Retirement Planning
Domain 3 tests accumulation and distribution rules: which plan fits, how much can go in, when money must come out, and how each dollar is taxed. Numbers are indexed annually, so learn the mechanics and confirm the current-year limits.
Employer plans
- Qualified plans give the employer a current deduction and the participant tax deferral, in exchange for ERISA coverage, vesting rules (3-year cliff or 2–6 year graded), and nondiscrimination testing - ADP/ACP for 401(k) deferrals and top-heavy testing at 60% key employees.
- Defined benefit plans promise a benefit; defined contribution plans promise only the contribution. 401(k) covers for-profit employers, 403(b) nonprofits and schools, 457(b) state and local government.
- 2024 limits: 401(k) elective deferral $23,000, age-50 catch-up $7,500, ages 60–63 catch-up $11,250; IRA $7,000 plus $1,000.
IRAs and distributions
- Traditional IRA deductions phase out for active plan participants; Roth contributions have income limits, though conversion income limits were repealed.
- Required minimum distributions begin at 73 (75 for those born in 1960 or later). Roth IRAs have no lifetime RMDs.
- Exceptions to the 10% early-withdrawal penalty include 72(t) substantially equal periodic payments, disability, death, qualified higher education, $10,000 first home, $5,000 birth or adoption, and medical expenses above 7.5% of AGI.
- 60-day rollovers must be completed in 60 days; indirect rollovers face 20% mandatory withholding.
Social Security
AIME is converted to PIA through bend points. Claiming at 62 cuts the benefit by up to 30%; waiting to 70 adds 8% per year past full retirement age, which is 67 for those born in 1960 or later. Up to 85% of benefits can be taxable.
Worked example
Saving $6,000 a year at 6% for 30 years: future value = $6,000 × [(1.06^30 − 1) ÷ 0.06] = $6,000 × 79.058 = $474,348.
Traps that cost marks
Assuming Roth 401(k) balances still require lifetime RMDs (that requirement was repealed); forgetting the 20% withholding on indirect rollovers; and missing that a Roth IRA's five-year clock runs separately for earnings and conversions.