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FSCP: Elective 1 - HS 300: Foundations of Retirement Planning

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Elective 1 - HS 300: Foundations of Retirement Planning

HS 300 tests the retirement planning core: plan types, contribution and distribution rules, ERISA basics, Social Security claiming and how to build a retirement needs estimate. Expect rule-recognition items and one-step calculations rather than full projections.

Plan landscape

  • Defined contribution plans (401(k), 403(b), 457(b), profit sharing): account-based, participant bears investment risk.
  • Defined benefit plans promise a benefit; the employer bears investment risk and funds actuarially.
  • ERISA imposes fiduciary duties (loyalty, prudence, diversification), vesting rules, nondiscrimination testing and Form 5500 reporting.
  • 2025 indexed limits: elective deferral $23,500; age-50 catch-up $7,500; special catch-up $11,250 for ages 60–63; IRA $7,000 plus $1,000; total defined contribution limit $70,000. Confirm the year you sit.

Distributions

  • A 10% additional tax applies before 59½ with exceptions including death, disability, IRS levy, QDRO, qualifying birth or adoption, medical expenses above the AGI threshold, substantially equal periodic payments under 72(t), and separation from service at age 55 or later for that employer's qualified plan - the age-55 exception does not apply to IRAs.
  • Required minimum distributions begin at 73 (75 for those born in 1960 or later). Roth IRAs have no lifetime RMDs; Roth 401(k) lifetime RMDs were eliminated beginning in 2024.
  • Direct trustee-to-trustee rollovers avoid withholding; an indirect 60-day rollover is distributed with 20% withheld, which the client must replace from other funds.

Social Security

  • Claiming before full retirement age reduces the benefit; FRA is 67 for those born in 1960 or later; delayed credits add 8% per year to age 70.
  • Spousal benefit up to 50% of the worker's PIA at the spouse's FRA; survivor benefit up to 100%.
  • The earnings test applies before FRA.

Worked example

PIA $2,400 at FRA 67. Claim at 62: 30% reduction = $1,680. Claim at 70: 24% increase = $2,976. The gap is $1,296 monthly, and cumulative breakeven for a single life falls near age 80–81. For a married couple the higher benefit also lifts the survivor benefit. Reasoning: claiming is a longevity and survivor decision, not a simple break-even calculation.

Traps that cost marks

  • Extending the age-55 separation exception to IRAs.
  • Assuming the age-59½ penalty rule matches plan loan or withholding rules.
  • Forgetting 20% withholding on indirect rollovers.
  • Treating a Roth 401(k) as having pre-2024 lifetime RMDs, or as tax-free on withdrawal of earnings before qualified status.
  • Defaulting every client to claiming Social Security at 62.