Ch. 20 Section 401(k) Flashcards Preview

Employee Benefit Final > Ch. 20 Section 401(k) > Flashcards

Flashcards in Ch. 20 Section 401(k) Deck (21):
1

Section 401(k)

profit sharing or stock bonus plan that gives plan participants the option to:
put money in the plan OR
receive the same amount as taxable cash compensation

2

What types of 402k's are there?

traditional, roth, simple, and safe harbor

3

What are 401k's sometimes called?

CODA

4

What type of employer cannot use a 401k?

governmental employers

5

What testing is used for elective deferrals?

ADP

6

5 advantages

1. tax deferred savings
2. gives employees a choice
3. employer can contribute and deduct up to 25%
4. employees can contribute via salary reductions
5. in-service withdrawals for certain hardships may be permitted

7

4 disadvantages

1. acct balance may be inadequate at retirement
2. limited employee pre-tax salary reduction
3. costly and complex
4. employee bears risk

8

What is the employee's annual pre-tax reduction limit?

$16,500 and $5,500 catch up provision for employees 50+

9

When must an employee elect the salary reduction?

BEFORE compensation is earned

10

Participant is ___ vested

100%

11

How is the balance usually distributed?

lump sum at retirement

12

Can they make contributions to a deemed IRA?

yes

13

For lower-income taxpayers, what can contributions count toward?

a nonrefundable savers credit

14

4 ways for employer contributions

1. formula matching
2. discretionary matching
3. pure discretionary or profit sharing
4. formula contributions

15

Formula matching

the employer matches employee salary reductions, either dollar for dollar or under another formula

16

Discretionary matching

the employer has discretion to make a contribution to the plan each year.
The employer contribution is allocated to each account in proportion to the amount elected in salary reduction

17

What kind of 401k plans permit in-service withdrawals for elective deferrals?

traditional, simple, and safe harbor

18

What exceptions allow elective deferrals not have a penalty?

1. retirement, death, or disability
2. termination
3. employee reaches age 59 1/2
4. hardships

19

What two conditions must be met in order for something to be considered a hardship?

1. the distribution must be necessary in light of immediate and heavy financial needs of the employee
2. funds must not be reasonably available from other resources of the employee

20

What withdrawals are exempt from 10% penalty?

1. employee reaches age 59 1/2
2. employee death or disability
3. part of a series of substantially equal periodic pmts following the separation from service
4. is paid to the employee after separation from service and attains age 55
5. does not exceed the amount of medical expenses that are deductible as itemized expenses

21

Is consumer interest deductible for tax purposes?

no