1. Taxes & Retirement
Donna M. Kesot, CPCU
CPCU 556 Annuities
April 25, 2012

2. Generally, creation of a formal irrevocable trust into which the
donor (as grantor of the trust) places property that is subject to the
trust
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)

3. Contribution Base
Cash Contributions to public charities–50% of the contribution base
Long-Term Capital Gain Property—full value up to 30% of contribution
base, e.g. stocks/bonds, real estate
Private Foundations—full value up to 20% of contribution base
Short-Term Capital Gain Property-50% of the contribution base
Tangible Personal Property- full fair market value up to 30% of
contribution base

4. Match the tax section
Section 1031 Mergers
Section 1041 Partnerships
Section 721 Like-Kind Exchanges
Section 351 Between SpousesDivorce
Section 354 Corporations

5. These plans allow individuals to invest pre-tax
and provide tax-deferred earnings
Traditional IRA
401(k) plans, other than Roth
403(b) plans, other than Roth
457 deferred compensation plans

6. A 403(B) is a qualified retirement plan that for
employees of local, state, or federal governments
and agencies.
TRUE or FALSE?
Real Answer:
A 403(b) PLAN IS A TAX FAVORED RETIREMENT PLAN FOR
EMPLOYEES OR CERTAIN NONPROFIT ORGANIZATIONS

7. Step Up in Basis at Death
Gifts to charity
Use of exclusion provisions in the tax law, e.g. sale of primary
home, corp exclusion of up to 50% gain on QUALIFIED small business
stock from start up

8. • 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

9. Like Kind Exchanges
Tax free corporate reorganizations
Equity Collars with monetizing the hedged stock, e.g. puts on hedged
stocks from employee stock options (other examples p. 294)
Exchange Funds

10. 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 & C
Right Answer: Qualified Retirement Plans are spelled out in 401 (k). Correct answer (d) A& B. Pension
Plans, Profit Sharing Plans, Savings/Thrift Plans, Stock bonus plans, Employee Stock Ownership Plans
(ESOP), Keogh Plans

11. Method used to estimate needed retirement income based on a
percentage 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

12. 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

13. A retirement plan that meets the requirements established
by the IRS for favorable tax treatment

14. A retirement savings plan
By which an individual can use tax-deductible
And tax deferred methods
For accumulating wealth.

15. Tax deductible
Tax Free
Tax deferred
Currently taxable

16. 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

17. Nonforfeitable right to his/her account balance under a defined-
contribution plan or to an accrued benefit under a defined=benefit
plan that results for employer contributions to the plan

18. • 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)

19. A Qualified 401(k) plan meets the IRS rules in
section 401(k) & participants may choose to
contribute to the plan with before-tax dollars

20. Highly secure, liquid investment that investors commonly use for the
liquid portion of their investment portfolios

21. Relatively safe
Liquid investment
Such as securities issued or guaranteed by the federal
government, certificates of deposit, banker’s
acceptances, euro dollars, and commercial paper