section 1 - The American College Online Learning Center

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Assignment 4EVALUATE THE INCOME TAX, ESTATE ISSUES, ANDOTHER THREATS TO THE RETIREMENT INCOME PLAN4Assignment 4SECTION 1: INCOME TAX CONSIDERATIONSLO 4-1-1: Choose an appropriate distribution option from an employersponsored tax-advantaged retirement plan1. Framing the issuea. Choosing an appropriate distribution option from an employer-sponsoredtax-advantaged retirement plan affects almost everyone.(1) All clients with employer-sponsored tax-advantaged retirement benefitsface distribution decisions.(2) Because this is an issue facing most clients, it is appropriate for the advisorto fully understand the rules.(3) Distribution elections are a complex transaction with lots of paperwork.ERISA requires that clients be given distribution election forms, noticesand release forms for the qualified joint and survivor rules, a right to makea direct rollover, and information about the tax treatment of distributions.Clients want, need and appreciate help understanding their options.(4) Helping with the distribution choice transaction can really help solidify arelationship with a client, which may lead to referrals of other new clients.Some advisors who become familiar with a particular employer’s retirementbenefit plans can generate a lot of business with other retirees from thissame employer (e.g., school district, a large local private employer).b. Choosing an appropriate distribution option for an employer-sponsoredtax-advantaged retirement plan is important for the following reasons:(1) In most cases the benefit election decision is irrevocable (e.g., electing alife annuity versus a joint and survivor annuity).(2) Distribution decisions involve one of the client’s larger assets, making it acritical part of the retirement income plan.(3) Mistakes with retirement distributions can be costly. For example, fail torollover a benefit to an IRA in a timely manner and all of the distribution istaxable income.(4) Mistakes in choosing the right distribution option can mean running outof money too soon.(5) Mistakes by advisors that result in bad consequences for the client canmean legal liability to the advisor.2. Context—when do distribution decisions occur?a. Retirees must choose how to receive their retirement distributions(1) From the current employer’s plan(s)4.1
(2) From the previous employer(s) plan(s)(3) Planning Point: Planners should inquire not only about the opportunitiesfor distributions from the current employer’s plan, but they should also askwhether there are plans with previous employers.b. Clients may need to deal with distributions when changing jobs.(1) Clients may have a distribution option(2) Clients may choose to defer or rollover to an IRA or other employer plan3. Distributions from the many types of employer-sponsored tax-advantaged plans candiffer on the type of plan involved.a. More complex requirements exist — qualified plans, 403(b) plans and 457 plansthan for IRAs, SEPs, and SIMPLEs (e.g., ability to make a direct rollover, subjectto the qualified joint and survivor requirements)b. Simplified distribution or hardship withdrawal requirements (roll any distributionother than a required minimum distribution)(1) IRA(2) SEP(3) SIMPLE4. Qualified plan distributionsa. Limited distribution options(1) Plan will have clearly defined optional forms of distribution and methods todetermine the amount paid under each option.(2) Discretionary withdrawals that can be taken as needed (which is thecommon approach in an IRA) are not typically allowed in a qualified plan.b. Timing of payments(1) <strong>The</strong> plan can require that benefits are deferred to a specified retirementage.(2) Almost all defined contribution plans, and even some defined benefit plans,do allow a distribution at termination of employment.(3) Some plans may even allow in-service withdrawals.c. Ability to defer benefits(1) Even if the plan allows an immediate distribution, participants can generallyelect to defer the receipt of the distribution to normal retirement age.(2) Unless plan has involuntary cash-outs for small benefits.d. Defined-benefit plan benefits(1) In most cases, the basic benefit value is tied to a life annuity.(2) A participant electing any other form of benefit will receive the actuarialequivalent of the basic benefit form.(3) Example: Cedric is eligible for a retirement benefit of $2,000 a monthpayable beginning at age 65 in the form of a single life annuity. If hereceives instead a 100% joint and survivor annuity with his wife as thebeneficiary, the monthly benefits will be $1,600, the actuarial equivalent ofthe life annuity. <strong>The</strong> reduction reflects the longer payout period and theamount is derived under the terms of the plan.4.2
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Huebner School SeriesHS 353 STUDY O
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THEAMERICANCOLLEGE.EDUThrough The A
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c. But it is more comprehensive bec
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(3) Work part-time during retiremen
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SECTION 2: UNDERSTANDING RETIREMENT
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d. Solutions(1) The model considers
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. Other sources of retirement incom
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c. Another option for solving cash
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(b) Net worth statements that ident
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d. Be ready to reengage with the cl
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(b) In financial planning(c) In inv
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j. Planning Point: Planners can use
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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 and 60: 4. Contributions to IRAs and Roth I
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: RESOURCES FOR COMPETENCY 3: CHOOSE
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
Page 110 and 111: (1) The Retirement Equity Act manda
Page 112 and 113: (2) Beneficiary designation of bene
Page 114 and 115: 13. Overview14. Types(2) The donor
Page 116 and 117: (1) Charity needs only to payout in
Page 118 and 119: c. Access should be granted to an a
Page 120 and 121: nightmare of living probate might h
Page 122 and 123: (6) Powers to represent their princ
Page 124 and 125: c. If the policy is term coverage w
Page 126 and 127: e. Factoring personal and family he
Page 128 and 129: problem. On the other hand, we can
Page 130 and 131: d. Adding a cost of living adjustme
Page 132 and 133: 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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