Personal Financial Planning Study Guide
Topic 8 Retirement Planning
1. Defined benefit pension plans- determines benefit at retirement. The amount that an employer is supposed to give a yr in order to give what is promised is unknown. It aint my fault.
2. Defined contribution plans- the employee contributes a certain percentage for their retirement. You nigga!
• Advantages: you see the exact balance at all times, easy to move accounts
Retirement Ages
• Normal retirement age – earliest age you can retire and receive full benefits
• Early retirement age- earliest age u can retire and get some benefits
• Late retirement- after normal age, they should increase benefits but not required
Vesting
Different plans that give u a certain amount of money for the time u have worked with them
1. 5 year cliff vesting – all or nothing get all in 5 years
2. Graded seven yr vesting
20% vested after 3yrs of service
40% vested after 4 yrs of service
60% vested after 5yrs of service
100% vested after 7 yrs of service
3. 100%vesting after 2yrsof service w/ a 2yr waiting period (instead of 1 yr)
Employee Savings Plans
Plans to supplement other qualified plans or to be used in place of one that your employer should have provided. Includes:
• Section 401k Plans (cash/deferred arrangement)
Employers may or may not match employees contributions, their contributions is known as elective deferrals
Can contribute up to 17,500 annually
Have choice of investment vehicles
Income tax deductions of contributions
• IRA (Individual Retirement Accounts)
Funds invested in a variety of financial instruments and accumulate in a tax deferred basis until distributed
Tax deduction for IRA is limited to ppl who don’t have access to 401k plan
Can put up to 5500 max annually
IRA + 401K
• Funds can’t be withdrawn prior to 59 and 1/2 except in the case of death and disability
• 10% penalty for early distribution
• Withdrawn after the age of 59 and ½ are taxed as regular income
IRA +
1. Defined benefit pension plans- determines benefit at retirement. The amount that an employer is supposed to give a yr in order to give what is promised is unknown. It aint my fault.
2. Defined contribution plans- the employee contributes a certain percentage for their retirement. You nigga!
• Advantages: you see the exact balance at all times, easy to move accounts
Retirement Ages
• Normal retirement age – earliest age you can retire and receive full benefits
• Early retirement age- earliest age u can retire and get some benefits
• Late retirement- after normal age, they should increase benefits but not required
Vesting
Different plans that give u a certain amount of money for the time u have worked with them
1. 5 year cliff vesting – all or nothing get all in 5 years
2. Graded seven yr vesting
20% vested after 3yrs of service
40% vested after 4 yrs of service
60% vested after 5yrs of service
100% vested after 7 yrs of service
3. 100%vesting after 2yrsof service w/ a 2yr waiting period (instead of 1 yr)
Employee Savings Plans
Plans to supplement other qualified plans or to be used in place of one that your employer should have provided. Includes:
• Section 401k Plans (cash/deferred arrangement)
Employers may or may not match employees contributions, their contributions is known as elective deferrals
Can contribute up to 17,500 annually
Have choice of investment vehicles
Income tax deductions of contributions
• IRA (Individual Retirement Accounts)
Funds invested in a variety of financial instruments and accumulate in a tax deferred basis until distributed
Tax deduction for IRA is limited to ppl who don’t have access to 401k plan
Can put up to 5500 max annually
IRA + 401K
• Funds can’t be withdrawn prior to 59 and 1/2 except in the case of death and disability
• 10% penalty for early distribution
• Withdrawn after the age of 59 and ½ are taxed as regular income
IRA +