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Jing's CFP Review > Retirement > Flashcards

Retirement Flashcards

1
Q

What is NUA?

A
  • Tax strategy that can be used when employer stock is held in qualified plan
  • Lump sum distribution of Employer stock to taxable account
    − Lump sum means all must be distributed in the same year
    − Other assets can be rolled to an IRA
  • ER stock basis is taxed at Ordinary Income at distribution
    − Doesn’t have to be 100% ER stock; can do partial if desired and roll rest to IRA
  • NUA (FMV – basis) will lock in LTCG rates for the time that it is sold
  • Amount above FMV (date of distribution) will be taxed based on holding period
  • 10% penalty applies to distribution under age 59 ½ unless exception
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2
Q

Qualified Plan vs Non- Qualified Plan

A
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3
Q

Deferred compensation is a form of qualified or non qualified plans?

A

Deferred compensation is a form of non-qualified plans. Set up rabbi trust, still subject to creditors.

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4
Q

ER gets a tax deduction when an nonqualified plan is exercised. True or False?

A

True

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5
Q

A client being granted ISOs, grant price $0.17/share, client exercised the option, AMT bill is like 400k. AMT add back, as soon as exercise the ISO, the stock dropped. The stock is projected to go down, market is going down. What do you have your client do as soon as they can do it?

A

Sell the stock intentionally fails this holding period so ISO can be taxed like a NQSO, avoid AMT.

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6
Q

ISO cashless exercise

A

Date of exercise and sale is the same day, no AMT.

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7
Q

What can executive do with NQSO that they cannot do with ISOs?

A

People can gift away NQSO, they cannot gift ISOs.

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8
Q

ISO vs NQSO

A
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9
Q

If client A been granted ISO, on grant date value $7, strike price $10. 2 years later, exercise at $25. 1 years later sold at $45. What is the tax treatment at grant, exercise and sale?

A

At grant: None. At exercise: $15 AMT, not taxed. At sale= $45 – 10=$35 LTCG

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10
Q

If a qualified plan require age 21 and 2 yrs of service. Is it possible?

A

Yes, Not possible for 401(k). 100% vested immediately.

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11
Q

Qualified Plan Entrance requirements

A

If somebody meets eligibility, enroll within 6 months. 1/1 and 7/1 enrollment

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12
Q

Qualified Plan coverage requirements and test

A

Coverage: annual, cover 70%, only considers eligible EE

  • Safe harbor test/coverage test: #NHC enrolled / # of NHT eligible >=70%. Does not relate to HC.
  • Ratio benefits: : (#NHC enrolled / # of NHT eligible) / (# of HC enrolled/ #HCT eligible) >=70%
  • Average benefits test: AB% of NHC covered / AB% of HC covered >=70%
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13
Q

Qualified Plan Vesting

A

Vesting: ERISA – no more than 7 yrs.

DB plan: 3-7 yr graded or 5 yr cliff; top heavy is 2-6 yr graded or 3 yr cliff

Cash Balance plan: 3 yr cliff ONLY

DC plan: 2-6 yr graded or 3 yr cliff

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14
Q

What is top heavy qualified plan?

A

> 60% of plan assets are for KEY employees; DC– 3%, DB – 2% (C—third letter, B— 2nd letter)

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15
Q

If a son owns 35% of the company, Dad works in this company salary 35k, Dad Highly Compensated Employee?

A

Yes

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16
Q

Joe, works 40 yrs FT, company this year set up a profit sharing plan and ER contributed 6k to this plan. What is Joe’s vesting percentage for this yr?

A

$0

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17
Q

Joe, works 40 yrs FT, company 30 years ago set up a 401(k) plan and ER contributed 6k to this plan this year. What is Joe’s vesting percentage for this yr?

A

$6k – previous credit count if the plan is old.

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18
Q

Jerry Jones, age 40, earnings $100,000, wants to establish a DB plan. He employes 4 ppl who’s combined salary are $60,000 and range in age from 23 to 30. Average employment period is 3.5 years. What is the best vesting schedule for Jerry’s plan: 3 yr cliff, 3-7 yr graded, 5 yr cliff, 2-6 yr graded. Which one to choose?

A

This is a top heavy plan — go with 2 to 6 yr graded

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19
Q

Which plans allow employee deferral?

A

401(k) plan, 403b, SIMPLE

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20
Q

What testing does 401(k) plan offer?

A

Traditional(testing) or safe Harbor(exempt for all testing)

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21
Q

401(k) ADP testing

A

look at NHC and HC’s deferral

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22
Q

If 401(k) plan fails the ADP test, how to correct?

A

Corrective distribution to HC, refund HCE as 1099-R;
QNEC(Qualified Nonelective Contribution)to the NH to bring up, the QNEC is 100% vested and goes to all eligible ppl, doesn’t matter enroll or not.

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23
Q

What is 401(k) safe harbor election?

A

3% flat non elective contribution to all eligibles;
100% $ for $ match up to 4% of pay for those ppl actually put money in the plan and 100% vested

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24
Q

401(k) safe harbor match – If EE puts 10%, how much will ER give?

A

ER give 4%

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25
Q

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 401(k). How much can they put in their 401(k) new plan?

A

$0. Already hit the limit for XYZ.

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26
Q

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 403(b). How much can they put in their 403(b) new plan?

A

$0. $22,500 for all deferral sources

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27
Q

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 457Plan. Can they contribute in 457 Plan?

A

Yes

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28
Q

What is 401(k) annual contribution limit?

A

Lessor of 100% of compensation or $66,000, per ER

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29
Q

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan on Jan 2 of the current year. How much could XYZ ER put in? They quit their they quit their job and go to ABC company with 401(k). How much can EE and ABC contribute to the plan?

A

$66k-22.5k=$43,5k.

EE - $0. ER- $66k

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30
Q

If a person work for 5 companies, could potentially get $66k from all 5 companies. True or false?

A

True

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31
Q

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan on Jan 2 of the current year. They quit their they quit their job and became self-employed. Making a solo IRA wouldn’t make any sense. The client could create SEP IRA, how much could contribute to the SEP IRA this yr?

A

$66k

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32
Q

Ricky makes $400,000 per year and just turned 53. His employer sponsors a 17% money purchase pension plan and a 401(k) plan with a 50% match. What is the most, in dollars, that can be deferred in this 401(k) plan by Rickey in 2023?

A

Start with $66,000. Money purchase pension contribution=$330,000 x 17%=$56,100. $9,900 left.
1.5 times X = $9900 X=$6,600, while the client is age 53 and has a catchup contribution of $7500

$6600 + $7500=$14,100, total is $14,100.

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33
Q

An employee, age 45, earnings $350,000 can have what maximum amount put in the following retirement plans: a 10% money purchase plan and a 401(k) plan with no employer match (2023).

A

$22,500 + $330,000x10%=$55,500

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34
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

A
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35
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

FICA paid on deferrals

A

PS, Other TAA

36
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

10 year averaging / Capital Gain treatment

A

Pension Pension, PS – Lump sum distribution strategy

37
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Subject to NUA

A

Pension, PS —- Lump sum distribution strategy

38
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

> 10% of ER $$$ in ER stock

A

PS, Other TAA

39
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

In service withdrawals allowed

A

PS, other TAA

40
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

100% vesting

A

Other TAA

41
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Annuities required

A

Pension

42
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Annual Funding Required

A

Pension

43
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

20% withholding required on lump sum distribution (partial)

A

Pension, PS

44
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Creditor protection

A

ALL

45
Q

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Life Insurance allowed as an investment

A

Pension, PS

46
Q

What plans are included in Profit sharing plans?

A

4 Penguins Swim Every Time Near Antarctica

401(k)
Profit Sharing
Stock Bonus Plan
ESOP
New Comparability Plans
Age-based Profit Sharing Plans

47
Q

What plans are included in Other Tax Advantage Accounts?

A

SEP
SIMPLE
Traditional IRA
Roth IRA
SARSEP
403(b) TSA TDA

48
Q

What plans favors old people?

A

DB Plan
TB plan
Age weighted Porfit Sharing plan

49
Q

WHich plan requires an actuary?

A

DB, CB, TB

50
Q

Which plan requires PBGC insurance?

A

DB, CB

51
Q

Pension plan always have a contribution every single year. True or false?

A

True

52
Q

Pension plan ER money only. True or false?

A

True

53
Q

How much can go into DB plan in a yr?

A

No limit. The withdrawal is limit to $265,000.

54
Q

What is ESOP great in?

A

ESOP is really great in exit planning and liquidity planning

55
Q

403(b) 15 year catch up contributions

A

$3000

56
Q

403(b) max deferral contributions

A

$22,500 + $7500 (age 50) + $3000 (15 yr catchup)

57
Q

SEP - qualifications, who fund, fund amount, fund date, delay funding possible, PT possible?

A

ER funded IRA

age 21 and employed 3 out of 5 yrs
ER money only, $66,000

Funded by 4/15, extension could delay the payment to 10/15

ER would possible have to pay SEP for all PT EE

58
Q

SIMPLE IRA: qualifications, contributions; early withdrawal penalty

A

<100 EEs, 5k earnings to contribute
$15,500 /3500

A. 2% non elective contributions($330k).
B. Match $ for $ to 3%(no limit) ;

First 2 yrs early withdrawal penalty is 25%

59
Q

What is 6%,, 10%, 25% penalty?

A

6% Overcontribution to an IRA

10% Normal early withdrawal penalty

25% People move money out of a SIMPLE IRA within 2 yrs; RMD

60
Q

2/10/24 $6500 Contribute a Roth. While they made more money than they thought and exceeded the Roth IRA limits. What would be the consequence?

A

If not reclassify as a traditional IRA by next 4/15. Then the entire amount in the Roth will be subject with 6% penalty.

61
Q

If IRA convert to Roth, what will happen?

A

Pay tax
tax contributions not deductible; Coordinate with other contributions;

62
Q

Qualified distribution of Roth IRA

A

5yrs + 59.5/death/disabled/first home (10k)
Earnings come out tax free.

63
Q

10% Penalty Exceptions

A

10% Penalty Exceptions (no tax)

64
Q

Who is qualified for 72t?

A

Qualified plan if you no longer work there, needs to meet longer of 5 yrs or 59 ½.

65
Q

QDRO paid to ex-spouse at age 35, subject to 10% penalty?

A

No tax penalty.

66
Q

If client, age 61, had Roth IRA for 15 yrs. If the client withdraws all the money for Roth IRA. What is the tax and penalty consequences?

A

Earnings are tax free, no penalty.

67
Q

Your client, single, first funds a Roth IRA when she is 59 yrs old. When she turns 61, she takes all of the funds to out to buy a Porsche for her son. What is the tax treatment of the earnings?

A

Ordinary income and no 10% penalty

68
Q

When is NUA applies?

A

ER stock in a qualified plan, lump sum distribution strategy.

69
Q

Client has ABC 401(k) –mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account, how is the tax treated in the brokerage account.

A

Need to pay 10k OI . The 90k NUA is tax free until sold.

70
Q

Client has ABC 401(k) –mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account on 2/10. Sell it on 4/1 for $110,000 of the same year. What is the tax consequence?

A

90k LTCG, $10k STCG.

71
Q

Client has ABC 401(k) –mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account on 2/10. Sell it on 4/1 for $110,000 of the same year. Is the brokerage account subject to 10% penalty? How much will be subject to penalty?

A

Only 10k basis(contribution) is subject to 10% penalty.

72
Q

The client works for a 401(k) company, they died, they have appreciated stock in their 401(k). The beneficiary can elect anyway on the stock as if they were the employee when they inherited. True or False?

A

True

73
Q

NUA - Basis, taxation on pre and post distribution

A
74
Q

If a client with NUA dies, what is the basis to heirs? Any taxation?

A

NUA is income in decedent.
If holder dies, basis to heir=FMV- NUA

75
Q

Which plans cannot integrate with Social security benefits?

A

4^3 STRES: 401(k), 403(b), 457, SIMPLE, Traditional IRA, Roth IRA, ESOP, SARSEP

76
Q

Which plans can integrate with Social security benefits?

A

SEP

77
Q

Non-qualified distribution of a Roth 401(K) Plan

A

Distribution on pro-rata basis

78
Q

Qualified Plan Loans may not exceed

A

The lesser of $50,000 or ½ Vested account balance. Reduced by the highest outstanding loan balance within the previous 12 months period.

79
Q

Qualified Plans Required Minimum Distribution

A

Age 72 Before 12/31/2022 — RMD age 72;

Age 72 after 1/1/2023—- RMD age 73.

80
Q

Wayne turned 72 on 12/1/2022 – calculate his RMD, what date he will need to take it?

A

1st RMD by 4/1/2023; 2nd 12/31/2023

81
Q

Oscar turned 72 on 1/5/2023 – calculate his RMD, what date he will need to take it?

A

1st RMD by 4/1/2024

82
Q

Felix turned 73 on 1/10/2023 – calculate his RMD, what date he will need to take it?

A

1st RMD by 4/1/2023; 2nd 12/31/2023. Know he will need to continue RMDs or will need to take two in 2023 if he delayed the 2022 RMD.

83
Q

Account balance on 12/31/2023 $400,000. Age 72 on 1/12/2024, age factor 26.5. Distribution required FOR 2024 ( by April 1, 2025) ?Distribution required in 2024?

A

Distribution required FOR 2024 ( by April 1, 2025) = $400k/ 26.5=15,094.34.

Distribution required in 2024=$0

84
Q

Roth IRA Non-qualified distribution

A
85
Q

EE is 3 years prior to normal retirement age, 457(b) max contribution= ?

A

$45,000.

86
Q

Secular trust Characteristics

A

Not available to creditors; taxable immediately

87
Q

Rabbi trust Characteristics

A

May be available to creditors; not currently taxable

Jing's CFP Review (6 decks)

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