Taxes & Retirement Donna M. Kesot, CPCU CPCU 556 Annuities April 25, 2012
Generally, creation of a formal irrevocable trust into which thedonor (as grantor of the trust) places property that is subject to thetrust Aka CRT 2 types: 1. CRUT Charitable Remainder Unitrust(5-50% of each year’s current value, up to 20 years) 2. CRAT Charitable Remainder Annuity Trust (5— 50%, calculated on the initial value of the property)
Contribution BaseCash Contributions to public charities–50% of the contribution baseLong-Term Capital Gain Property—full value up to 30% of contribution base, e.g. stocks/bonds, real estatePrivate Foundations—full value up to 20% of contribution baseShort-Term Capital Gain Property-50% of the contribution baseTangible Personal Property- full fair market value up to 30% of contribution base
Match the tax section Section 1031 Mergers Section 1041 Partnerships Section 721 Like-Kind Exchanges Section 351 Between SpousesDivorce Section 354 Corporations
These plans allow individuals to invest pre-taxand provide tax-deferred earningsTraditional IRA401(k) plans, other than Roth403(b) plans, other than Roth457 deferred compensation plans
A 403(B) is a qualified retirement plan that foremployees of local, state, or federal governmentsand agencies. TRUE or FALSE?Real Answer:A 403(b) PLAN IS A TAX FAVORED RETIREMENT PLAN FOREMPLOYEES OR CERTAIN NONPROFIT ORGANIZATIONS
Step Up in Basis at DeathGifts to charityUse of exclusion provisions in the tax law, e.g. sale of primaryhome, corp exclusion of up to 50% gain on QUALIFIED small businessstock from start up
• Individually Provided (IRAs, cash values of Life ins, nonqualified annuities, savings)• Social Security – guaranteed income floor, available at age 62 Retired Worker’s Benefits - equal to worker’s primary insurance amount (PIA) at age 65-67. Spouse of Retired Worker (50% of retired worker’s PIA) COLA tied to CPI• Employer-Provided Retirement Plans Qualified pension plans Profit-sharing plans Savings Plans
Like Kind ExchangesTax free corporate reorganizationsEquity Collars with monetizing the hedged stock, e.g. puts on hedgedstocks from employee stock options (other examples p. 294) Exchange Funds
Qualified Retirement Plans Pension Plans, Profit Sharing Plans, Savings/Thrift Plans, HR-10 Stock bonus plans, Employee Stock Ownership Plans (ESOP), Keogh Plans Nonqualified Annuity A & B only A, B & CRight Answer: Qualified Retirement Plans are spelled out in 401 (k). Correct answer (d) A& B. PensionPlans, Profit Sharing Plans, Savings/Thrift Plans, Stock bonus plans, Employee Stock Ownership Plans(ESOP), Keogh Plans
Method used to estimate needed retirement income based on apercentage of expected final average earned income. 60-80% because 1. Taxes usually decline 2. Certain work related expenses may end or reduce 3. Home-ownership expenses may decline if mortgage debt is eliminated 4. Support for dependent children may have ended 5. Senior discounts (Go AARP) 6. General expenses may decline as the aging individual become less active/more sedentary
The parties to an annuity? •Insurer •Contract Owner: the party who purchases the annuity from the insurer and who makes premium payments. May be the annuitant. •Annuitant: the person insured under the annuity
A retirement plan that meets the requirements establishedby the IRS for favorable tax treatment
A retirement savings planBy which an individual can use tax-deductibleAnd tax deferred methodsFor accumulating wealth.
Match the tax section Section 1035 Like-Kind Section 1036 Emp Stock Option Plan Section 1042 Life to Annuity Section 351 Corporate Stock Options Section 1031 Corporation Formation
Nonforfeitable right to his/her account balance under a defined-contribution plan or to an accrued benefit under a defined=benefitplan that results for employer contributions to the plan
• An annuity that is used as a funding vehicle in a qualified plan, such as an individual retirement account, a tax-sheltered annuity, or a 401(k) plan.• 10% tax penalty for early withdrawal (age 70.5)
A Qualified 401(k) plan meets the IRS rules insection 401(k) & participants may choose tocontribute to the plan with before-tax dollars
Highly secure, liquid investment that investors commonly use for theliquid portion of their investment portfolios
Relatively safeLiquid investmentSuch as securities issued or guaranteed by the federalgovernment, certificates of deposit, banker’sacceptances, euro dollars, and commercial paper
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