How do you calculate the lump sum needed at retirement when withdrawals are inflation-adjusted?
- Inflate the first year retirement need to the retirement date. 2. Calculate the present value of withdrawals using the real rate of return. Real rate formula: r = ((1 + investment return) / (1 + inflation)) − 1 Use the real rate when withdrawals grow with inflation.
When can someone receive Social Security retirement benefits before FRA without penalty?
If they have a child under age 16 in their care. This is an exception to the early retirement rules.
What percentage of Social Security benefits can be taxed?
Up to 85% of benefits can be taxable depending on provisional income. Single thresholds: Under $25k → 0% taxable $25k–$34k → up to 50% taxable Over $34k → up to 85% taxable
Can a surviving spouse of a railroad worker receive both Social Security widow benefits and Railroad Retirement benefits?
No. Railroad Retirement benefits replace Social Security benefits.
At what provisional income level are up to 85% of Social Security benefits taxable for a single filer?
Over $34,000 provisional income. 85% is the maximum portion of benefits that can be taxed.
Are SIMPLE plans considered qualified retirement plans?
Generally no. SIMPLE plans are IRA-based plans. Examples: SIMPLE IRA SIMPLE 401(k)
How much can be withdrawn in a 401(k) hardship withdrawal?
The employee can withdraw their elective deferrals and vested employer contributions, limited to the amount needed for the immediate financial hardship.
What happens to Net Unrealized Appreciation (NUA) if employer stock is rolled into an IRA?
NUA treatment is lost. The entire amount will be taxed as ordinary income when withdrawn.
What are the employer contribution options for a SIMPLE IRA?
Employer must choose one: • 3% matching contribution or • 2% nonelective contribution for all employees Match can be reduced to 1% in 2 out of 5 years.
Which SIMPLE plan has ERISA creditor protection?
SIMPLE 401(k). Because it is an ERISA qualified plan, it has stronger creditor protection than IRA-based plans.
Does age affect eligibility to contribute to a retirement plan?
No. Eligibility is based on compensation and employment status, not age.
What happens if a retirement plan becomes top-heavy?
The plan remains qualified but must follow top-heavy rules, including minimum contributions for non-key employees.
What percentage of a qualified plan can be used for life insurance?
Whole life insurance → up to 50% of contributions Term life insurance → up to 25% of contributions Defined benefit plans use the 100-times rule.
At what age do Required Minimum Distributions begin under SECURE 2.0?
Age 73.
Can someone take an RMD and still contribute to a SEP?
Yes. RMDs do not prevent contributions if the person still has earned income.
Can someone deduct an IRA contribution if they are not an active participant in an employer retirement plan?
Yes. They can generally take the full deduction, subject only to income rules if a spouse participates in a plan.
Can an RMD be converted to a Roth IRA?
No. The RMD must be withdrawn first. Only the remaining balance can be converted.
What is the $100,000 rule for Incentive Stock Options (ISOs)?
Only $100,000 worth of ISOs can vest per year for favorable tax treatment. Any excess is treated as Nonqualified Stock Options (NSOs).
When using Net Unrealized Appreciation (NUA), what amount is taxed as ordinary income?
The employer’s cost basis in the stock is taxed as ordinary income. The appreciation (NUA) is taxed as capital gain when the stock is sold.
When can a capital loss be claimed on stock?
Only when the sale price is less than the cost basis. A decline in fair market value alone does not create a deductible loss.
Why might moving money to a Roth account be advantageous?
Qualified Roth withdrawals are tax-free and the account continues to grow tax-free.
