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Pension Evaluation
Basic Pension Principles
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Collection Laws and Exemptions by State
Tax Treatment in Pension Evaluation
Distribution from Qualified Plans
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DB (k) Plan: "A retirement plan that combines some of the characteristics of a 401(k) plan with those of a defined benefit (DB) plan. Funds can be voluntarily contributed to the DB (k) plan just as they can with a 401(k) plan, with the employer retaining the option to match the funds up to a certain percentage. Upon retirement, the employer will also pay the employee a small percentage of his or her salary, which is similar to a traditional pension.
The DB (k) plan was included in the Pension Protection Act of 2006."

Death Benefit: "The amount on a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away. (Also known as "survivor benefit.")"

Death Taxes: "Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the beneficiary that receives the property in the deceased's will; the tax amount is based on the property's value at the time of the owner's death. Also called death duties or inheritance tax."

Decedent: "A person who is no longer living. Just as a taxpayer's possessions become his or her estate upon death, so does the person become a Decedent upon death. Decedents still have the power to effect financial transactions and so forth through proper estate planning."

Decedent (IRD) Deduction: "The decedent or IRD deduction stands for Income in Respect of a Decedent deduction. It is an IRS term that refers to inherited income that is subject to federal income tax. It refers to income which was earned by the decedent during his or her lifetime, but the tax was not yet paid on the funds at the time of death. This income is subject to be being taxed as income for the beneficiary."

Declaration Of Trust: "A statement made by the title holder of a piece of property that the property is being held for the benefit of another person. The property is placed in a trust, with a trustee overseeing the asset. The declaration outlines who the trust is in benefit of, who can amend or revoke the trust (if it can be amended at all), who will serve as trustee and what powers the trustee holds, and information regarding what is to happen if a beneficiary wants to receive distributions."

Deferred Account: "An account that postpones tax liabilities until a future date. A deferred account refers to one where there is a deferral of tax, usually in accounts specifically designed for retirement, such as an Individual Retirement Account (IRA) in the U.S. Deferred accounts have proved to be enormously popular since their introduction, especially as fewer companies offer pensions and the burden of saving for retirement has shifted to individuals."

Deferred Payment Annuity: "An annuity where the payments received will start sometime in the future, as opposed to starting when the annuity is initiated. An annuity is a financial contract that allows the buyer to make a lump-sum payment, or a series of payments, in exchange for receiving future periodic disbursements. A deferred payment annuity allows the investment to grow both by contributions and interest before payments start coming back. Also known as a deferred annuity."

Defined-Benefit Plan: "An employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.

Also known as "qualified benefit plan" or "non-qualified benefit plan."

Defined-Contribution Plan: "A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties."

Designated Beneficiary: "The person who determines how long the retirement plan will survive as a tax-deferred vehicle under the laws governing certain retirement plans. The designated beneficiary must be a person, or in certain situations, a trust for designated individuals."

Designated Roth Account: "An individual retirement plan in which employees can have all or a portion of contributions to a 401(k) or 403(b) placed into a separate Roth retirement account. Contributions made to a designated Roth account are considered to be to a separate account within the 401(k) or 403(b) plan, and contributions, gains and losses are accounted for separately from regular 401(k) or 403(b) contributions."

Determination Letter: "A formal document issued by the IRS that decrees whether or not the retirement plan of the addressee is within Employee Retirement Income Security Act (ERISA) guidelines. If the plan is determined to be lacking in some respect, the shortcomings and necessary action to be taken will be listed. If the plan meets all of the requirements set forth by ERISA, then the plan becomes certified as a qualified plan and is eligible for all resulting tax benefits."

Direct Rollover: "A distribution of eligible rollover assets from a qualified plan, 403(b) plan, or a governmental 457 plan to a Traditional IRA, qualified plan, 403(b) plan, or a governmental 457 plan; or a distribution from an IRA to a qualified plan, 403(b) plan or a governmental 457 plan."

Direct Transfer: "A transfer of assets from one type of tax-deferred retirement plan or account to another. Direct transfers are not considered to be distributions and are therefore not taxable as income or subject to any penalties for early distribution. This type of transfer is now usually done electronically, without a check being cut from one custodian to another."

Disability Insurance: "A program managed by the Social Security Administration that insures a worker in case of a mishap. Disability insurance offers income protection to individuals who become disabled for a long period of time, and as a result can no longer work during that time period. Employees who've paid the Federal Insurance Contributions Act (FICA) tax for a certain amount of time, are eligible to receive the Social Security disability income insurance. Also referred to as disability-income insurance."

Disability Insurance Trust Fund: "An account within the Social Security Trust Fund used to pay benefits to individuals deemed to be disabled and incapable of productive work. The Disability Insurance Trust Fund receives deposits from FICA considered to be over and above the amount needed for day-to-day operations of disability insurance under social security. These funds are held in trust and any funds not required for current expenses are invested in interest-bearing federal securities."

Disclaimer Trust: "A trust that has embedded provisions (usually contained in a will) which allow a surviving spouse to put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are transferred to the trust, without being taxed.

Provisions can be written into the trust that provide for regular payouts from the trust to support survivors. Surviving minor children can also be provided for, as long as the surviving spouse elects to disclaim inherited assets, passing them on to the trust.

Disclosure Statement: "1.A document explaining the rules of an IRA in plain, nontechnical language. This must be provided to the IRA owner at least seven days before the IRA is established, or it can be provided to the IRA owner at the time the IRA is being established providing the IRA owner is given seven days within which he/she may revoke the IRA.

2. A document outlining the specific terms and conditions of a loan, including the interest rate of the loan, any loan fees, the amount borrowed, insurance, prepayment rights and the responsibilities of the borrower."

Discretionary Beneficiary: "Discretionary beneficiaries are those named in a trust or similar document to whom distributions may be made. While discretionary beneficiaries may apply for distributions, it is up to the trustees to determine whether the payment will be made. In the United States, a discretionary beneficiary has no legal proprietary interest in the trust."

Distribution In Kind: "A payment made in the form of securities or other property, rather than in cash. A distribution in kind may be made in several different situations, including a stock dividend, inheritance or taking securities out of a tax-deferred account. It can also refer to the transferal of an asset to a beneficiary over the option of liquidating the position and transferring the cash. (Also referred to as a "distribution in specie.)"

Do-Over Option: "Allows Social Security recipients to remove their original application for benefits and re-file at a later age. The point of the do-over option is to enable Social Security recipients who started receiving monthly benefits earlier (earliest is 62 years of age) to return funds or pay back the Social Security Administration all funds previously received without having to pay interest or penalties on this money. This will allow recipients to file for Social Security benefits again later and thus receive a higher monthly check for as long as they live. Also referred to as the "reset" option."

Donee Beneficiary: "A person who is considered a non-party in a contract but still receives a benefit from the completion of the contract. A donee beneficiary could also be the third party that benefits from a donation or gift. For example, Sam (donor) promises to gift a gold watch to Phil (donee). To get this watch Sam will buy it from Mike (third party). In this case, Mike is the donee beneficiary in Sam and Phil's exchange. If Sam went back on his promise, Mike would not sell the watch. Mike benefits but is not actually part of the contract. (Also known as a third party beneficiary.)"

Double Advantage Safe Harbor 401(k) (DASH 401(k)): "An employer-sponsored retirement plan, that combines the benefits of a 401(k) with a profit sharing plan. The Double Advantage Safe Harbor 401(k) (DASH401(k)), maximizes tax efficiency by stacking several tax code provisions.

There are three steps to creating a DASH401(k):

  • First, the employer makes 3\% vested contributions to elect "safe harbor" plan status. This buys the plan an exemption from the ADP testing requirements and thus allows higher paid employees to maximize their elective deferrals.
  • Because the ADP testing requirements have been removed, the second step is to maximize elective deferrals by the highly paid employees (i.e. employee contributions).
  • Additional profit sharing employer contributions are then made. Calculations are made to determine the amount of additional contributions that can be made without diluting the allocations to the business owner.

Dynasty Trust: "Long-term trusts created to pass wealth from generation to generation without incurring transfer taxes such as estate and gift tax. The dynasty trust's defining characteristic is its term. The trust can survive for 21 years after the death of the last beneficiary who was alive when the trust was set up, and it can theoretically last for more than 100 years. The beneficiaries of a dynasty trust are usually the grantor's children, and after the death of the last child, the grantor's grandchildren or great-grandchildren generally become the beneficiaries. The trust's operation is controlled by the trustee who is appointed by the grantor. The dynasty trust is irrevocable, which means that once it is funded, the grantor will not have any control over the assets or be permitted to amend the trust terms."

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