Table of Contents

 

Chapter 1 - How Much Do You Need To Retire? - Section 1. 12

Mapping Mechanics. 12

Pitfalls & Myths. 15

Common Pitfalls. 15

Chapter 1 - Section 1 Review Questions. 17

Chapter 1 - How Much Do You Need To Retire? - Section 2. 18

Popular Retirement Myths. 18

Plan For 10 to 15 Retirement Years. 18

Stay With One Company to Retire With the Best Benefits. 18

Pension Benefits Are Guaranteed by the Government 18

Preserve Capital 19

Retirees Are Taxed Less. 19

Housing Costs Are Less. 19

Just the Spouse and Me. 19

Social Security Will Gap Any Savings or Pension Benefits Shortfall 19

Company Insurance & Medicare Will Cover Medical Bills. 20

Retirees End Up In a Nursing Home. 20

Chapter 1 - Section 2 Review Questions. 21

Chapter 1 - How Much Do You Need To Retire? - Section 3. 22

Defining Retirement 22

When Do I Want To Retire?. 24

What Kind Of Lifestyle Do I Want?. 27

Do I Want To Move?. 31

Chapter 1 - Section 3 Review Questions. 37

Chapter 1 - How Much Do You Need To Retire? - Section 4. 38

Determining Retirement Costs & Income Needs. 38

Developing a Plan. 47

Chapter 1 - Section 4 Review Questions. 51

Chapter 1 - How Much Do You Need To Retire? - Section 5. 52

Savings. 52

Strategies for Savings. 53

Assets. 57

Stay Liquid - Be Able To Get Your Money Back. 57

Grow - Make Money on Your Money. 57

Shelter - Get Tax Benefits. 57

Build - Dont Spend Your Benefits. 57

Avoid Linking - Each Investment Must Stand On Its Own. 57

Analyze - Investigate the Investment 57

Chapter 1 - Section 5 Review Questions. 58

Chapter 2 - Social Security Benefits & Retirement Planning - Section 6. 59

Will Social Security Be There?. 59

How Social Security Works. 60

Social Security Participants. 60

Social Security Benefits. 61

Retirement Benefits. 61

Qualification. 61

Calculation. 64

Average Indexed Monthly Earnings (AIME) 64

Primary Insurance Amount (PIA) 67

Cost of Living Adjustment Using Dollar Bend Points. 67

Adjustment for Retirement Date. 67

Early Retirement 68

Effect of Late Retirement 71

Earnings Reduction Formula. 71

Annual Report of Earnings. 72

Special Monthly Rule. 72

Personalized Benefit Estimate. 72

Impact of Private Pension. 72

Direct Deposit 72

Chapter 2 - Section 6 Review Questions. 74

Chapter 2 - Social Security Benefits & Retirement Planning - Section 7. 76

Social Securitys Payroll Tax or FICA.. 76

Rates. 76

Covered Earnings. 76

Multiple Employers. 78

Covered Employment 78

Self-Employment 78

Tax after Retirement 78

Social Security as a Retirement Planning Element 81

Total Disability Benefits. 81

Family Members. 81

HIV & AIDS. 82

Children. 82

Qualification. 82

Survivors Benefits. 83

Divorce. 83

Chapter 2 - Section 7 Review Questions. 85

Chapter 2 - Social Security Benefits & Retirement Planning - Section 8. 86

Medicare. 86

Who Is Eligible For Hospital Insurance (Part A)?. 86

Who Can Get Medical Insurance (Part B)?. 86

Prescription Drug Coverage (Part D) 86

How Do You Get Medicare?. 87

What Does Medicare Pay For?. 87

What Medicare Does Not Pay For?. 88

Medigap Insurance. 88

Chapter 2 - Section 8 Review Questions. 90

Chapter 3 - Retirement Plans - Section 9. 91

Deferred Compensation. 91

Qualified Deferred Compensation. 91

Qualified v. Nonqualified Plans. 91

Major Benefit 92

Current Deduction. 92

Timing of Deductions. 92

Part of Total Compensation. 92

Compensation Base. 92

Salary Reduction Amounts. 93

Benefit Planning. 93

Corporate Plans. 94

Advantages. 94

Current 94

Deferred. 94

Disadvantages. 94

Employee Costs. 94

Comparison with IRAs & Keoghs. 94

Basic ERISA Provisions. 96

ERISA Reporting Requirements. 96

Fiduciary Responsibilities. 96

Bonding Requirement 97

Prohibited Transactions. 97

Additional Restrictions. 97

Fiduciary Exceptions. 97

Loans. 98

Employer Securities. 98

Excise Penalty Tax. 99

Chapter 3 - Section 9 Review Questions. 100

Chapter 3 - Retirement Plans - Section 10. 101

PBGC Insurance. 101

Sixty-Month Requirement 101

Recovery Against Employer 101

Termination Proceedings. 101

Plans Exempt from PBGC Coverage. 101

Basic Requirements of a Qualified Pension Plan. 102

Written Plan. 102

Communication. 103

Trust 103

Requirements. 103

Permanency. 103

Exclusive Benefit of Employees. 104

Highly Compensated Employees. 104

Reversion of Trust Assets to Employer 104

Participation & Coverage. 104

Age & Service. 104

Coverage. 105

Percentage Test 105

Ratio Test 105

Average Benefits Test 106

Numerical Coverage. 106

Related Employers. 106

Vesting. 107

Full & Immediate Vesting. 107

Minimum Vesting. 107

Nondiscrimination Compliance. 109

Contribution & Benefit Limits. 109

Defined Benefit Plans (Annual Benefits Limitation) - '415. 109

Defined Contribution Plans (Annual Addition Limitation) - '415. 109

Limits on Deductible Contributions - '404. 110

Assignment & Alienation. 110

Miscellaneous Requirements. 111

Basic Types of Corporate Plans. 111

Defined Benefit 111

Mechanics. 111

Defined Benefit Pension. 112

Defined Contribution. 112

Mechanics. 112

Discretion. 112

Favorable Circumstances. 113

Chapter 3 - Section 10 Review Questions. 114

Chapter 3 - Retirement Plans - Section 11. 116

Types of Defined Contribution Plans. 116

Profit Sharing. 116

Requirements for a Qualified Profit Sharing Plan. 116

Written Plan. 116

Eligibility. 116

Deductible Contribution Limit 116

Substantial & Recurrent Rule. 117

Money Purchase Pension. 117

Cafeteria Compensation Plan. 119

Thrift Plan. 119

Section 401(k) Plans. 120

Death Benefits. 121

Defined Benefit Plans. 121

Money Purchase Pension & Target Benefit Plans. 122

Employee Contributions. 122

Non-Deductible. 122

Life Insurance in the Qualified Plan. 122

Return. 122

Universal Life. 123

Compare. 123

Plan Terminations & Corporate Liquidations. 123

10-Year Rule. 123

Lump-Sum Distributions. 123

Asset Dispositions. 124

IRA Limitations. 124

Self-Employed Plans - Keogh. 124

Contribution Timing. 124

Controlled Business. 125

General Limitations. 125

Effect of Incorporation. 125

Mechanics. 126

Parity with Corporate Plans. 127

Figuring Retirement Plan Deductions For Self-Employed. 127

Self-Employed Rate. 127

Determining the Deduction. 128

Chapter 3 - Section 11 Review Questions. 129

Chapter 3 - Retirement Plans - Section 12. 130

Individual Plans - IRAs. 130

Deemed IRA.. 130

Mechanics. 130

Phase-out 130

Special Spousal Participation Rule - '219(g)(1) 131

Spousal IRA.. 132

Eligibility. 132

Contributions & Deductions. 132

Employer Contributions. 133

Retirement Vehicles. 133

Distribution & Settlement Options. 134

Life Annuity Exemption. 134

Minimum Distributions. 134

Required Minimum Distribution. 134

2009 Waiver of Required Minimum Distribution Rules (Expired) 135

Definitions. 135

Distributions during Owners Lifetime & Year of Death after RBD.. 136

Sole Beneficiary Spouse Who Is More Than 10 Years Younger 137

Distributions after Owners Death. 137

Inherited IRAs. 139

Estate Tax Deduction. 140

Post-Retirement Tax Treatment of IRA Distributions. 140

Income In Respect of a Decedent 140

Estate Tax Consequences. 140

Losses on IRA Investments. 140

Prohibited Transactions. 141

Effect of Disqualification. 141

Penalties. 141

Borrowing on an Annuity Contract 141

Tax-Free Rollovers. 141

Rollover from One IRA to Another 142

Waiting Period between Rollovers. 142

Partial Rollovers. 142

Rollovers from Traditional IRAs into Qualified Plans. 142

Rollovers of Distributions from Employer Plans. 143

Withholding Requirement 143

Waiting Period between Rollovers. 143

Conduit IRAs. 143

Keogh Rollovers. 144

Direct Rollovers From Retirement Plans to Roth IRAs. 144

Rollovers of '457 Plans into Traditional IRAs. 144

Rollovers of Traditional IRAs into '457 Plans. 144

Rollovers of Traditional IRAs into '403(B) Plans. 145

Rollovers from SIMPLE IRAs. 145

Chapter 3 - Section 12 Review Questions. 147

Chapter 3 - Retirement Plans - Section 13. 148

Roth IRA - '408A.. 148

Eligibility. 148

Contribution Limitation. 150

Roth IRAs Only. 150

Roth IRAs & Traditional IRAs. 150

Conversions. 151

Recharacterizations. 152

Reconversions. 152

Taxation of Distributions. 152

No Required Minimum Distributions. 153

Simplified Employee Pension Plans (SEPs) 153

Contribution Limits & Taxation. 155

SIMPLE Plans. 155

SIMPLE IRA Plan. 156

Employee Limit 156

Other Qualified Plan. 156

Set up. 156

Contribution Limits. 157

Salary Reduction Contributions. 157

Employer Matching Contributions. 157

Deduction of Contributions. 157

Distributions. 157

SIMPLE '401(k) Plan. 158

Chapter 3 - Section 13 Review Questions. 159

Chapter 4 - Distributions from Retirement Plans - Section 14. 160

Annuity Payments - '72. 161

General Rule - Prior Law.. 163

Exclusion Ratio. 163

Investment in Contract (Cost) 163

Expected Return. 163

Simplified Alternative Rule - Prior Law.. 163

Mandatory Basis Rule - Current Law.. 164

Annuity Benefits Paid Over Two Lives. 164

Withholding & Estimated Tax. 165

Lump-Sum Distributions. 165

Nonqualifying Distributions. 166

Treatment Options. 169

5-Year Averaging - Repealed. 169

Employer Securities - Net Unrealized Appreciation (NUA) 169

Capital Gain Treatment 170

Grandfather or Transition Rules. 170

Chapter 4 - Section 14 Review Questions. 173

Chapter 4 - Distributions from Retirement Plans - Section 15. 175

Rollovers. 175

Eligible Rollover Distributions. 175

20% Withholding. 178

Exceptions. 178

Direct Rollover 178

Rollover Period. 180

Annual Usage. 180

Rollover of Noncash Distributions. 181

Qualified Domestic Relations Order Rollover 183

Surviving Spouse Rollover 183

Premature Distributions - 10% Penalty. 185

Exemptions. 185

Death. 186

Disability. 186

Equal Periodic Payments. 187

Total Value & Aggregation Requirement 188

Five-Year Requirement 188

Medical Expenses. 189

Qualified Domestic Relations Order 189

Recapture Tax. 190

Minimum Distribution Rules. 190

2009 Waiver of Required Minimum Distribution Rules (Expired) 191

Required Beginning Date for Minimum Distributions. 191

Minimum Distribution. 194

Making Charitable Gifts with Plan Balances. 195

Chapter 4 - Section 15 Review Questions. 196

Chapter 5 - Nonqualified Plans - Section 16. 198

Postponement of Income. 199

Advantages. 199

IRS Scrutiny & Approval 199

Nondiscrimination. 199

ERISA.. 199

Funding. 199

No Immediate Cash Outlay. 199

Annual Report 200

Notice Requirement 200

Purposes & Benefits. 200

Benefit Formula. 200

Incentive. 200

Deferred Bonuses. 201

Contractual Arrangement 201

Necessary Provisions. 201

Tax Status. 201

Services Position. 201

Rationale. 202

Congressional Moratorium... 202

No Ruling or Regulation Policy. 202

Constructive Receipt 203

Beyond Actual Receipt 203

Simple Set-Asides Are Not Possible. 203

Revenue Ruling 60-31. 203

Regulations. 203

Time & Control Concept 203

Control 204

Timing. 204

After-the-Fact Contract 204

Amendment to Existing Contract 205

Economic Benefit 205

Has Something of Value Been Transferred?. 205

Insurance Coverage Has a Calculable Value. 205

Segregated Funds Have Immediate Economic Value. 205

Value v. Control 205

Revenue Ruling 60-31. 206

Situation 1. 206

Situation 2. 206

Situation 3. 206

Situation 4. 207

Situation 5. 207

General Principles. 207

Unfunded Bare Contractual Promise Plan - Type I. 208

Risk. 208

Chapter 5 - Section 16 Review Questions. 211

Chapter 5 - Nonqualified Plans - Section 17. 212

Funded Company Account Plan - Type II. 212

Ownership & Segregation. 212

Bookkeeping Reserve or Separate Account 212

Employee Still Bears Economic Risk. 213

Limited Protection. 213

Investment of Deferred Amounts. 213

Life Insurance. 214

Premiums. 214

Third Party Guarantees. 214

Segregated Asset Plan - Type III. 215

Section 83 Approach. 215

Tight Rope Format 216

Transferable or Not Subject To A Risk of Substantial Forfeiture. 216

Substantial Restrictions. 216

Redemption or Forfeiture. 216

Condition Related to a Purpose of the Transfer 217

Noncompetition. 217

Consultation. 217

Time Alone is Not Enough. 217

Realization & Taxation. 217

30-Day Election Period. 217

Deduction Allowed. 217

Timing. 218

Withholding. 218

Tax Consequences. 218

Reciprocal Taxation/Deduction Rule. 218

No Difference for Cash or Accrual 219

Separate Accounts for Two or More Participants. 219

Employer Deduction Traps. 219

Income Tax on Employer Held Assets. 219

Inclusion in Income Under '409A.. 220

State Tax Issues. 221

Accounting. 221

Two Sets of Rules. 221

Financial Accounting Rules. 221

IRS Rules. 222

Estate Planning Considerations. 222

Death During Deferral 222

Income Tax Consequences. 222

Estate Tax Consequences. 223

Gift Tax Consequences. 223

Withholding, Social Security & IRAs. 223

Other Payroll Taxes. 223

Social Security Benefits. 223

IRAs. 223

Chapter 5 - Section 17 Review Questions. 224

Chapter 6 - Life Insurance, Annuities & Buy-Sell Agreements - Section 18. 225

Purpose. 225

Tax Overview.. 227

Income Tax. 227

Transfer-for-Value Rule. 227

Employee Death Benefit - '101(b) (Repealed) 228

Premiums. 228

Lifetime Benefits. 228

Section 72. 228

Estate Taxes - '2042 & '2035(a) 230

Ownership. 230

Gift Taxes. 231

Community Property Gift Danger 231

Types of Life Insurance. 231

Term Insurance. 231

Whole Life (Permanent) Insurance. 231

Straight Life v. Limited Payment 232

Modified v. Preferred. 232

Endowment Insurance. 232

Universal Life. 232

Charges. 233

Premium Payment 233

Variable Life. 233

Investment Accounts. 233

Taxation. 233

Survivor Life. 234

Single Premium Whole Life. 234

Dividends. 234

Chapter 6 - Section 18 Review Questions. 235

Chapter 6 - Life Insurance, Annuities & Buy-Sell Agreements - Section 19. 237

Life Insurance Trust 237

Considerations. 239

Annuities. 240

Deferred Annuity. 240

Private Annuity. 240

Unsecured Promise. 241

Regs Restrict Private Annuity Tax Benefits. 241

Chapter 6 - Section 19 Review Questions. 243

Chapter 6 - Life Insurance, Annuities & Buy-Sell Agreements - Section 20. 244

Buy-Sell Agreements. 244

Definition. 244

Contractual Format 244

Funding. 245

Life Insurance Funding. 245

Term vs. Whole Life. 245

Policy Ownership & Premium Payment 246

Entity & Cross-Purchase Agreements. 248

Tax Consequences - Cross-Purchase Agreements. 248

Non-Deductible Premiums. 248

No Dividend Danger 248

Tax Consequences - Entity Purchase Agreements. 248

Non-Deductible Premiums. 248

Dividend Danger - '302. 249

Exception to Dividend Treatment 249

Constructive Ownership (Attribution) Rules. 250

Estate/Beneficiary Rule. 250

Family/Trust/Corporation Rule. 250

No Gain on Sale. 252

Estate Tax Valuation. 252

Using the Buy-Sell Agreement to Set Value. 252

Enforcement of Contract Price. 253

Purchase Price & Terms. 253

Valuation. 253

Community Property. 253

Professional Corporations. 254

Marketability Problems. 254

Controlled Disposition. 254

S Corporations. 254

Sole Shareholder Planning. 255

Complete Liquidations. 255

Alternative Dispositions. 255

Use of Life Insurance. 255

Estate Valuation. 255

One-Way Buy-Outs. 255

Chapter 6 - Section 20 Review Questions. 257

Chapter 7 - Home Sales & Moving Expenses - Section 21. 259

Introduction. 259

Capital Gains & Qualified Dividends. 260

Rates - '1. 260

28% Rate Group. 262

25% Rate Group - Unrecaptured '1250 Gain. 262

15% (or sometimes 20%) Rate Group - Adjusted Net Capital Gain. 263

The Hidden Rate - Net Investment Income Tax - '1411. 265

Former 18% & 8% Rate Group (Repealed) 265

Deemed Sale Election (Repealed) 265

AMT.. 266

Small Business Stock. 266