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(1) If eligible, planners should recommend that clients make contributions toa Roth IRA.(2) Make a Roth election with regard to salary deferrals in anemployer-sponsored savings plan.(3) Self-employed person can establish their own 401(k) plan that has a Rothelection.(4) Convert IRAs (or qualified plan benefits) into a Roth IRA.c. Plans that provide for tax-deferred earnings3. Tax advantages(1) Make nondeductible contributions to an IRA.(2) Purchase a nonqualified annuity.(3) Make after-tax contributions to qualified plans.a. Compare saving on a pretax (tax deductible) basis versus saving on an after-tax(taxable) basis(1) Example: Jennifer is age 30; she wants to save $3,000 a year (pretax)until she retires at age 65, she will earn an 8% return, and she will betaxed at a 25% rate. Compare saving $3,000 each year to saving $2,250on an after-tax basis.(2) Jennifer accumulates approximately $86,000 4 more saving pretaxassuming that at age 65 all tax-deferred amounts are distributed and taxedat a 25 percent rate. In the calculation there is also the assumption thatafter-tax earnings are subject to income tax each year as ordinary income(as would be the case with bond investments).(3) The value of saving on a pretax basis increases as the individual’s taxrate increases.(4) Example: Take the Jennifer example, but now assume a 35% tax rate.Now the difference between pretax and post-tax saving is approximately$97,000.(5) If tax rates increase in the future, saving on a pretax basis has somewhatless value. The result will depend upon the number of years of tax deferral,the future tax rate and the rate of return.(6) Example: Assume that in Jennifer’s example the 25% tax rate changes atage 65 to 35%. Now the difference between pretax and post-tax saving isa lower amount, approximately $52,000.(7) Example: Change the example again and assume that Jennifer only savesfrom age 60 to age 65—and the tax rate changes at age 65. Here, withthe short deferral period, Jennifer would actually be better off saving on apost-tax basis.(8) Planning Point: The decision about where to save takes on greaterimportance if tax rates shift dramatically.(9) Planning Point: The decision about where to save takes on greaterimportance with regard to the amount of time the savings remain in theaccount.4. Calculated using the “IRA Savings Calculator for Tax Deferral Comparison” at the website “Free-Online-Calculator-Use.com”.3.8
4. Contributions to IRAs and Roth IRAsa. Contribution rules and limits that apply to IRAs and Roth IRAs(1) Total contributions to all accounts cannot exceed the lesser of 100% ofemployment earnings or $5,000 ($6,000 if attained age 50).(2) To make a contribution to any IRA or Roth IRA the individual must haveearnings from employment.(a) This does not include investment or pension income, so studentsand retirees with no employment income cannot contribute.(b) There is an exception for nonworking spouses (spousal IRAs); acontribution can be made for a nonworking spouse if the couple ismarried filing jointly and has joint earnings sufficient to supportthe contributions.(3) Contributions to IRAs must be made in cash during the year or up until theApril 15 th of the following year; no extensions are allowed.b. Eligibility to make traditional nondeductible IRA contributions(1) The clients needs earnings from employment to support the contributionand the client must not have attained age 70½.(2) Exception: Spousal IRA contributions allowed for nonworking spouse ifmarried filing jointlyc. Additional requirements for eligibility for a deductible contribution (2012 indexedlimits)(1) Single taxpayers(a) If an individual is not an active participant in an employer sponsoredretirement plan, the contribution is always deductible no matterhow much the client earns.(b) If an individual is an active participant, the deduction is phased outon a pro-rata basis for AGI between $58,000 and $68,000 (2012).(2) Married filing jointly(a) If neither spouse is an active participant, the contribution for bothspouses is always deductible no matter how much the client earns.(b) If the individual is an active participant, then the deduction isphased out on a pro-rata basis for AGI between $92,000 and$112,000 (2012).(c) If the individual is not an active participant but the spouse is, thededuction is phased out for AGI between $173,000 and $183,000(2012).d. Eligibility for a Roth IRA contribution (2012 indexed limits)(1) The client must have earnings from employment to support the contribution(no age limit). In other words, as long as there are earnings fromemployment, a person over age 70½ is eligible to make a Roth IRAcontribution if they meet the requirements specified below.(2) Spousal IRA contributions are allowed for non-working spouse if marriedfiling jointly.3.9
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Huebner School SeriesHS 353 STUDY O
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THEAMERICANCOLLEGE.EDUThrough The A
Page 10 and 11: c. But it is more comprehensive bec
Page 12 and 13: (3) Work part-time during retiremen
Page 14 and 15: SECTION 2: UNDERSTANDING RETIREMENT
Page 16: d. Solutions(1) The model considers
Page 19 and 20: . Other sources of retirement incom
Page 21 and 22: c. Another option for solving cash
Page 23 and 24: (b) Net worth statements that ident
Page 25 and 26: d. Be ready to reengage with the cl
Page 27 and 28: (b) In financial planning(c) In inv
Page 29 and 30: j. Planning Point: Planners can use
Page 31 and 32: e. We also need them to have a bett
Page 33 and 34: Assignment 2IDENTIFY RETIREMENT INC
Page 35 and 36: (2) Income4. Determining risk toler
Page 37 and 38: collaborative experience which focu
Page 39 and 40: 6. Asset allocation and risk tolera
Page 41 and 42: c. How long will the income last?d.
Page 43 and 44: . Durationc. Reliabilityd. Other6.
Page 45 and 46: c. Supplemental Security Income (SS
Page 47 and 48: . An unused emergency fund can supp
Page 49 and 50: 5. Inflation(2) The expense method
Page 51 and 52: Assignment 3CHOOSE APPROPRIATE STRA
Page 53 and 54: . Save as a percentage of income an
Page 55 and 56: (1) Note that 38% of second income
Page 57: (4) The AARP website has a national
Page 61 and 62: carve out the nondeductible contrib
Page 63 and 64: (2) Plus salary deferrals (for an i
Page 65 and 66: a. Example:(1) Save $10,000 in 25%
Page 67 and 68: (a) This requires knowing four fact
Page 69 and 70: . Solution(1) Li and Lin Lin are bo
Page 71 and 72: (1) The increase in dollar amounts
Page 73 and 74: 9. In some circumstances, an indivi
Page 75 and 76: 2. Reverse mortgage basicsa. Almost
Page 77 and 78: 5. Planning considerations(b) Keep
Page 79 and 80: (2) Some funds that are promoted as
Page 81 and 82: (1) Berstresser, Chalmers, and Tufa
Page 83 and 84: RESOURCES FOR COMPETENCY 3: CHOOSE
Page 85 and 86: (2) From the previous employer(s) p
Page 87 and 88: 8. IRA funded plans (IRAs, SEPs, SI
Page 89 and 90: . Does the distribution election fi
Page 91 and 92: 6. Net unrealized appreciation rule
Page 93 and 94: a. Tax-exempt plans include Roth IR
Page 96 and 97: 8. Calculating required distributio
Page 98 and 99: (2) Exception: If there are separat
Page 100 and 101: 5. Impactc. Tax rates are low in ea
Page 102 and 103: (7) Based on ordering rules, identi
Page 104 and 105: 7. A married couple who file jointl
Page 106 and 107: (1) Needed to provide the appropria
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13. Transfers at deatha. Wills(2) A
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(1) The Retirement Equity Act manda
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(2) Beneficiary designation of bene
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13. Overview14. Types(2) The donor
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(1) Charity needs only to payout in
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c. Access should be granted to an a
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nightmare of living probate might h
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(6) Powers to represent their princ
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c. If the policy is term coverage w
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e. Factoring personal and family he
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problem. On the other hand, we can
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d. Adding a cost of living adjustme
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g. Planning Point: Sometimes a high
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(2) Clients may not be able to “a
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c. Ensure that the client is receiv
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a. Example: Because of physical and
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options about where to get his/her
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(2) Facilities, monthly fees, and s
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8. Other strategies that help to co
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standard deviations of the returns
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a collapse in the real estate marke
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a. In a later competency we will di
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years of service with the employer)
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a. Planning Point: Planners should
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(2) If you have locked in food, ren
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(4) Loss-of-spouse risk—Deferred
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(1) Excess withdrawal risk—The us
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(5) Frailty risk—Managing assets
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7. Practice good career management:
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Assignment 6CHOOSE APPROPRIATE STRA
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c. Example: Chuck and Sarah divide
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e. The bucket approach can be thoug
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3. Understanding systematic withdra
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(1) The time horizon used in the ca
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12. Four percent is not the number.
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markets have declined by a specifie
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(2) Annuities and long-term care an
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anticipates ramping down her activi
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c. Each of the three portfolios wil
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SECTION 4: THE ESSENTIAL VERSUS DIS
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d. Clients give up investment contr
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geared toward long-term growth. Thi
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. Trade-offs involve:(1) Irrevocabl
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(1) Rate at which banks lend to the
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. Dollar-denominated liabilities of
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(a) Dividend taxed in year paid out
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4. Taxationtheir return generating
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. Close ended(1) IPO style launch(2
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(3) Tax control17. Conversations in
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(3) Mutual funds provide lower cost
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way to obtain increasing payments t
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protection from the downside risk w
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6. Today’s annuitization rates ar
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h. Planning Point: Markets are very
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a. The client may not be clear abou
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a. Problems with implementation are
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c. Product solutions work together
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(1) A problem is that if the client
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(b) A traditional fund company(c) A
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d. Evelyn is in great health and he
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RESOURCES FOR COMPETENCY 7: INTEGRA
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