Course 3: Employee Contributions Flashcards
While a major source of funding and contributions in a qualified retirement plan comes from contributions by the ______, some plans, such as 401(k) plans, allow for the ______ to make contributions to the plan.
employer, employee
These contributions can come from a participant’s salary in the form of an ______ ______ or an after-tax employee contribution. Another source of employee’s contributing to a plan can be a ______ from an Individual Retirement Account (IRA) or a previous employer’s plan.
Elective Deferral,rollover
___-___ elective deferrals are amounts contributed to a plan by the employer at the employee’s election that are ______ from the employee’s gross income. Pre-tax elective deferrals may be contributed to a 401(k) arrangement, a SIMPLE 401(k) plan, a 403(b) plan, a SARSEP, a SIMPLE IRA plan or a 457 plan.
Pre-Tax, excludable
The Internal Revenue Code (IRC) §402(g) limits an individual’s pre-tax elective deferrals that can be made for a ______ year. As these contributions are pretax deferrals, they are not treated as basis for tax purposes. These contributions are tested for nondiscrimination in the actual deferral percentage (ADP) test under IRC §401(k).
Calendar, nondiscrimination
A plan may permit designated _____ contributions. This special type of elective deferral is made with ______-___ dollars. Furthermore, the rules for taxing designated Roth amounts and the earnings thereon when they are distributed are different from those for pre-tax elective deferrals or after-tax employee contributions.
Roth,after-tax
While the amount of the after-tax contributions will always be distributed on a ___-____ basis (because the contributions were taxed at the time they were made), the entire distribution from a designated Roth account (including both the after-tax contributions and the earnings thereon) may be completely tax-free if certain _______ are met.
tax-free, conditions
IRC §414(v) permits certain participants to make elective deferrals to a plan in amounts in ______ of various otherwise applicable limits. These elective deferrals are referred to as catch-up contributions. A participant who is (or will be) age __ or older by the end of the calendar year is a catch-up eligible participant.
excess, 50
Catch-up contributions may be made to a 401(k) plan, a SIMPLE 401(k) plan, a 403(b) plan, a SARSEP, a SIMPLE IRA plan or a 457 plan, if the plan so permits. Catch-up contributions attributable to pre-tax elective deferrals are referred to as _____ ______ contributions and catch-up contributions attributable to designated Roth contributions are referred to as Roth catch-up contributions.
Pre-Tax Catch-Up,
Catch-up contributions may be made to a 401(k) plan, a SIMPLE 401(k) plan, a 403(b) plan, a SARSEP, a SIMPLE IRA plan or a 457 plan, if the plan so permits. Catch-up contributions attributable to pre-tax elective deferrals are referred to as _____ ______ contributions and catch-up contributions attributable to designated Roth contributions are referred to as ____ ____-__ contributions.
Pre-Tax Catch-Up, Roth Catch-up
The only deferrals that you will always see in a 401(k) plan are ___-___ elective deferrals. A plan must allow pretax elective deferrals to be a 401(k) plan—a plan permitting only designated ____ contributions is not permitted.
Pre-Tax, Roth
Some 401(k) plans are designed to provide for ___-___ elective deferrals only. Other plans provide for some combination of the various contribution types, such as both pre-tax elective deferrals and designated Roth contributions, elective deferrals and matching contributions, or elective deferrals, matching contributions and ______ contributions.
Pre-Tax, Nonelective
An employee’s election to defer compensation is usually implemented through a _______ _______ ______.
Salary Reduction Agreement
Many 401(k) plans permit plan participants to direct the ______ of all or a portion of their accounts. The salary reduction election is an ideal format for making investment selections available. In many cases, the form, once completed by the participant, will not only specify the amount of compensation the participant wishes to _____ under the 401(k) arrangement, but also the participant’s investment selections.
Investment, defer
Some 401(k) plans use an _______ _______ approach to obtain salary reduction elections from eligible employees. Under this , the plan provides that, as of the plan entry date when the employee is first eligible for the 401(k) plan, the employee is enrolled at a _______ elective contribution rate.
automatic enrollment, default
the employee is free to change the automatic enrollment by signing a form that specifies a different ______, including zero (thereby electing against participation). Because the employee has to make a ______ election to avoid the automatic enrollment, this approach is sometimes referred to as negative enrollment or negative election. Automatic enrollment programs are referred to in ______ ______ as automatic contribution arrangements (ACAs).
election, contrary, Treasury Regulations
The plan document must define what compensation is ______ for purposes of the salary reduction elections. Normally, a 401(k) plan will permit eligible employees to make salary reduction elections against all forms of compensation, including base salary, overtime wages, commissions, bonuses and other forms of ______ compensation.
Includable, taxable
the plan document may restrict the elections to only certain forms of ______ (e.g., base salary only) the employer should consider:
1. its reasons for desiring any ______ on the compensation available for deferral;
2. administrative ______ created by any limitations and the increased chance for error; and
3. the ______ of any limitation.
compensation, limitations, complexity, reasonableness
A participant who has terminated employment with unused vacation or other payments that occur after the date of termination may defer against those amounts if the amounts are paid by the later of:
* ____ months after the termination
* The ___ of the limitation year
2 1/2, End
Employees may be permitted to modify their deferral elections. The plan provisions will specify how often they are allowed to change ______ amounts. A participant may ____ deferring at any time.
Election, stop
The annual limit is the ______ amount that any one person may exclude from gross income in a single calendar year. The IRC §_____ dollar limit affects the individual’s federal income tax consequences. Thus, it is applied at the participant level and the participant must ______ all elective contributions for the calendar year that are subject to the limit, even if they are made to plans of more than one employer.
Maximum, 402(g), Aggregate
The law also places a limit on the percentage of ______ that may be contributed. A participant may not exceed _____of their compensation when they contribute to the plan. A plan may limit the amount that a participant may defer under the plan to an amount _____ than the annual deferral limit.
Compensation, 100%, less
Only ______ _______ are subject to the IRC §402(g) dollar limit. Other employer contributions, such as nonelective contributions, after-tax contributions and matching contributions, are not subject to the limit. If an individual participates in more than one arrangement that ______ elective contributions in a calendar year, the IRC §402(g) dollar limit applies to the _______ amount of the individual’s elective contributions under those plans.
Elective deferrals, Permits, aggregate
The IRC §402(g) dollar limit applies to the following amounts- ______ ______ under a 401(k) arrangement [including a SIMPLE 401(k) plan or under a safe harbor 401(k) plan]. The limit applies to all ______ ______, regardless of whether they are pre-tax or designated Roth contributions.
Elective Deferrals, Elective Deferrals
