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CFP > Retirement > Flashcards

Retirement Flashcards

1
Q

Partnerships don’t offer ESOPs because

A

Partnerships don’t issue stocks

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2
Q

Do active participant plan rules apply to contributions for Roth IRAs?

A

No

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3
Q

SS max benefit Salary

A

$142,800

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4
Q

SS rules say that you can or can’t apply for SS and suspend then file again later?

A

Can’t

From time of application, you can withdraw application and return excess SS benefit paid out

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5
Q

In a NQ plan the earnings are ____ to employer

A

taxable

whereas a qualified plan the benefits are tax deferred to the employee

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6
Q

Defined Benefit plans include

NQ plans include

Qualified plans include

A

DB and CB Plans (Defined Benefit and Cash Balance Plan)

SIMPLE, SEP, SARSEP, 403(b)/TSA/TSP

Money-Purchase, Target Benefit, Profit sharing (401K), Stock Bonus (ESOP)

(almost all of these plans contribute to the LESSER of $ amount or 100% salary)

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7
Q

Money Purchase Pension Plan max contribution

A

Lesser of 100% salary OR $58K

(employer contributions are mandatory)

(***This plan is unique compared to the DB plans, and the Target benefit plan because it acts just like a DB plan, but the contributions are capped at $58K instead of $230 like a DB plan. It’s unique from Target Benefit Pension Plan because it favors younger employees)

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8
Q

Target Benefit Pension Plan

A

Lesser of 100% of salary or $58K at time of current salary. Amount is contributed annually to amount to the target retirement benefit. (no $290 cap like Money Purchase and no guarantee that funds will be paid out)

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9
Q

Profit sharing plan employer max contribution %?

A

25% or 100% of salary

(employer has flexible contributions, so could be 0% contribution)

(forfeitures also have same distribution rules for target benefit and money purchase)

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10
Q

ESOP must primarily invest in what stock?

A

Stock of the employer

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11
Q

Cross testing requires the HCE to contribute the lesser of ____ or ____ to NHCE

Which plans can not be cross-tested?

A

1/3 plan contributions or 5%

ESOPs

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12
Q

Defined benefit plans have a max for the lesser of ___ or ___

A

$230K or 100% of average salary capped at $290K

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13
Q

Unit benefit formula

Final averaging formula

A

factor % times years of service

average of last few years of salary

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14
Q

When are hardship withdraws allowed for profit sharing plans?

A

At anytime due to financial needs test (still has 10% penalty)

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15
Q

If more than ___% owner then must take RMD of company plan by age?

A

5% owner by age 72 (regardless if still working or not)

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16
Q

If a minor works apart of a parents business, what tax do they not pay? Are they eligible for SS?

A

No FICA tax, and not eligible for SS

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17
Q

Dependent eligible for SS?

A

18 or younger and in school

disabled child at any age (disability before 22) (same for spouse with a dependent)

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18
Q

SS has a lump sum benefit of $___ at death?

A

$255

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19
Q

Widower of SS claimant gets what % of SS from decedent?

A

100% (50% or their own benefit while living)

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20
Q

early SS calculation

delayed SS calculation

A

x months / 180 months

$1 deduction for every $2 (middle income bracket given on the exam)
$ deduction for every $3 (top income bracket given on the exam)

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21
Q

Defined Benefit and Defined Contribution salary cap?

Simple IRA salary cap?

Defined contribution max contribution?

Defined Benefit max contribution?

Tandem plans -

A

DB/DC - $290K

Simple IRA - $450K (defacto salary cap)

DC - $58K

DB - stuff it like a pig!

Plans in tandem are the wrong answer!

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22
Q

When can a corporation receive a tax deduction for delivery of an ISO?

A

If the ISO become disqualified (meaning the employee sold before the two year / one year holding period)

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23
Q

Do Traditional 401(k) plan have to pass ADP and ACP testing?

A

Yes

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24
Q

QDROs do not apply to what type of retirement accounts and why?

A

IRAs (INDIVIDUAL retirement account)

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25
Q

Are DB plans exempt from creditors?

A

Yes

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26
Q

Do DB Plans allow for past credit service?

A

Yes

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27
Q

What 1 characteristics all DC plans have?

A

up to 25% employer deduction or 100% of salary ($58K max)

The deduction has the employees salary reduction included in that total 25% deferral also

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28
Q

What DC plans have flexible contributions and what DC plans have fixed contributions?

A

Fixed - Money Purchase & Target Benefit

Flexible - Profit Sharing (401K) & Stock Bonus

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29
Q

403(b) / TSA / TDA are almost identical to what types of plans?

A

Qualified

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30
Q

Which type of Plan can be integrated with SS?

Which type of Plan can’t be integrated with SS?

A

SS integration for all plans, but only the match for 401K plans

No SS integration for ESOP and SIMPLE (also SIMPLE 401k)

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31
Q

What types of Plans have immediate vesting?

And can they continue to contribute to the plan even though they must take RMD?

A

SEPs and SIMPLEs

Yes can contribute and still have mandatory RMDs (unlike qualified plan than make you wait until separation from service)

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32
Q

DB plans; employer contributions

> older employee vs younger employee
assumed investment earnings
skill level of employee (salary)
forfeiture

A

> higher contributions for older employee; lower for younger employee
higher contributions for lower assumed investment earnings; lower contributions for higher assumed investment earnings
higher contributions for higher skill; lower contributions for lower skill level
always less contributions for forfeitures

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33
Q

Pension Benefit Guaranty Corporation (PBGC)

A

A quasi-government entity (private entity that is mingled with government resources) and insures benefits for DB plans (DB and CB Plans)

(*CB is cash benefit plan)

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34
Q

What main part separates the Defined Benefit Plan from the Cash Balance Plan?

A

Cash Balance Plan has guaranteed investment returns

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35
Q

There are no forfeitures with what type of retirement plans?

A

IRA plans

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36
Q

What is a forfeiture?

How may forfeitures be used after the event of an employee forfeiting their funds?

A

The amount remaining between what the employee contributed and the remaining maximum amount

Funds can be used to relieve the employer by splitting up amongst other plan participants

37
Q

Profit Sharing Plan is contributions from who?

A

The employer only, but section 401(k) allows for employees to participate also

38
Q

What is a CODA plan? Or Qualified Stock Plan

A

401K or sometimes referred to as a stock bonus plan

39
Q

For a 401K plan the deferral max? and contribution max?

A

Deferral max is $19,500

Contribution max is $26,000 (not included in the employer 25% deduction) (employer match is not included on the catch contribution)

40
Q

For a question asking for deferral elective, be careful not to include ___?

A

The catch-up

41
Q

For 401K plan, a match is included in the allowable ____

A

25% employer deduction or 100% of salary

42
Q

Can a hardship withdraw come from a profit sharing plan?

A

No, must come from a 401(k) plan

Tax at ordinary income plus 10% penalty

43
Q

Solo 401K has what 3 contribution benefits?

A

Deferral of $19,500
Catch-up of $6,500
Employer contribution of $58,000

44
Q

NUA has 3 parts (basis, NUA, additional gains) how is each taxed upon retirement

A

Basis is taxed as ordinary income based on the year for separation of service

NUA is taxed as Long-Term capital gains no matter how long the holding period

Additional gains are taxed as short-term/long-term capital gains based on the holding period

(NUA applied to profit sharing and ESOP plans so be careful to watch for 10% early withdraw penalty)

45
Q

__% mandatory withholding from retirement plan withdraws

A

20% mandatory withholding for retirement plan withdraws, but not for STEPP withdraws or RMDs

(doesn’t apply to 60 day transfers or direct rollovers)

46
Q

NUA loses it’s tax advantage status for two actions?

A

IRA rollover

72(t) distribution (substantial equal payments)

47
Q

Keogh plan is either a ___ or ____

A

Sole Proprietorship or Partnership

(if one of the answers says just Keogh plan instead of Keogh profit sharing, then the answer is likely wrong because just “Keogh Plan” isn’t specific enough)

48
Q

SIMPLE IRAs have a max contribution limit of $___?

Early withdraws in first 2 years have a penalty of __%

A

$13,500

25%

49
Q

SEP IRA employee requirements

A

employer can discriminate up to 3/5 years of service and at least $650 for income for current year

(SEPs are great for companies with short term employees, but bad for companies with part-time employees)

50
Q

403(b) catch ups

A

extra $3,000 for 15 years of service and extra $6,500 for age 50 (like a 401K plan)

51
Q

Highly compensated employees

Key employees

Which is for vesting / discrimination and ratio %

A

(family members are included, but not sibilings)

HCE - greater than 5% owner OR $130K

Key employee - greater than 5% owner OR greater than 1% owner & $150K OR officer w/$185K

vEsting - kEy ee (60%)

hIghly comp ee - dIscrimination (70%)

(the second letter for each match up)

52
Q

Minimum contributions for DB / DC plans

A

DB - 2% (second letter)

DC - 3% (third letter)

53
Q

Age, Service, and Time Rules

A

21 years old
2 years of service
1,000 hours worked during the year

(no number of hours worked for SEP, only years of service - 2/5 years)

54
Q

For the NHCE average deferrals, how to figure out how much HCE can defer?

A

2 x up to 2% for NCHE, then add 2% there after

If NCHE average deferral is 1% then HCE deferral can be up to 2%
If NCHE average deferral is 5% then HCE deferral can be up to 7%

55
Q

For determining to do SS integration or age-based discrimination, what factors should be considered?

A

SS Integration - owner under 50, makes under $200K, ees make under $90K

Age-based - owner over 50, makes over $200K, ees are young

56
Q

Most common approach for age-based testing is?

A

Cross-testing (aka new comparability plan)

57
Q

If you have more than one employer retirement plans, then deferrals must be _____ between all plans

A

aggregated

(can’t do more than $19,500 plus catch up across all plans, excluding 457 plans)

(this doesn’t apply to unrelated employer deferrals)

58
Q

Non permissible rollovers

A

Hardship withdraws
RMDs
Only Non Governmental 457 plans to Non Governmental 457 Plans

59
Q

No catch ups for what kind on 457 Plan?

A

Non government

60
Q

Is a 457 plan be subject to creditors?

A

Yes

61
Q

What type of employee is exempt from RMD?

A

5% owners in a qualified plan or still in-service employee (not IRAs, they are always subject to RMD)

62
Q

Substantial Equal Periodic Payments (STEPP) 72(t)

A

Allows for periodic of payments from qualified plans for 5 year period. Payments are not allowed to change even if owner has reach 59 1/2

(if owner messes up withdraw schedule, then 10% penalty on all 5 years plus interest)

63
Q

QDROs avoid what regular tax penalty?

A

the 10% withdraw penalty

64
Q

Even when Roth IRA EARNINGS meet the 5 year period, withdraws of the earnings are taxable unless?

A

59 1/2 , D&D, First Home

(other special purposes will have ordinary income tax, but will not have 10% early withdraw penalty)

(ex. contribute $4K at age 58, and withdraw $10K at age 62. $6K is taxed at ordinary income, but no 10% early withdraw penalty)

65
Q

RMDs must be taken out of an account with no named beneficiary?

A

5 years (10 years for beneficiaries)

66
Q

(not that important) Upon death of a spouse for IRAs, the RMDs can be taken out

A

can be once deceased spouse would have turned 72 or rolled into their own Roth IRA

67
Q

Do 401K Roth’s have RMD?

A

Yes (but not Roth IRAs)

68
Q

“Unfunded” aka Informally Funded would be like a company ___ plan

A

Life insurance

69
Q

Rabbi trust is a trap door and the only people that can get through the trap door are ___

A

creditors

This is an irrevocable trust

70
Q

Main reason for choosing a rabbi trust would be for?

A

Merger, acquisition, change of ownership (protects important employees during a M&A)

71
Q

ISOs miss out on what tax benefit? and are limited to how much?

A

deferred taxation

$100K, then the excess is identified as $150K

72
Q

ISO vs NSO

$20 option granted, exercised at $100, sold at $200

A

NSO - $20 basis, $80 added to basis at exercise (ordinary income tax), $100 at capital gains

ISO - $20 basis, $0 added to basis (no taxable event), $180 at capital gains, BUT must meet EGGS holding period requirements

73
Q

For life insurance to be considered “incidental” for a group plan premiums paid must amount to less than:

A

Universal - 25%
Term - 25%
Whole Life - 50%
Defined Benefit - 100x DB retirement payout

74
Q

Employee deferral and catch up max for aggregated 401k/403b & SIMPLE/SEP?

For two different 401k/403b plans?

For two different SIMPLE plans?

Which plans do not aggregate?

A

401k/403(b) & SIMPLE/SARSEP - $19,500 plus catch up $6,500

401k/403b - $19,500 plus catch up $6,500

SIMPLE - $13,500 plus catch up $3,000

457 plans do not aggregate

75
Q

Keogh Contribution

A

Self-Employment Tax must be computed and a deduction of one-half of the Self-Employment Tax must be taken before determining the Keogh deduction

If contribution 15%: multiply by 12.12% of net earnings
If contribution 25%: multiply by 18.6% of net earnings

76
Q

Stock Bonus Plan

A

Flexible contributions

Maximum Annual Contribution lesser of 100% of salary or $58K

100% of contribution can be invested in company stock

Cannot be integrated with Social Security or cross-tested

(ESOP is a provision but can not be integrated with SS)

77
Q

Money Purchase Plan

A

Fixed Contributions

Favors Young employee (unlike the Target Benefit plan)

Maximum Annual Contribution lesser of 100% or salary of $58K (2021)

78
Q

Target Benefit Plan

A

Fixed Contributions

Maximum annual contribution less of 100% of salary or $58K (2021)

Favors older workers

79
Q

Integration with SS

A

Lesser of Base % or Disparity (5.7% for DC 26.5% for DB) = Excess %

(not an important question for the test)

80
Q

Salary Reduction Plan vs. Salary Continuation Plan

A

both ways of funding an employee benefit

Reduction - employee benefit that is reduced from salary

Continuation - employee benefit that is continued salary

81
Q

Types of ERISA plans?

A

Defined Benefit (and Cash Balance)

Money Purchase

Target Benefit

Profit Sharing 401(k)

Stock Bonus

82
Q

Safe Harbor Match / Vesting

A

The statutory contribution using match first 3% then $0.50/$1 on the next 2%

OR

Mandatory 3% to all employees that’s immediately vested

83
Q

Can NUA treatment be carried over from ESOP plan?

A

Yes, but will have 20% mandatory withholding on the basis

84
Q

When both spouse are active participants in a qualified plan, what the phaseout for additional IRA contributions?

A

None

both spouses are active participants

85
Q

Section 415 Annual Additions Limit

A

100% of compensation or $58K (includes employer contributions, employee salary reductions and plan forfeitures)

86
Q

If an educational seminar is done for a 401k employee, then who has liability for investment plan losses?

A

The employee

87
Q

SS benefits stop for disable person (if disable before 22) once?

A

Marrying an abled bodied person

88
Q

What accounting method allows for a mid-quarter convention if 40% of the assets were in place by the end of the last quarter last year?

A

MACRS

CFP (4 decks)

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