section 1 - The American College Online Learning Center

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(3) The single taxpayer contribution is phased out on a pro rata basis with AGIbetween $110,000 to $125,000 (2012)(4) The married filing jointly contribution is phased out with AGI between$173,000 and $183,000.e. Eligibility for a Roth Conversion(1) All taxpayers are eligible for Roth IRA conversions regardless of earnings.(a) A participant can convert any portion of a traditional IRA or a SEPIRA/SIMPLE IRA to a Roth IRA (after two years).(b) A participant or beneficiary can convert any portion of a qualifiedplan (if plan allows distributions), a 403(b) plan or a governmentsponsored 457(b) plan into a Roth IRA.(c) Planning Point: Death beneficiaries have the ability to do Rothconversions from a qualified plan, 403(b), or 457 plan, but not froman IRA, SEP, or SIMPLE.(2) Participants of any age can convert to a Roth IRA(a) If conversions occur prior to age 59½, withdrawals from the RothIRA within 5 years and before attainment of age 59½ will be subjectto the early withdrawal penalty tax (exceptions may still apply).(b) If conversions occur after attainment of 70½, the participant cannotconvert the amount subject to the required minimum distributionfor the year.(3) Conversion rules(a) Partial Roth IRA conversions are allowed.(b) Conversions for a tax year must occur by December 31 of that year.(4) Tax treatment of a conversion(a) A conversion requires the payment of income tax, treating theconversion as a withdrawal from the traditional IRA, except thatthe 10% early withdrawal penalty tax does not apply at the timeof the conversion.(b) The value that is taxed is based on fair market value on the date ofconversion. If an annuity is involved there are some complicatedrules regarding the valuation of certain annuity benefits. The carrierwill be required to provide a valuation for tax purposes.(c) If there is no cost basis in any IRAs, the entire value is includibleas taxable income.(d) If there is a cost basis (nondeductible contributions or after-taxcontributions that were rolled over) in any IRA, the client will needto add all IRAs together and determine the tax using a pro rata rule.(e) Example: Cheryl has a $23,000 IRA that includes $18,000 ofnondeductible contributions that she wants to convert. She also hasfully taxable $100,000 rollover IRA. Tax-free portion of conversion:$23,000 x $18,000/$123,000 = $3,366 Cheryl pays tax on $19,634!(f) Planning Point: The pro rata rule has an impact on any partialconversion or if there are multiple IRAs—effectively you cannot3.10
carve out the nondeductible contributions to avoid tax. You could,however, eliminate other IRAs by rolling them to a qualified plan.(g) Planning Point: A client who makes a $5,000 nondeductiblecontribution to an IRA and wants to convert it shortly thereaftermay believe there are no tax consequences. However, this is notthe case when other IRAs exist.5. Employer provided plan options for a Roth IRA conversiona. 401(k) plans (same issues apply to 403(b) plans and government 457(b) plans)(1) Salary deferral limit(a) $17,000 (2012) maximum salary deferral(b) $5,500 catch-up if the plan allows for those who have attainedage 50(c) The plan can provided for lower salary deferral limits.(2) Matching contributions(a) Matching contributions are generally a stated amount, oftenexpressed as a percentage of the participant’s contribution (e.g.,50% of employee salary deferrals)(b) The match is often limited to a specified percentage of salarydeferred (e.g., the company only matches 6 percent of salarydeferred).(c) There are other ways that the match can be stated and somematching contributions are entirely discretionary.(d) Note that a participant making salary deferrals may not meet therequirements for eligibility for a matching contribution(e) Note that a participant may not be fully vested in a matchingcontribution when they terminate employment.(3) A plan can allow for a Roth election.(a) This is a tax-election that treats salary deferrals as after-tax andqualified earnings are distributed tax-free.(b) The Roth election is not allowed on employer contributions. It isonly allowed on salary deferrals.(4) Investment direction(a) Most plans give participants investment direction over the account.(b) Participants choose from among a number of specified investmentalternatives.(c) Participants should pay attention to fees associated with investingin 401(k) plans.(5) Other considerations when making 401(k) contributions(a) Contribute at least the amount necessary to receive the companymatching contribution.(b) Be aware that access to the account is limited during employment.However, withdrawals for a financial hardship or loans may beavailable.3.11
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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 and 58: (4) The AARP website has a national
Page 59: 4. Contributions to IRAs and Roth I
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
Page 108 and 109: 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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