CFP BIF #2 questions well answered
already passed
DC Plans - correct answer ✔✔-do not guarantee final benefit
-only dc plans have participant directed accounts
-tend to favor younger participants with more years to accumulate
-participant bears investment risk
-profit sharing plans, 401(k), ESOP - require substantial or recurring employer contributions (but not
required annually)
-DC Pension Plans:
money purchase pension (younger participants)
target benefit pension plan (younger or older participants)
- require mandatory employer contributions
- no more than 10% in employer stock
- 100% employer funded
-3-year cliff or 2-6 year graded
Annual additions limit inlcudes:
-employer contributions
-employee elective deferrals
-reallocated forfeitures
DB Plans - correct answer ✔✔-guarantees benefit, PBGC Insurance
-skews benefits to older participants
-sponsor bears investment risk
, -annual actuarial work required
-most administratively expensive
Cash Balance pension plan (must use 3-yr cliff)
easier to understand for employees
Traditional Defined benefit Pension Plan (5-yr cliff of 3-7 graded)
$275k max cont. limit
403(b) - correct answer ✔✔-501(c)(3) - hospitals and public schools
-limited investment choices: mutual fund or annuities
-special catch-up with 15 years of service with same employer $3k = (33,500)
457(b) - correct answer ✔✔-government and non-profit
-special catch-up (for last three years of service)
-up to twice normal contribution limit ($46k)
-the 50+ catch up of 7500 CANNOT be used in same year as special
NO 10% penalty for withdrawal prior to 59.5
NOT aggregated with other salary deferrals
NOT considered active participant for IRA deduction purposes
SE Tax - correct answer ✔✔Schedule SE 1040
15.3% tax rate (12.4 SS and 2.9 Medicare)
- only applies to wage base below $168,600 (shortcut)
- excess earnings above this are only subject to medicare 2.9%
already passed
DC Plans - correct answer ✔✔-do not guarantee final benefit
-only dc plans have participant directed accounts
-tend to favor younger participants with more years to accumulate
-participant bears investment risk
-profit sharing plans, 401(k), ESOP - require substantial or recurring employer contributions (but not
required annually)
-DC Pension Plans:
money purchase pension (younger participants)
target benefit pension plan (younger or older participants)
- require mandatory employer contributions
- no more than 10% in employer stock
- 100% employer funded
-3-year cliff or 2-6 year graded
Annual additions limit inlcudes:
-employer contributions
-employee elective deferrals
-reallocated forfeitures
DB Plans - correct answer ✔✔-guarantees benefit, PBGC Insurance
-skews benefits to older participants
-sponsor bears investment risk
, -annual actuarial work required
-most administratively expensive
Cash Balance pension plan (must use 3-yr cliff)
easier to understand for employees
Traditional Defined benefit Pension Plan (5-yr cliff of 3-7 graded)
$275k max cont. limit
403(b) - correct answer ✔✔-501(c)(3) - hospitals and public schools
-limited investment choices: mutual fund or annuities
-special catch-up with 15 years of service with same employer $3k = (33,500)
457(b) - correct answer ✔✔-government and non-profit
-special catch-up (for last three years of service)
-up to twice normal contribution limit ($46k)
-the 50+ catch up of 7500 CANNOT be used in same year as special
NO 10% penalty for withdrawal prior to 59.5
NOT aggregated with other salary deferrals
NOT considered active participant for IRA deduction purposes
SE Tax - correct answer ✔✔Schedule SE 1040
15.3% tax rate (12.4 SS and 2.9 Medicare)
- only applies to wage base below $168,600 (shortcut)
- excess earnings above this are only subject to medicare 2.9%
