale - If shares are held at least 1 year after the option is exercised and at least 2 years after grant = Long Term Capital Gain 3. Sale - If the holding period is not met it will be taxed at ordinary income.

Actual Deferral Percentage Test (ADP)

1. If Non-HCE is 9% or greater - Times by 1.25 for HCE 2. If Non-HCE. Is between 3% and 8% - Add 2 for HCE 3. If Non-HCE is 2% or Less - Times by 2 for HCE

Medicaid Qualified Annuity

1. Irrevocable and non-assignable 2. Payments in equal amounts 3. State is the remainder beneficiary

Eligibility for a Qualified Plan

1. Later of 1 year of service or 21 years of age 2. 2 years of service 100% vested

Loans From Qualified Plans

1. Lesser of $50,000 or 50% of vested balance 2. Minimum loan amount $10,000 permitted even if this amount is more than 50% vested account balance 3. The loan can not exceed the participants vested account balance

Qualified Distribution - Roth IRA

1. Made until 5 years after Roth is created PLUS one of the following 2. 59 1/2 3. Death 4. Disability 5. 1st time home buyer up to $10k

Retirement Income Risks

1. Market Risk - Fear of market fluctuation 2. Inflation Risk - keep pace with inflation 3. Longevity Risk - Out living your money 4. Health Care Risk - high cost of become sick 5. Long Term Care Risk - Protect against disability / illness can be expensive 6. Point-in-Time Risk - Investment returns in first several years can have positive or negative impact of retirement success through lifetime

6 Categories of SS Benefit (Family Limitations)

1. Maximum Family Benefit = 1.5 to 1.88 PIA - 2. Reduction made on a pro-rate basis

Key Employees

1. Officer earning more than $170k 2. A 1% owner of the company making over $150k 3. More than a 5% owner of company

Highly Compensated Employee

1. Owns 5% or more of the company 2. Compensation is greater than $120k and in the top 20% of highest paid employees

Coverage Test

1. Percentage Test - Plan must benefit 70% of non-HCE's 2. Ratio Test - Percentage of Non-HCE must be at least 70% of the HCE's covered 3. Average Benefits Test - Average benefits provided to Non-HCE must be at least 70% of the average benefits provided to HCE

Disqualified Parties

1. Plan fiduciary 2. Any person providing services to the plan 3. An employer or employee organization 4. Owner of 50% more of the employer 5. Family member of 1-4

Stock Bonus Plan

1. Profit Sharing 2. S-Corp / ESOP but not Partnerships and self employed 3. Employer discretionary. Contributions in form of employer stock 4. Basis taxed as ordinary income and Distributions usually made in form of stock 5. Employer deduct up to 25% payroll looking only at 1st $275,000 6. No more than the lesser of $55,000 or 100% compensation to each participant account

401k Plan

1. Profit Sharing Plan 2. Employee Contributions vested 100% / Employer contribution vested 2 to 6 graded or 3 year cliff 3. Employee contribution Limit $18,500 + $6,000 for Employees that are 50 years of age and older 4.Employer can deduct 25% payroll looking only at 1st $275,000 5. No more than the lesser of $55,000 or 100% compensation to each participant

The 7 Exempt Transaction

1. Receiving benefits 2. Distributing assets 3. Making non discriminatory loans 4. Loans to an ESOP 5. Purchasing or selling employee securities 6. Providing or services to the plan for reasonable compensation 7. Providing qualified investment advice to plan participants and beneficiaries

Medicare Part A. - Nursing Home

1. Skilled Nursing Facility 2. No Deductible 1st 20 days 3. $168 per day coinsurance next 80 days 4. Zero thereafter

Eligible Transfers (Look Back)

1. Spouse 2. Child (Disabled or Blind) 3. In Trust ( ANY Person under 65 and disabled) 4. Transfer of Home to Child (<21) or child who lived in house for at least 2 years

Let considerations for Portfolio Reccomendations

1. Suitability 2. Time Horizon 3. Diversification 4. Tax Efficiency

Solo 401k Plan

1. The company must have no employees other than spouse 2. $18,500 plus catch up of $6,000 for employees over 50 3. Same limitations except 20%. Of owners compensation instead of 25% payroll

Contributions to IRA and Roth IRA

1. Traditional - $5,500 or 100% earned Income 2. Roth - $5,500 or 100% earned income reduced by contribution to traditional IRA

6 Categories of SS Benefit (Child Benefit)

1. Under age of 18 - 2. 50% of PIA for Retired or Disabled Parent - 3. 75% of PIA for Deceased Parent

Social Security and Allocation of Taxes (Medicare)

1.45% with No Limit. Both Employee and Employer.

Vesting Schedule for SEPs and SIMPLE

100% Vested immediately

Simplified Employee Pension Plans (SEP) - Contribution Limits

25% of compensation additions to individual limited to $55,000 or 100% of compensation (Lesser of) 100% Vested

Eligibility for a SEP

3 out of the last 5 years of service / 21 years old. / $600 Compensation for each year of service

Vesting Schedules for Defined Contribution Plan

3 year cliff or 2 to 6 graded

Impact of Delayed Retirement

3% to 8% increases in PIA per year (Depending on Year Born)

SS Max Quarters Earned Per Year

4 Quarters - Can be Earned at any time During the Year

SS Fully Insured VS Currently Insured Quarters

40 Quarters Fully - 20 Quarters Currently (Disability)

Vesting Schedules for Defined Benefit Plan (Including Top Heavy)

5 year cliff or 3 to 7 year graded Top Heavy - 3 year cliff or 2 or 6 year graded

Social Security and Allocation of Taxes (FICA)

6.20% up to $128,700. Employee and Matched by Employer. 12.4% for Self Employed.

Look back on Asset Transfers

60 months when entering nursing home

Defined Benefit Plan - A&D

A - Benefits promised are tax deferred / Adequate Retirement benefit can be provided for all employees / Employer and PBGC can guarantee some benefits / Older employee receive favorable benefits D - High administration costs / Complex for employee to understand / employer assumes investment risk / strict funding obligations

Profit Sharing Plan - A&D

A - Contribution Flexibility / Tax Deferred Contributions and Earnings / Simple and Inexpensive / Investment Risk to Employee / Contributions even when no profits D - Employee benefits unpredictable / Employee assume investment risk / Contribution inadequate for high income employees

Stock Bonus Plan A&D

A - Employee receives ownership interest / Improved liquidity of Employers stock / Employee not taxed until shares are distributed / ESOP can reduce cost of borrowing / Employer deduction of contributions D - Subject to ERISA / Dilution of shares / Stock may be highly speculative

IRA - A&D

A - Employees can deduct $5,500 plus catch up / Investments are Tax Deferred B - Employee contribution limits / Premature distributions subject to 10% penalty/ No IRA contributions after age 70 1/2

401(k) Plan - A&D

A - Great for Young Employees / Tax Deferred Contributions and Earnings / Employee choice in deferral Money / Employer Match D- Benefits inadequate for older employees / Can be expensive and complex to administer / Limits on deferrals

Simple IRA - A&D

A - Inexpensive to install and administer / 100% vested and totally portable / Employees have choice in amounts they want to save D - 100% Vested and totally portable / Limited on deferral /If SIMPLE IRA then no other qualified plan allowed

Money Purchase Plan - A&D

A - Simple and inexpensive to administer / Young employees can accumulate significant Money / Tax Deferred contributions and earnings / Employees assured of consistent contribution from employers D - Inadequate for older Employees / Employee bears investment risk / Mandatory contributions

SEP - A&D

A - Simple to adopt and administer / 100% vested and totally portable / Employer contributions are flexible D - Inadequate for older Employees / Contributions are restricted to less than what's available under a qualified plan / Part-time employees must be covered

Social Security and Allocation of Taxes (Medicare Surtax)

Additional .9% Surtax on Income over $200,000 Single and $250,000 Joint

Primary Insurance Amount (PIA)

Basic Unit Used to determine the amount of each monthly benefit payable under SS. (The amount of benefit a person will receive if they elect to receive benefits at normal retirement age)

SS Retirement Age

Born 1960 or Later - 67

Average Indexed Monthly Earnings (AIME)

Calculation to Determine the PIA. Highest 35 Years of Earnings added together and divided by 420

Medicaid - Non-Countable Assests

Home / Car / Personal Property

Medicaid Purpose

Means tested Program providing assistance to poor individuals. Funded by State and Federal Gov

Top Heavy Plan

More than 60% of either present value accrued benefits (DB Plan) or aggregate account balances (DC Plan) are for the benefit of key employees

Working After Retirement

No Reduction once full retirement age reached

Target Benefit Plan - A&D

Older employees get meaningful benefit / Not as costly or complex as DB plans / Tax deferred contributions and earnings D - Employee bears investment risk / Subject to minimum funding standards / Annual additions to employee limited

Medicaid - 1 Spouse in Nursing Home (Countable Assets)

Other spouse keeps 50% of countable assets up to $123,600

Look Back Penalty Period Equation

Penalty Period = Value of Property Transferred / Save Monthly cost of Nursing Home in State

Taxation of Benefit (Equation)

Provisional Income - Gross Income + Tax-Free Interest + 50% of Social Security Benefit

Impact of Early Retirement

Reduced Benefit (20% 3 years early / 30% 5 Years early) PLUS benefits reduced by outside income $1 for every $2 over $17,040

6 Categories of SS Benefit (Retirement Benefit)

SS Benefit paid out once person is at retirement age and elects to receive coverage

Taxation of Benefit. (Income Tables)

Single or HOH (Less Than $25,000 = 0%) ($25,000 - $34,000 = Up to 50%) (More than $34,000 = Up to 85%) Joint (Less than $32,000 = 0%) ($32,000 - $44,000 = Up to 50%) (More than $44,000 = Up to 85%)

6 Categories of SS Benefit (Spouse Benefit)

Spouse receive the higher of their own benefit or their spouses benefit, but not both

403(b) Tax Deferred Annuities - Eligibility

Tax exempt organizations. 501(c)(3)