Fi 491 Exam 3 Review

FI 491- Exam 3 Review

Basic of Retirement Planning: Analyze the current assets and liabilities, and then estimate the spending needs and adjust for inflation. Evaluate the planned retirement income. Increase income by working part-time if necessary.

Rule of 72: interest rate/72 = cost of living doubles.

Qualified plans allow employers to get right-offs on their taxes.

ERISA= employee retirement income security act of 1974.

Defined Benefit- employer will pay a certain amount per month when you retire based on your preretirement salary and number of years of service. Employer makes the investment decisions and contributions, but benefit amount stays the same regardless of how the investments perform.

Profit-sharing plans- employer contribution depends on the company’s profits. Discretionary.

Stock Bonus Plans- employer’s contribution is used to buy stock in the company in order to motivate employees to help the company perform well. Discretionary.

Money-purchase pension plans- employer sets aside a % of earnings each year. MANDATORY

Target Benefit Plan- a benefit plan that is based on the performance of the investments and isn’t guaranteed.

ESOP (employee Stock Ownership Plan)- provides a company workforce with an ownership interest in the company.

Non-Qualified plans are special incentives and compensation packages to key employees and are not governed by ERISA.

401(k)- employer makes non-taxable contributions and reduces your salary by the same amount.  Employee contributions are tax-deferred. 10% is the recommended starting level.

Vesting is your right to at least a portion of the benefits you have accrued under an employer pensions plan, even if you leave before you retire.

Traditional IRA- $5,500 contributions. Contribution may be tax deductible. Earnings accumulate tax free. Minimum distribution age 70, earliest age to be able to take withdrawals without penalty: 59.5

Roth IRA: contributions are not tax deductible but earnings accumulate with distribution tax free if the money is in the account for at least 5 years and withdrawals take place after 59.5. $112k is limit filing alone, $178k filing jointly.

A rollover IRA: traditional IRA that accepts rollovers of your taxable distribution from a retirement plan.

SEP-IRA: funded by employers and everyone gets equal share. Used for small companies that make around the same income.

Education IRA: $2k a year and grows tax free.

IRA withdrawals can be taken out as a lump-sum or installments.

Creditor protection- personal retirement assets held in an employer plan are protected in an unlimited dollar amount against creditors in bankruptcy proceedings.

Full benefits of social security come at 65-67 depending on your birthday but early benefits com at 62. Benefits are reduced if you earn above a certain income.

Estate planning is a definite plan for the administration and disposition of one’s property during one’s lifetime or at death.