Chartered Financial Consultant (ChFC) Retirement Planning and Employee Benefits Syllabus

What is the 2024 IRA contribution limit and the age-50 catch-up amount?

$7{,}000 for 2024, plus a $1{,}000 catch-up for those age 50 and older (total $8{,}000).

What two conditions make a Roth IRA distribution 'qualified' (tax- and penalty-free)?

The account must satisfy the 5-year holding period AND the distribution must be made after age $59\tfrac{1}{2}$, due to death, disability, or for a first-time home purchase (up to $10{,}000).

How does a SEP IRA work and what is the employer contribution limit for 2024?

A Simplified Employee Pension lets an employer contribute to employees' IRAs. The 2024 limit is the lesser of 25% of compensation or $69{,}000. Only the employer contributes, and contributions must be uniform as a percentage of pay.

What are the employee deferral limit and required employer contribution options for a SIMPLE IRA in 2024?

Employee deferral limit is $16{,}000 (plus $3{,}500 catch-up at age 50). The employer must either match dollar-for-dollar up to 3% of pay or make a 2% nonelective contribution for all eligible employees.

Which type of employer sponsors a 403(b) plan, and what investment vehicles were traditionally permitted?

Public schools and 501(c)(3) tax-exempt organizations sponsor 403(b) plans. They originally held annuity contracts ('tax-sheltered annuities') and mutual funds held in custodial accounts.

What distinguishes a governmental 457(b) plan's catch-up and distribution rules from a 401(k)?

A 457(b) allows a special 'final-three-year' catch-up (up to twice the normal limit), and—because it is not subject to the §72(t) penalty—distributions upon separation from service are not subject to the 10% early-withdrawal penalty regardless of age.

What is the key advantage of being able to contribute to both a 457(b) and a 403(b)/401(k) at the same employer?

The deferral limits are separate (not aggregated), so an eligible employee can defer the full elective limit ($23{,}000 in 2024) to each plan, effectively doubling pre-tax deferrals.

What is nonqualified deferred compensation (NQDC), and why is it 'unfunded'?

NQDC is an employer promise to pay compensation in a future year, used to provide benefits beyond qualified-plan limits, usually for executives. It must remain an unsecured promise (unfunded) so the employee can defer taxation; if funded/secured, the employee is taxed currently.

What does IRC §409A regulate, and what is the penalty for violation?

§409A governs the timing of deferral elections and distributions for NQDC. Violations cause immediate taxation of all vested deferrals plus a 20% additional federal penalty tax and interest.

What is a 'rabbi trust' and what risk does it not protect against?

A rabbi trust is an irrevocable trust holding NQDC assets that protects the executive against the employer's change of heart or change of control, but the assets remain subject to the employer's general creditors in bankruptcy—so it does not protect against employer insolvency.

At what age do Required Minimum Distributions (RMDs) currently begin under SECURE 2.0, and what is the penalty for failing to take one?

RMDs begin at age 73 (rising to 75 in 2033). The excise tax for a missed RMD is 25% of the shortfall, reduced to 10% if corrected within the correction window.

What is the 10% early withdrawal penalty under IRC §72(t), and name three common exceptions.

A 10% additional tax applies to distributions from qualified plans/IRAs before age $59\tfrac{1}{2}$. Exceptions include: death, disability, substantially equal periodic payments (72(t) SEPP), qualified higher-education expenses (IRAs), first-home purchase up to $10{,}000 (IRAs), and medical expenses exceeding the AGI threshold.

How is Social Security's Primary Insurance Amount (PIA) based, and how many credits are needed to be fully insured?

The PIA is computed from the Average Indexed Monthly Earnings (AIME) over the highest 35 years, run through a progressive bend-point formula. A worker needs 40 quarters of coverage (credits)—about 10 years of work—to be fully insured.

How are Social Security retirement benefits adjusted for claiming early versus delaying past Full Retirement Age (FRA)?

Claiming at 62 permanently reduces benefits (up to about 30% below FRA). Delaying past FRA earns delayed retirement credits of 8% per year up to age 70, increasing the benefit.

What is the 4% rule for retirement withdrawals?

A guideline (Bengen) that withdrawing 4% of the initial portfolio in year one, then adjusting that dollar amount for inflation each year, historically sustained a 30-year retirement with high probability for a balanced stock/bond portfolio.

Contrast a 'systematic withdrawal' strategy with a 'bucket' (time-segmentation) strategy.

Systematic withdrawal takes a fixed or fixed-percentage amount from a single diversified portfolio. The bucket strategy segments assets by time horizon—cash for near-term spending, bonds for mid-term, equities for long-term—to reduce sequence-of-returns risk by avoiding selling stocks in down markets.

What is a guaranteed lifetime withdrawal benefit (GLWB) rider on an annuity?

An optional rider on a variable or fixed-indexed annuity that guarantees the owner can withdraw a set percentage of a 'benefit base' for life, even if the underlying account value falls to zero, while retaining access to remaining account value.

Distinguish an immediate annuity (SPIA) from a deferred annuity.

A single-premium immediate annuity (SPIA) is purchased with a lump sum and begins income payments within one period—used to create a pension-like income. A deferred annuity accumulates value during a deferral period before annuitization, used for tax-deferred growth.

How is the taxable portion of a nonqualified immediate annuity payment determined?

Via the exclusion ratio: $$\text{Exclusion Ratio} = \frac{\text{Investment in the Contract}}{\text{Expected Total Return}}$$ The excluded portion is a tax-free return of basis; the remainder is taxable as ordinary income until basis is recovered.

What is a Qualified Longevity Annuity Contract (QLAC) and its main benefit?

A QLAC is a deferred income annuity purchased inside a qualified plan/IRA that begins payments as late as age 85. Its value is excluded from RMD calculations (up to the indexed dollar limit), reducing earlier RMDs and hedging longevity risk.

For employer-provided group term life insurance, how much coverage is tax-free to the employee and how is the excess taxed?

Up to $50{,}000 of coverage is tax-free under IRC §79. The cost of coverage above $50{,}000 is imputed income to the employee, valued using the IRS Table I uniform premium rates.

How are benefits taxed under an employer-paid group long-term disability (LTD) plan versus an employee-paid plan?

If the employer pays the premiums (and they are not included in the employee's income), the disability benefits are taxable to the employee. If the employee pays premiums with after-tax dollars, the benefits are received income-tax-free.

What is the typical benefit structure of a group long-term disability plan?

It replaces roughly 60% of pre-disability income, after an elimination (waiting) period of 90–180 days, often using an 'own occupation' definition initially that may switch to 'any occupation' after about 24 months.

What is a Section 125 cafeteria plan?

An IRC §125 plan that lets employees choose between taxable cash and qualified nontaxable benefits (e.g., health insurance, FSAs) using pre-tax salary reductions, reducing the employee's taxable income and payroll taxes.

Compare a Health FSA with a Health Savings Account (HSA) on the 'use-it-or-lose-it' and portability features.

A Health FSA is generally use-it-or-lose-it (limited carryover/grace period allowed) and is not portable. An HSA is fully owned by the employee, has no forfeiture, rolls over indefinitely, and is portable, but requires enrollment in a qualified high-deductible health plan (HDHP).

What is the maximum elective deferral aggregate limit (IRC §402(g)) and why does it matter across multiple employers?

The §402(g) limit ($23{,}000 in 2024) caps an individual's total elective deferrals to all 401(k)/403(b)/SIMPLE-type plans combined. An employee with two unrelated employers must self-monitor to avoid exceeding it and creating an excess deferral.

What is top-heavy status in a qualified plan and what does it trigger?

A plan is top-heavy when key employees hold more than 60% of plan account balances/benefits. It triggers a minimum employer contribution (generally 3% of pay) for non-key employees and accelerated vesting requirements.

Compare the two permitted vesting schedules for employer matching contributions in a defined contribution plan.

Either 3-year cliff vesting (0% until 3 years, then 100%) or 2-to-6-year graded vesting (20% per year from years 2 through 6). Employee elective deferrals are always 100% immediately vested.

What is the Saver's Credit and who qualifies?

A nonrefundable federal tax credit (10%, 20%, or 50% of up to $2{,}000 contributed to a retirement plan/IRA) available to lower-income taxpayers who are not full-time students or dependents, with the credit rate phasing down as income rises.

How are Social Security benefits taxed at the federal level?

Up to 85% of benefits may be taxable depending on 'provisional income' (AGI + tax-exempt interest + 50% of benefits). Below the lower threshold, 0% is taxable; between thresholds up to 50% is taxable; above the upper threshold up to 85% is taxable.

What is a Pension Benefit Guaranty Corporation (PBGC) and which plans does it insure?

The PBGC is a federal corporation created by ERISA that insures most private-sector defined benefit pension plans, paying participants a guaranteed (capped) benefit if the plan terminates without sufficient assets. Defined contribution plans are not covered.