Maxing Out Qualified Plans

Instructions: Reread textbook sections plan limitations on benefits and contributions (Dalton & Dalton, 2018, 14^thedition, pages 117-125 and complete the activities below:

Case problem: Kara and Kent went to high school together back in the 1970s and reconnected after finding each other (during 2000s) on an early social media website called MyFace. They experienced very similar life paths; each had been a stay-at-home parent until their children were grown and then they each began tech careers later in life (after age 50). Now it is the end of 2018, each is age 66, and ready to retire. During their short careers, each did what they could to maximize the benefits of having qualified retirement plans. In some cases they were effective and other times, less so.

Step 1. Defined Benefit Limit. Kara went into sales for a municipal cable/fiber-optic installation company that offered a defined benefit retirement plan. When Kara was age 62, she thought about retiring, but she actually retired at age 66. Calculate the retirement income from her pension in the first year of retirement under each scenario. How much is the difference between Karas pension and the maximum pension that was permissible by law? Show your calculations.

Companys Defined Benefit Formula: (1.5% x Years x Ave of 3 highest consecutive years income)
Year	Covered Compensation Limits	Karas Annual Income
		If retired at age 62		If retired at age 66
2008	$230,000	$175,000		$175,000
2009	$245,000	$400,000		$400,000
2010	$245,000	$220,000		$220,000
2011	$245,000	$250,000		$250,000
2012	$250,000	$265,000		$265,000
2013	$255,000	$280,000		$280,000
2014	$260,000	$300,000		$300,000
2015	$265,000	--		$350,000
2016	$265,000	--		$355,000
2017	$270,000	--		$360,000
2018	$275,000	--		$365,000
	2014 Ret. Income			NA
	2018 Ret. Income	NA	NA
	Difference from Max

Step 2. Contributions to 401(k) Plans. Kent worked in research and development for a computer hardware manufacturer that specializes in ergonomic products. The company sponsors a 401(k) defined contribution plan that Kent and his employer have been contributing to since 2008. Kent and his Employer have been maxing out the contributions to his plan and it has been growing at 8% since the first end-of-year contributions in 2008. How much has each contributed and what is the total value of the retirement account? (Remember, each has separately contributed the max possible to the accountstart by maxing out Kents contributions and fill-in with the employer contributions.)

Year	Contribution Limits			Kents Income	Contributions		Cumulative Account Value
	Employee Deferral	*Total Contribution	Catchup (age 50)		Kents Contribution	Employers Contribution
2008	$15,500	$46,000	$5,000	$42,000
2009	$16,500	$49,000	$5,500	$45,000
2010	$16,500	$49,000	$5,500	$66,000
2011	$16,500	$49,000	$5,500	$80,000
2012	$17,000	$50,000	$5,500	$95,000
2013	$17,500	$51,000	$5,500	$114,000
2014	$17,500	$52,000	$5,500	$126,000
2015	$18,000	$53,000	$6,000	$138,000
2016	$18,000	$53,000	$6,000	$150,000
2017	$18,000	$54,000	$6,000	$155,000
2018	$18,500	$55,000	$6,000	$160,000
*Maximum is lesser of amount shown or 100% of total compensation. Catchup can be on top of this limit, but not exceed income limit.					Account Value at Retirement