PF Exam #2

  • if stock is held for 60 days or less when a dividend is earned, it’s called an ordinary dividend and taxed as income

  • if stock is held for more than 60 days when a dividend is earned, it’s called a qualified dividend and taxed as capital gains

  • if you sell stock you’ve held for year or less, it’s called a short term gain and is taxed as income

  • if you sell stock you’ve held for more than a year, it’s called a long term gain and is taxed as capital gains

  • municipal bonds don’t pay federal taxes

  • if you’re making more now than you will later, go traditional

  • if you’re making less now than you will later, go roth

  • if you’re making the same now that you will later, probably go roth

  • the maximum contribution limit for roth and traditional IRA’s combined is $7,000 or your income (whichever is less)

  • if single, a MAGI over $150,000 disqualifies you from contributing the maximum to a Roth IRA

  • if married and filing jointly, a MAGI over $236,000 disqualifies you from contributing the maximum to a Roth IRA

  • if married and filing separately, you can only contribute to a Roth IRS if one partner’s MAGICAL is less than $10,000

  • if you’re over 50, your maximum contribution limit for IRA’s is moved up to $8,000

  • to withdraw contributions from a Roth IRA before 59.5, you must fill out a 1099-R form

  • Roth IRA’s do not have required minimum distributions (which are government forced withdrawals, usually at 73)

  • with rollover IRA’s, the tax nature remains in tact, be it Roth or Traditional

  • withdrawals from Rollover IRA’s, Traditional or Roth, cannot be made at all (even contributions) until 59.5

  • with Traditional IRA’s, people above a certain modified adjusted gross incomes can contribute but it won’t affect their current tax rate, essentially making it useless

  • you can’t deposit money from a checking account into a 401(k)

  • 401(k) contributions are made by paycheck deductions

  • for most, the maximum annual contribution to a 401(k) plan is $23,500

  • employees over 50 can contribute up to $31,000 because of the $7,500 “catch-up contributions”

  • Roth 401(k) contributions withdrawn before age 59.5 aren’t taxed or penalized but withdrawals are done on a pro-rated basis

  • Traditional 401(k) plans have RMD’s

  • the 401(a) plan is the most uniques; employees have no control of the contribution amount; employers must contribute to a employees plan and the percent contributed is the same for all employees; total contribution limit is $70k; these plans are always traditional in nature; withdrawals are taxed as income and can only be done after 59.5

  • 403(b) plans are almost identical to 401(k) plans; employees choose how much they want to contribute; employer matches are permitted, plans can be traditional or roth, and catchup contributions are permitted

  • 457(b) plans have many of the same elements but several unique; employees choose how much they want to contribute; employer matches are permitted; plans can be traditional or roth; catch up contributions are permitted; you can withdraw as soon as your relationship with your employer terminates; they are optimal for those planning to retire early; if you’re still working at the same firm you cannot withdraw until 65; money technically isn’t yours until you collect it which adds some risk; some have odd withdrawal rules like lump sum

  • in HSA’s, you can’t deposit money access funds at age 65 for non medical reasons, but the withdrawals are taxed as income (but still skip social security and medicare)

  • if you get your HSA through your employment’s insurance, your contributions are made by paycheck deductions

  • the single filer limit for an HSA is $4,300

  • the family maximum for an HSA is $8,550

  • company matches do count against the maximum contribution limit for HSA’s but not other accounts

  • if you are not a full-time college student, if you’re covered by a high deductible plan, if you’re not covered by a non-high deductible plan, if you’re not a dependent, if you’re over 18, and you’re not enrolled in Medicare, Medicaid, TRICARE, or CHIP, you can contribute to your your HSA as a member of your parent’s health insurance plan and your contribution (maximum of $8,550 per year) do not count against your parents yearly maximum

  • place your international stocks in a brokerage account

  • place your US stocks in Roth accounts

  • place your bonds in Traditional shelters

  • HSA’s should be your final allocation destination

  • with pensions, part of your salary is withheld meaning you don’t pay income tax, but it doesn’t affect social security it or medicare taxes

  • Annual Pension Payment formula usually equal some constant percentage times years of service times the average of some number of adjacent years of highest paying salary

  • incentives created by pensions include working more years, maximizing salary, staying at a job, and banking sick/vacation days