Dalton Quizzes Flashcards

Question

money-purchase pension plan

Answer 1

In a money-purchase pension plan the investment risk is on the employees and thus an increase or decrease in the investments has no impact on contributions. If the company gave everyone a raise then that would increase the company’s contributions. If a key employee retired and two employees left that would decrease the company’s contributions. Since the forfeiture allocations were allocated to the participants they would have no effect of the company’s contributions.

Answer 2

1. The limits for contributions are the lesser of the following: a. 25% of compensation [covered compensation is limited to $285,000 (2020)] b. $57,000 (2020) 2. The SARSEP plan salary reduction contribution limit for 2020 is $19,500 (the same as the limit for 401(k) plans). a. Individuals who have attained age 50 may make additional catch-up contributions. b. The additional catch-up amount is $6,500 (2020

Answer 3

Rationale The correct answer is "D." All of these characteristics are shared by traditional IRAs and SEP-IRAs. Any non-deductible contribution to an IRA are taxed as a pro-rata distribution.

Answer 4

``` A)$182,500 Rationale The correct answer is "A." Since the plan is a defined contribution plan the maximum deductible contribution is 25% of the total covered compensation. The max covered compensation of all employees is $730,000. Thus the maximum deductible limit is $182,500 ($730,000 x 25%). Remember to limit employee 1 to the $285,000 (2020) covered compensation limit. The actuarial table amount is irrelevant because this a defined contribution plan. B)$186,250 C)$195,000 D)$210,000 ```

Answer 5

When life insurance is purchased in a qualified account, the premium is paid with pretax dollars. Consequently, the participant must recognize the economic benefit received as taxable income. ... The remaining cash value can remain in the plan or be taxed as a qualified plan distribution.

Answer 6

1. The policy will be included in his gross estate if he were to die while still working. 2. Part of the proceeds could be taxable to his beneficiary if it is a cash value policy. 3. When he distributes the policy from his plan at retirement, he can convert it to an annuity within 60 days to avoid taxation.

Answer 7

George can put in 100% of salary up to $13,500 (2020). XZY will match dollar for dollar up to 3% of salary ($30,000 x .03 = $900). So a total of $14,400 will be placed into the account. SIMPLE IRA: Savings incentive match plan for employees. An employer-sponsored individual retirement account or individual retirement annuity arrangement that is similar from a contribution perspective to a qualified profit-sharing plan 1. A SEP plan must cover all employees who are at least age 21 and who have worked for the employer during three of the preceding five calendar years.

Answer 8

``` A)I and II only. B)II, III and IV only. C)I, III and IV only. Rationale The correct answer is "C." Employee contributions must be vested and cannot be required to be forfeited. D)I, II, III and IV. ```

Answer 9

A)I, II and IV only. B)II, III and IV only. C)I, II and III only. Rationale The correct answer is "C." Cafeteria Plans (Section 125) allow salary reductions which are taken from an employee's salary before Federal and State withholding tax as well as Social Security and Medicare taxes (FICA). At least one taxable and non-taxable benefit must be offered under a plan. Medical FSAs allow reimbursement for eligible medical expenses for the employee and any dependents. A qualifying change in status is required to make a mid-year change in elections. D)I, II, III and IV.

Answer 10

Payroll tax is a percentage of an employee's pay. Income tax is made up of federal, state, and local income taxes. ... Income tax amounts are based on a number of factors, such as an employee's Form W-4 and filing status. The difference between payroll tax and income tax also comes down to what the taxes fund. Whereas income taxes go to a general government fund, payroll taxes specifically go to Social Security and Medicare funds.

Answer 11

Long-term employees are favored under a defined benefit plan

Answer 12

A)Includable in taxable income of all covered employees. B)Includable in the taxable income of key employees only. C)Excludable from the taxable income of all covered employees. Rationale The correct answer is "C." Dues and licenses are excluded from taxable income if directly related to the employee's job. D)Excludable from the taxable income of non-highly compensated employees only.

Answer 13

group term life insurance coverage is $50,000.

Answer 14

The maximum excess rate is 2 times the contribution rate limited to a disparity of 5.7%

Answer 15

A)An S Corporation can only deduct 70% of the premiums for all employees. B)In a sole proprietorship, the premiums for both the owner and the non-owner are fully deductible. C)If stockholder/employees of a closely held C corporation are covered as employees, the premiums are fully deductible. Rationale The correct answer is "C." S Corporations and proprietorships cannot deduct any premiums for group health insurance for owners. Non-owner employee health premiums are fully deductible to both entities. Answer "D" is incorrect because partners are able to deduct 100% of the health insurance premium on their individual tax returns. D)Premium costs paid by a partnership are passed through to the partner, who can deduct 70% of the costs on their individual tax returns

Answer 16

The contract has a master group policy.

Answer 17

The coverage is based on a combination of decreasing units of group term and accumulating units of single premium whole life

Answer 18

1. Expenses are often lower than for individual universal life policies. 2. These policies offer the potential for higher returns than whole life policies.

Answer 19

Monthly dues to a health club paid by the employer. | must be provided "on the employer premises."

Answer 20

Minimum funding requirements apply to pension plans, not profit sharing plans. Forfeitures in profit sharing plans are usually allocated to the remaining participants' individual accounts.

Answer 21

Cafeteria plans have a "use-it-or-lose-it" provision which requires any funds not used to pay qualified claims during the plan year be forfeited back to the plan sponsor. Forfeited funds cannot be rebated back to the individual employee who forfeited the funds. 1) A separate FSA salary reduction must be made for each type of eligible benefit. 2) A salary reduction for an FSA will lower an employee's income for social security tax purposes if the employee earns less than the social security wage base. 3) An FSA is technically a cafeteria plan benefit that can be used by itself or as part of a broader cafeteria plan.

Answer 22

A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. ... Salary contributed to a Roth account is taxed currently, but is tax-free (including earnings) when distributed

Answer 23

TSA can be invested in annuities and mutual funds. I. Fixed Annuity Contracts. II. Mutual funds. III. Variable annuity contracts.

Answer 24

1. Premiums under an employer-paid plan are deductible to the employer when paid to the insurance company. 2. The employee must claim the benefits from the employer-paid policy as taxable income. 3. If employees pay for the premium on an after-tax basis, benefits are tax exempt. 4. Premiums paid by the employee are deductible only though a Section 125 cafeteria plan, then benefits are taxable. 5. Definitions of disability are much more liberal under short-term disability than under long-term disability.

Answer 25

1. A low-cost, 2. tax-advantaged policy 3. may be either contributory or non-contributory 4. does not require a medical examination

Answer 26

It combines both term life insurance and whole life insurance

Answer 27

It contains the cash value

Answer 28

the excess method and the offset method. a. Excess method—The plan defines a level of compensation, called the integration level, and then provides a higher rate of contribution and benefits for compensation above the integration level. b. Offset method—A fixed amount or a formula amount that is designed to represent the existence of Social Security benefits reduces the plan formula c. The Money Purchase Pension plan is a Defined Contribution Plan and must use the excess method. Simple’s and ESOPs cannot be integrated with Social Security.

Answer 29

A)It allows employees to borrow or withdraw cash. B)It provides an opportunity to continue coverage after retirement. C)The entire premium cost is paid by the employee. the employee is required to pay part or all of the premium cost of group universal life insurance. D)It provides flexibility in designing coverage to best meet individual needs.

Answer 30

Lodging is only excluded if : (1) it is furnished on the business premises (the place of work), (2) it is furnished for the employER's convenience, and (3) the employee accepts it as a condition of employment. A vacation stay does not meet any of the these criteria so it is fully taxable for all covered employees.

Answer 31

Rationale The correct answer is "D" - Cash balance plan. Answers "A" and "C" are incorrect since they are not defined benefit plans. Answer "B" - Money purchase plan is a "pension plan" but it does not provide employees with a defined benefit, only a defined contribution. Answer "D" - Cash balance plan provides a defined benefit (returns are guaranteed by the employer) and the employee receives an "account" to see how much they have.

Answer 32

requires an employer match and is not a qualified plan

Answer 33

are all pension plans

Answer 34

A)Benefits must be definitely determinable under a formula for employer contribution or a formula for retirement benefits. B)Benefits may not be withdrawn prior to termination of employment or retirement. C)Contributions and benefits are determined in the long run by the profits of the employer. Rationale The correct answer is "C." Employer contributions may be made without regard to company profits or retained earnings. Answers "A", "B" and "D" are requirements for all qualified plans. D)Generally pays retirement benefits over a period of years.

Answer 35

Like-kind properties must be traded in the US for the industrial use and are real estate assets of a similar nature that can be exchanged without incurring any tax liability under Section 1031 of the Internal Tax Code. Properties must be held for business or investment purposes but do not need to be similar in grade or quality.

Answer 36

I. Distributions to the IRA owner must begin by April 1 of the year following the year in which the owner reaches age 70 1/2 (if by 12/31/2019) or age 72 (if 70 1/2 after 12/31/2019). II. After the owner's death, the entire amount remaining in the IRA is included in the owner's gross estate for federal estate tax purposes. funds distributed from an IRA are always treated as ordinary income, regardless of source and 5 year forward averaging is no longer available for any distribution. all distributions from an IRA not meeting the statutory exemptions are subject to the premature distribution penalty, regardless of source.

Answer 37

A)I and II only. Rationale The correct answer is "A." His base rate is 6% and the social security maximum disparity is 5.7% for 11.7% as the top of his range. Statement "III" is incorrect because integration does not affect voluntary deferrals by employees. Statement "IV" is incorrect because, done properly, integration is NOT considered discriminatory. B)I, II and IV only. C)II only. D)I, II, III and IV.

Answer 38

457 plans are IRS-sanctioned, tax-advantaged employee retirement plans. They are offered by state, local government and some nonprofit employers. Participants are allowed to contribute up to 100% of their salary, provided it does not exceed the applicable dollar limit for the year.

Answer 39

``` A)I and II only. B)I and III only. C)II and IV only. D)III and IV only. Rationale The correct answer is "D." Statement "II" is incorrect because the agreement must be signed PRIOR to the month the services are rendered. Statement "I" is incorrect because distributions are permitted at termination or normal retirement age as stated in plan document (not 70 1/2). The maximum elective deferral including the catch-up is $39,000 for 2020, excluding the catch-up is $19,500 for 2020. ```

Answer 40

defined contribution limit of $57,000. (25% of $230,000 is $57,500 but the single employer limit applies and is $57,000 for 2020).

Answer 41

``` A)Profit sharing plan. Rationale The correct answer is "A." Answers "B," "C" and "D" all require minimum contribution levels. Answer "A" - Profit sharing plan only requires that contributions be "substantial and recurring." More specifically, an age-based profit sharing plan would be correct. B)Money purchase plan. C)Cash balance plan. D)Defined benefit plan. ```

Answer 42

Rationale The correct answer is "D." This is an owner of a regular corporation (C Corporation.) Owners of C Corporations are eligible for loans as long as the safe-harbor rules are maintained. The items listed in Statements "I," "II," "III," and "IV" are the safe-harbor rules.

Answer 43

Rationale The correct answer is "D." An individual can defer up to $19,500 (2020) plus an additional $6,500 catch up for all of their 401(k) and 403(b) plans combined. Since he is 50 or older he can contribute the 19,500 + 6,500 = $26,000. Since he already contributed $5,000 into his employer plan he can still defer $21,000 ($26,000 - $5,000) into the solo plan. The employer contributions in this question are in addition to the employee deferral limit. Employer contribution into the solo plan: i) self-employment income $40,000 ii) less 1/2 SE tax $3,000 iii) Net $37,000 iv) X 20% v) employer contribution $7,400 Total contribution to the solo plan = $21,000 + $7,400

Answer 44

SIMPLE IRA

Answer 45

Money purchase plan. | Defined benefit plan.

Answer 46

Profit sharing plan with a 401(k) component.

Answer 47

IRC section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain taxpayers who file a joint return) of the gain from the sale (or exchange) of property owned and used as a principal residence for at least two of the five years before the sale. A taxpayer can claim the full exclusion only once every two years. A reduced exclusion is available to anyone who does not meet these requirements because of a change in place of employment, health or certain unforeseen circumstances.

Answer 48

standard deduction is $24,800. They are not age 65 or older so they don't receive an additional standard deduction. They do not receive an additional standard deduction for Marie's blindness because additional standard deductions for age and blindness are allowed only for the taxpayer and spouse, and not for their dependents. --------------> taxable income is equal to their gross income less deductions for adjusted gross income less the greater of the standard deduction or itemized deductions, and less personal and dependency exemptions. ----------------------------> Ursula must use the Single filing status. In addition, she is entitled to one additional standard deduction because of her blindness. Therefore, her standard deduction for the current year is $14,050 ($12,400 + $1,650).

Answer 49

A cafeteria plan must offer at least one taxable benefit, usually cash, and one qualified nontaxable benefit. ----->.Childcare provided under a cafeteria plan is not eligible for the dependent care credit.------>Cafeteria plans (Section 125) a. The employer offers the employee the choice between cash or selected nontaxable benefits. b. If the employee chooses the benefit, it remains nontaxable. c. If the employee chooses cash equal to the cost of the benefit, the cash is included in income. d. This can also give employees the opportunity to buy certain benefits with after-tax contributions.

Answer 50

a. Unless excepted by the Code, all rental activities are deemed passive. 1.) Rental activities occur when payments are received for the use of tangible property. 2.) If an activity is an exception in the Tax Code, it still must pass the material par-ticipation test to be considered active. b. An activity is not considered a rental under any of the following six conditions: 1.) The average customer use is seven days or less. 2.) The average customer use is more than seven days but not over 30 days, and the owner provides significant personal services. 3.) The owner also provides extraordinary services (rental period is irrelevant). 4.) The rental activity is incidental to a nonrental activity of taxpayer (investment or trade/business). 5.) The property is customarily made available during business hours for nonexclu-sive use by customers (e.g., golf course). 6.) The property is used in a nonrental activity conducted by a partnership, S cor-poration, or joint venture, where the owner has an interest.

Answer 51

B)An employee who receives no contributions or forfeiture allocations in their employer's profit sharing plan is not considered an active participant. Rationale The correct answer is "B." Answers "A" and "C" are conditions of being considered an active participant. Answer "D" is incorrect because 457 plan participants are not considered active participants for IRA contribution purposes.

Answer 52

Rationale The correct answer is "D." The duties explained in Statements "I" and "II" are responsibilities of the plan administrator.

Answer 53

The match for a profit sharing plan with 401(k) provisions can vary every year and there is no required percentage. However, a SIMPLE can vary the match in only 2 of 5 years.

Answer 54

Rationale The correct answer is "C." A plan must benefit 70% of all employees or a group of which at least 85% are not key employees. If the plan is part of a cafeteria plan, it must comply with Section 125 rules. The difference between the bands in "D" must be no greater than 2.5 times the next smaller band with the bottom band being equal to no less than 10% of the top band.

Answer 55

1. Short-term disability benefits usually start the eighth day of an illness (first day for an accident); and 2. Generally last no more than six months. (not one year)

Answer 56

Rationale The correct answer is "A." Statement "II" is incorrect because there is no 25% of covered payroll limitation in a DB plan. Statement "III" is incorrect because there is no minimum funding standard for profit sharing plans.

Answer 57

If turnover is reduced, then funding will increase. If the retirement age is reduced, funding will increase as more years will need to be funded. If the rate of return increases, then funding will decrease. If wages increase, then funding will increase.

Answer 58

Traditional IRA since she is below the AGI limitation for a single active participant ($65,000 - $75,000) (2020). She can also contribute to a Roth IRA because she is below the AGI limitation of $124,000 - $139,000 (2020)

Answer 59

there is no age limit for Traditional (SECURE Act 2019) or Roth IRAs.

Answer 60

Rationale The correct answer is c. Dr. Woods can contribute $19,500 to each of the 403(b) plan and the 457 plan. In addition, he can establish a Keogh plan and contribute 20% of his net self-employment income after deducting ½ self,-employment taxes. The 403(b) and 457 can both receive 19,500 (qualified and deferred comp plans). The Keogh needs to follow self-employment contribution rules - see the retirement pre-study book) $200,000 of income for DEC -$50,000 of expenses for DEC 150,000 Net income -9,895 (Assume his self-employment tax is $19,790, use ½) 140,105 X 20% (contribution rate / (1+contribution rate) = self-employed contribution rate) 28,021 In total 19,500 + 19,500 + 28,021 = 67,021

Answer 61

A Keogh plan is a tax-deferred retirement plan designed for self-employed people. Keogh plans get their name from the man who created them, Eugene Keogh. He established the Self-Employed Individuals Tax Retirement Act of 1962, also known as the Keogh Act.

Answer 62

No. DB plans deal with life annuities, NOT period certain annuities.

Answer 63

Limit on loans is the lesser of 50% of the account value or $50,000 for a period of five years, unless for a primary residence.

Answer 64

Wide fluctuation in cash flow call for a profit sharing plan.

Answer 65

Both plans are pension plans I. Minimum funding standards apply. II. Qualified joint and survivor annuity requirements apply.

Answer 66

It applies only to the target benefit plan (because it is a DC plan) NOT the DB plan.

Answer 67

Pension Benefit Guaranty Corporation

Answer 68

Eligible individual accounts (usually associated with profit sharing, 401(k) and ESOP) are defined contribution plans, and are not subject to PBGC, nor minimum funding requirements.

Answer 69

A key employee is an individual who (1) owns more than 5% of the business, (2) is an officer with compensation greater than $185,000 (2020), or (3) owns greater than 1% of the business and has compensation greater than $150,000.

Answer 70

After two years, the employee would be 20% vested, after three years, 40%, with the employee eventually becoming fully vested after six years.

Answer 71

2-year cliff vesting. 3-year cliff vesting. and 2-6 year graded vesting

Answer 72

Even though she does not have any earned income of her own, she can use Brad’s earnings to qualify for the contribution.

Answer 73

Rationale The correct answer is "B." All three statements are true. If you have a pre-existing condition that can be excluded from your plan coverage, then there is a limit to the pre-existing condition exclusion period that can be applied. HIPAA limits the pre-existing condition exclusion period for most people to 12 months (18 months if you enroll late), although some plans may have a shorter time period or none at all. In addition, some people with a history of prior health coverage will be able to reduce the exclusion period even further using "creditable coverage." People with a history of prior health coverage will be able to reduce the exclusion period even further using "creditable coverage."

Answer 74

Rationale The correct answer is "D." Statement "I" is incorrect as the limit is the lesser of 100% of compensation or the annual limit. Statement "III" is incorrect because investment earnings are never included in the Section 415(c) limit calculation. Statement "IV" is correct as salary deferral contributions by employees is counted against the IRC 415(c) limit. E)II, III and IV only.

Answer 75

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

Answer 76

Rationale The correct answer is "A." Any transaction between a disqualified person and the trust is considered a prohibited transaction. In Statement "I," the employer could purchase the mortgage note at a markup to future market value, thus giving the pension (and consequently his own individual retirement account) a big boost in value, then sell the note to someone else and take a loss on their personal income tax. Thus, in essence making additional contributions to the plan. Statement "II" would accomplish the same purpose. Employer's individual taxes would be reduced (lower profit on sale to the plan) but would have a dramatic increase in retirement plan assets. B)II and III only.

Answer 77

Rationale | The correct answer is "D." This requires "immediate vesting."

Answer 78

Rationale The correct answer is "B." Statement "I" is incorrect because deferrals are still subject to Social Security and Medicare taxes. Statement "III" is incorrect because TSAs can only invest in mutual funds or annuities and not any direct investments. Statement "IV" is incorrect because the total excludable contributions must be for all prior years, not just the past three.

Answer 79

Rationale The correct answer is "A." Statement "II" is incorrect because the employer is unable to deduct any contributions to a non-qualified plan until the employee actually takes constructive receipt. In the traditional split-dollar arrangement, the employer has an interest in the cash values of the split-dollar policy equal to the amount of premiums paid, and therefore, there is never a deduction for premiums paid. Statement "III" - Because no tax deductions are taken for any premiums paid on the policy, the death benefits are tax-free. Statement "IV" - The employee is required to pay the Table 1 cost each year, without regard to premiums paid in previous years.

Answer 80

Rationale The correct answer is "D." Reduction is (($105,000 - $104,000) / $20,000) x $6,000 = $300 (2020). Therefore, the maximum deduction is $6,000 - $300 = $5,700 each. Larry's contribution of $2,000 and Terry's contribution of $900 are both fully deductible. Formula: Contribution x [(your AGI – the bottom of the phase out range) divided by the amount of the range (124,000-104,000 is where the 20k comes from)]

Answer 81

Rationale The correct answer is "B." Statement "I" is incorrect because only 25% of the total benefits can accrue to key employees. Statement "III" is incorrect because deferrals are allowed only through a 401(k) plan. Statement "IV" is incorrect because mid-year changes in reductions are allowed only for qualified changes in status.

Answer 82

Rationale The correct answer is "D." Employers must continue medical coverage to pay for final medical expenses after the death of the employee. Statements I, II, and IV are statutory exemptions to the COBRA requirement. (Note: A 65-year-old retiree would be covered under Medicare.) Note: COBRA applies to all group health plans maintained by private-sector employers with 20 or more employees.

Answer 83

A)Non-discriminatory rules state at least 80% of all NHCs must be covered by the plan, or the ratio of NHCs covered by the plan must be at least 80% of the HCs, or the average benefit percentage for NHCs is at least 80% of the benefit percentage of the HCs. B)The Actual Deferral Percentage (ADP) Test limits employee voluntary contributions to the plan for the HCs. To accurately calculate the ADP, the administrator needs to know the percentage of income the NHCs contribute to the plan and how much the HCs defer to the plan. Rationale The correct answer is "B." Option "A" would be correct if the percentages referenced were "70%" rather than "80%." Option "C" is incorrect because only employees who are eligible to participate are included in the ADP test. Option "D" - At a NHC ADP level of 6%, the HC may not exceed 8% (6% + 2%). The 125% category does not start until NHC ADP level equals 8% or higher. C)The Actual Deferral (ADP) Test takes all employees into account when calculating the test. D)The average ratio of HCs may not exceed 125% of the ADP of the NHC group if the ADP of the NHC group is 6% or more.

Answer 84

Rationale The correct answer is "C." Participating in a SIMPLE plan is considered being an “Active Participant.” She can contribute $6,000 (2020) to a Traditional IRA but cannot deduct any since she is above the AGI limitation for a single active participant ($65,000 - $75,000) (2020). She is unable to contribute to a Roth IRA because she is above the AGI limitation of $124,000 - $139,000 (2020). Because she is not 50 or older she is not allowed to make the $1,000 (2020) catch up contribution.

Answer 85

Rationale The correct answer is "B." Participating in a 457 plan is not considered being an “Active Participant.” She can contribute and deduct her contribution to a Traditional IRA $6,000 (2020) since she is not an active participant and therefore not subject to an AGI limitation. She is unable to contribute to a Roth IRA because she is above the AGI limitation of $124,000 - $139,000 (2020). Because she is 50 or older she is allowed to make the $1,000 (2020) catch up contribution.

Answer 86

I. A 457 plan is a non-qualified deferred compensation plan of state and local government units and agencies and non-church-controlled tax-exempt organizations. 1. Church-related organizations, such as schools, may be eligible. 2. Contributions are pretax and funds grow tax deferred. 3. There is no ERISA creditor protection for private 457 plans. II. A 403(b) plan is a tax-advantaged plan, not a qualified plan.

Answer 87

Rationale The correct answer is "D." Vested options are taxable based on the value of the option to the extent the Fair Market Value exceeds the option price.

Answer 88

adj. 可确定的；可查明的

Answer 89

Rationale The correct answer is "C." Statement "I" is incorrect because he is not old enough for ten-year averaging. Statement "II" is correct because the taxable portion of any lump sum distribution may be rolled over into an IRA. Statement "III" is incorrect because he is not old enough to qualify for pre-74 capital gain treatment nor does he even have any actual pre-74 capital gain in the plan as he has only been in the plan for the last 20 years. Statement "IV" is incorrect because five-year averaging was repealed in 1999.

Answer 90

Capital gain treatment applies only to the taxable part of a lump-sum distribution resulting from participation in a qualified retirement plan before 1974. The amount treated as capital gain, reported on Form 1099-R, is taxed at 20%

Answer 91

For 2020, taxpayers can contribute a maximum of $6,000 for themselves and $6,000 for their spouses (working or nonworking), which is increased to $7,000 for those age 50 or older. If the contribution is made to a traditional IRA, the contribution may be deductible. See Book 5—Retirement Savings and Income Planning, for other rules regarding the deductibility and limitations of contributions to a traditional IRA. a. For taxpayers who are active participants in a qualified retirement plan, the ability to deduct a contribution to a traditional IRA phases out in 2020 at $65,000–$75,000 for single filers and $104,000–$124,000 for a taxpayer who is MFJ in 2020. b. When only one spouse is an active participant, the nonparticipant spouse will have the deduction phased out at AGI levels (before considering the deductible IRA contribution) between and $196,000–$206,000 (in 2020). c. The ability to make a contribution to a Roth IRA phases out at AGI levels as follows: Filing Status Married, joint (2020 $196,000–$206,000) Single ($124,000–$139,000) Married, separate $0–$10,000 2. Roth IRA contributions are never deductible.

Answer 92

At least 80%. This is important because parent-subsidiary companies must have substantially equal benefits or cover employees of all subsidiary companies under the same plan.

Answer 93

A simplified employee pension (SEP) is an individual retirement account (IRA) that an employer or self-employed individual can establish. SEP IRAs are used by small businesses and self-employed individuals to meet their retirement savings needs

Answer 94

Rationale The correct answer is "C." Options "A" and "D" are false. Option "B" is a mandatory characteristic of all qualified defined contribution pension plans but not profit sharing plans.

Answer 95

a QDRO may be rolled over into an IRA as long as the rollover is accomplished within 60 days of the distribution.

Answer 96

``` 401(k) plan is the only option which allows voluntary employee elective deferral contributions, as desired by the two assistants. vs. Money purchase pension plan. Defined benefit plan. Profit-sharing plan. ```

Answer 97

adj. 非物质的；无形的；精神的；不重要的

Answer 98

No. The highly compensated employees may be required to pay taxes on all or part of the reimbursements.

Answer 99

Rationale The correct answer is "C." Broad employee participation, as opposed to selective participation, is a requirement of a tax-advantaged retirement plan. All of the others are requirements for “qualified” plans.

Answer 100

A defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum or combination thereof on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provide defined benefit plans,

Answer 101

General rule (under Section 410(b)): The employer must cover at least 70% of all non-excludable, non-highly compensated employees. The general rule is commonly referred to as the safe harbor test. Plans that do not meet the safe harbor test must satisfy one of the following two exceptions—the ratio percentage test or the average benefits percentage test.

Answer 102

the plan must cover a percentage of nonhighly compensated (NHC) employees that is at least 70% of the percentage of highly compensated (HC) employees covered ratio percentage test⇒ %NHC covered / % HC covered ≥70%

Answer 103

It has two components to satisfy annually 1. ) The nondiscriminatory component a. ) Classification is reasonable and based on objective business criteria (e.g., job categories, location, hours, or weeks). b. ) The ratio percentage of the plan can be either ≥ 70% or be nondiscrimi-natory based on facts and circumstances. 2.) The average benefits percentage test—The average benefits percentage accrued for nonhighly compensated employees as a group must be ≥ 70% of the average benefits percentage accrued for the HC employees as a group. average benefits percentage test ⇒ average benefits % NHC / average benefits % HC ≥70%

Answer 104

A)Allows discretionary contributions. B)Must PERMIT withdrawal flexibility. An advantage of profit sharing plans is that they PERMIT withdrawal flexibility. C)Controls benefit costs. D)May provide legal discrimination in favor of older owner-employees.

Answer 105

the participant’s accrued benefit at any point is the participant’s present account balance. The accrual for the specific year is the amount contributed to the plan on the employee’s behalf for that year.

Answer 106

the accrued benefit is the benefit earned to date, using current salary and years of service. The accrued benefit earned for the year is the additional benefit that has been earned based upon the current year’s salary and service.

Answer 107

A negative election is a provision whereby the employee is deemed to have elected a specific deferral unless the employee specifically elects out of such election in writing. The IRS has approved a negative election scenario under which the compensation of newly hired employees, who do not affirmatively elect to receive cash or have a specified amount contributed to the employer's 401(k) plan, is automatically reduced by three percent.

Answer 108

Retirement plans must not be created as a tax shelter for the owner. If they have been, plan termination can result in retroactive disqualification.

Answer 109

Rationale | The correct answer is "C." A basic component of a cash balance plan is the guaranteed minimum investment return.

Answer 110

Rationale The correct answer is "C." 403(b) plan assets cannot be invested in individual securities, and contributions to 403(b) accounts are always 100% vested. Statements "III" and "IV" are true. Remember, if an employee qualifies for the 15 year rule, the maximum elective deferral for 2020 may be as high as $29,000 ($19,500 deferral, plus $3,000 from the 15 year rule, plus $6,500 for the 50 and over catch-up). A 403(b) plan, also known as a tax-sheltered annuity plan, is a retirement plan for certain employees of public schools, employees of certain Code Section 501(c)(3) tax-exempt organizations and certain ministers. A 403(b) plan allows employees to contribute some of their salary to the plan

Answer 111

Rationale The correct answer is "D." Mike is considered an active participant because a forfeiture allocation was made to the plan on his behalf. Therefore, he can contribute to a Traditional IRA but will be unable to deduct because he is above the AGI limitation for a MFJ active participant ($104,000 - $124,000) (2020). He could contribute to a Roth IRA because he is below the AGI limitation of $196,000 - $206,000 (2020). Incidentally, because he is 50 or older he is allowed to make the $1,000 (2020) catch up contribution. Lola is not an active participant because she is not covered by any plan. Although she doesn’t have any earned income she can utilize her husband’s earned income. Since she is not an active participant but her husband is, she will utilize the spousal phase out limitation of $196,000 - $206,000 (2020). Since their AGI is below this amount she can make a deductible contribution to a Traditional IRA. Alternatively, she could contribute to a Roth IRA because she is below the AGI limitation of $196,000 - $206,000 (2020). Incidentally, because she is 50 or older she is allowed to make the $1,000 (2020) catch up contribution.

Answer 112

Rationale The correct answer is "B." She can contribute to a Traditional IRA since she has earned income. She is considered an active participant because her employer made a contribution to the SEP on her behalf. Her deduction will be limited because she is within the AGI limitation for a single active participant ($65,000 - $75,000) (2020). She is also entitled to the catch up contribution of $1,000 because she is 50 or older. Therefore, her deductible contribution is: 7,000 x ((66,000 - 65,000)/10,000) = $700 is not allowed so $7,000 - $700 = $6,300 is permitted. Although the question didn’t ask - alternatively, she could contribute to a Roth IRA because she is below the AGI limitation of $124,000 - $139,000 (2020).

Answer 113

Rationale | The correct answer is "D." All of the above are benefit formulas used by defined benefit plans.

Answer 114

Rationale The correct answer is "B." Since they are not active participants there is no AGI limitation. However, Sean is above 70.5 and therefore is unable to make a contribution to a Traditional IRA. Jaclyn is able to make a $6,000 (2019) deductible contribution. She does not qualify for the catch up because she is not 50 or older.

Answer 115

Rationale The correct answer is "C." A negative election clause can assist a 401(k) plan in meeting the ADP test because it automatically deems that an employee defers a specific amount unless he elects out of the automatic deferral amount. Options "A" and "D" do not exist and Option "B" is a clause commonly found in a will.

Answer 116

Rationale The correct answer is "D." Option "D" is a correct statement accurately describing a 403(b) plan. Option "A" is incorrect as a 403(b) plan is an employee deferral plan and is not a qualified plan. Option "B" is incorrect as the investment risk is borne by the employee in all cases. Option "C" is incorrect as an employee’s benefit within a 403(b) plan is always 100% vested.

Answer 117

Rationale The correct answer is "D." Deductions for interest payments are not limited for ESOP plans. Deductions for repayment of principal is limited to 25% of covered compensation.

Answer 118

Rationale The correct answer is "A." As a result of the PPA 2006, qualified profit sharing plans must use a vesting schedule that provides participants with vested benefits at least as rapidly as either a 2 to 6 year graduated vesting schedule or a 3-year cliff vesting schedule. This requirement applies without regard to whether the profit sharing plan is a top-heavy plan. Options "B," "C" and "D" all vest less rapidly than the required schedule.

Answer 119

Rationale The correct answer is "C." As a result of the PPA 2006, a profit sharing plan must vest at least as rapidly as a 3-year cliff or 2 to 6 year graduated schedule without regard to the plan’s top-heavy status. The profit sharing plan can follow any vesting schedule that provides a more generous vesting schedule.

Answer 120

Rationale Solution: The correct answer is C. Roth distributions are tax free if they are made after 5 years and because of 1) Death, 2) Disability, 3) 59.5 years of age, and 4) First time home purchase. He does meet a qualifying reason because he is over 59.5 in 2020 if he was 58 in 2018. However, he did not meet the 5 year holding period. He only has about 4.5 years. His distribution does not received tax free treatment. The treatment for a non-qualifying distribution allows the distributions to be made from basis first, then conversions, then earnings. His basis will be tax free, leaving only the earnings as taxable income. Since he did not take the entire account balance he will only be subject to tax on the $15,000 of earning withdrawn. The 10% penalty does not apply to this distribution since he qualifies for the 59.5 exception to the penalty.

Answer 121

``` Rationale The correct answer is "C." Salary = 111,000 (150,000* 90%) - 24,000 = 111,000 N = 11 years to retirement I = 4% inflation PV = 111,000 in salary FV = 170,879.40 ``` BEG PMT = 170,879.40 N = 39 104 - 65 I = 3.8462 Inflation adjusted rate of return = [(1.08/1.04) - 1] X 100 Solve for PV Answer "A" is the wrong payment (150,000 -24,000* 90%) = 113,400. Answer "B" is ordinary annuity (end mode). Answer "D" uses 4% for interest (beg mode).

Answer 122

Rationale Answer: D Non-qualified stock options are taxed on the “bargain element” (difference between the market price and the strike price) as ordinary income when exercised. (Market Price – strike price) x Number of Shares x Tax Rate = Tax Therefore, on the first NQ grant of 2,000 shares the tax is: ($65-34) x 2,000 shares = $62,000 in ordinary income. At 42% tax rate the tax is $62,000 x .42 = $26,040.00 And On the second NQ grant of 5,000 shares the tax is: ($65-30) x 5,000 = $175,000 in ordinary income. At 42% tax rate the tax is $175,000 x .42 = $73,500.00 Total tax therefore is $26,040.00 + $73,500.00 = $99,540.00

Answer 123

A rabbi trust is established to avoid constructive receipt.

Answer 124

Rationale The correct answer is d. Choice a is not correct as the tax treatment is the same for a cashless exercise of an ISO and an NQSO. Choice b is not correct. The sale of an ISO share of stock will generally have a negative adjustment for AMT, not positive, and therefore, it would not result in AMT. Choice c is not correct as 409A would apply if the strike price was less than the FMV on the date of grant.

Answer 125

Rationale The correct answer is d. Answer a is not correct as there must not be another source of funds. Answer b is not correct as they are generally subject to a penalty unless there is an exception under IRC 72(t). Answer c is not correct as a hardship distribution can only be taken from employee deferrals.

Answer 126

Rationale The correct answer is "B". HP12C: Step #1 - NPV at time period zero: 0 g CFo, 0 g CFj, 26 g Nj, 40,000 g CFj, 30 g Nj, [(1.08/1.04) - 1] x 100 i, f NPV gives $264,184.34; Step #2 Annual savings required: N = 27, i = 8, PV = $264,184.34, PMT = ?, FV = 0, Answer: $24,159. HP10BII: Step #1 - NPV at time period zero: 0 CFj, 0 CFj, 26 shift Nj, 40,000 CFj, 30 shift Nj, 1.08/1.04 = -1 = x 100 = i/yr, Shift NPV gives $264,184.34; Step #2 - Annual savings required: N = 27, I = 8, PV = $264,184.34, PMT = ?, FV = 0, Answer: $24,159.

Answer 127

Rationale The correct answer is "A." The plan must cover the lesser of 50 people or 40% of all employees. In this case, the lesser would be 40% of 60, or 24 people.

Answer 128

Rationale The correct answer is "D." All of these questions must be addressed before one undertakes any type of Stock Option plan for employees.

Answer 129

The safe harbor 401(k) plan has more liberal (better for employees) vesting for employer matching contributions as compared to 401(k) plans with a qualified automatic contribution arrangement. Safe harbor plans require 100% vesting, while 401(k) plans with QACAs require two year 100% vesting. The matching contributions are different for the plans. Employees are not required to participate in either plan. Both plans eliminate the need for ADP testing, which means that they eliminate the need for qualified matching contributions and corrective distributions.

Answer 130

If an employee receiving incentive stock options does not meet the employment time requirement, but receives options as a non-qualifying and exercises them, The employee will be required to recognize compensation income in the year the option is exercised. This illustrates the difference between the treatment of 'qualified' versus 'non-qualified' stock options. The tax implications are immediate and the income is recognized as soon as the option is exercised rather than when the stock is subsequently sold.

Answer 131

The 83(b) election is a provision under the Internal Revenue Code (IRC) that gives an employee, or startup founder, the option to pay taxes on the total fair market value of restricted stock at the time of granting. It's a letter you send to the Internal Revenue Service letting them know you'd like to be taxed on your equity, such as shares of restricted stock, on the date the equity was granted to you rather than on the date the equity vests.

Answer 132

Roth distributions are tax free if they are made after 5 years and because of 1)Death, 2)Disability, 3) 59.5 years of age, or 4)First time home purchase. Although he met the 5 year rule, he did not meet one of the four qualifying reasons. His distribution does not received tax free treatment. The treatment for a non-qualifying distribution allows the distributions to be made from contributions first, then conversions, then earnings. In this case the distinction in distribution order is irrelevant since he withdrew the entire account balance. However, his contribution will be tax free, leaving only the $25,000 in earnings as taxable income. The 10% penalty does not apply to this distribution since he qualifies for the higher education exception to the penalty.

Answer 133

1) Rabbi trust 2) Nonqualified stock option plan 3) ESPP

Answer 134

No taxable income will be recognized by the employee when the qualified option is granted or exercised.

Answer 135

Rationale Solution: The correct answer is A. Roth distributions are tax free if they are made after 5 years and because of 1)Death, 2)Disability, 3) 59.5 years of age, and 4)First time home purchase. He does not meet the five year holding period or one of the exceptions. His distribution does not received tax free treatment. The treatment for a non-qualifying distribution allows the distributions to be made from basis first, then conversions, then earnings. His basis will be tax free. The conversion is also tax free since we paid tax at the time of the conversion on those earnings. The remaining earnings since establishment of the Roth are $25,000 (100,000 - $15,000 in basis - $60,000 in conversions) and will be taxed. The 10% penalty does apply to this distribution since he does not qualify for any of the exceptions to the penalty. The contributions escapes penalty but the conversions and earnings of $85,000 are subject to the 10% early withdrawal penalty. Remember that in order for the conversions to escape the 10% early withdrawal penalty the distribution must occur after a 5 year holding period beginning Jan 1 in the year of conversion or meet one of the 10% early withdrawal exceptions. Summary: $60,000 paid tax at conversion. Subject to penalty $15,000 in contributions no tax, no penalty $25,000 earnings. Taxable and subject to penalty

Answer 136

Rationale The correct answer is b. Choice a is not correct because the general eligibility is age 21, not 26. Choice c is not correct because a plan could cover part time employees, but will generally not. Choice d is not correct because employees become part of a plan only as early as at the next available entrance date after meeting the eligibility requirements.

Answer 137

Rationale The correct answer is d. Answer a is incorrect because the distribution would not be a qualified distribution since the five year rule has not been met. Answer b is not correct as he could begin taking distribution the year following death or take a full distribution within five years. Answer c is not correct, because the first distribution would consist of previously taxed contributions and would therefore not be taxable. Answer d is correct as he could delay taking a distribution from the account for two years. At that point, the distribution would be qualified since it meets the five-year rule and is on account of death. The distribution would avoid all income tax and penalties.

Answer 138

Rationale The correct answer is "D." SIMPLE IRAs require a 25% penalty for early withdraws in the first two years if the participant does not meet any of the early withdrawal exceptions. He does not meet any of the exceptions and the distribution is within the first two years. The breakdown of employee deferrals, employer contributions and earnings is irrelevant. Therefore, his tax and penalty consequence is $1,900 = $4,750 x 40%. The 40% is represented by 15% tax plus 25% penalty.

Answer 139

A qualified pre-retirement survivor annuity (QPSA) is a death benefit that is paid to the surviving spouse of a deceased employee. If the employee dies before retirement, the qualified pre-retirement survivor annuity is paid to offer compensation to the surviving spouse for the loss of retirement benefits that would have otherwise been paid to the employee. As the name implies, QPSAs are paid only in the case of qualified plans.

Answer 140

n. 放弃；弃权；弃权证书

Answer 141

Rationale The correct answer is "A." Both the plan participant and the nonparticipant spouse must sign the waiver. Statement "III" is correct. Statement "I" is unfounded.

Answer 142

Rationale The correct answer is "C." Every year the plan participant pays income tax on the dollar value of the actual insurance protection -- approximately equal to the term insurance cost. This is commonly called the PS58 cost. The sum of all those costs is the participant's basis.

Answer 143

Rationale The correct answer is "D." Maximum loan amount is lesser of 50% of vested amount or $50,000 paid in quarterly (or more frequent) payments over five years, unless used for home purchase. Loan must carry reasonable interest rate.

Answer 144

Rationale The correct answer is "D." Note that for a non-spouse beneficiary, the Single Life Table is entered once in the year following death based on the age of the beneficiary and then that number declines by a factor of 1 each year to determine the divisor for the following distributions. The non-spouse beneficiary could make a direct transfer to an “inherited IRA”. Answer "A" is incorrect because the distributions to the beneficiary are based on the beneficiary’s life expectancy beginning in the year following death. Do point out that the distribution in the year of death is still based on the owner’s life. Answer "B" is incorrect because the five-year rule is NOT the only choice. Answer "C" is incorrect because a non-spouse beneficiary would not receive distributions based on the owner’s life expectancy nor would a post-death non-spouse distribution be recalculated.

Answer 145

Rationale The correct answer is "D." The minimum distribution is calculated by taking the account value at the beginning of the year ($53,000 in this case) and dividing by the applicable divisor (life expectancy 26.5 years in this example). The resulting figure is the minimum distribution ($2,000). Because the amount distributed was $1,000 less than required under minimum distribution rules, a 50% penalty applies. 50% of the undistributed minimum distribution is $500. Note: It was age 70½ before the passage of the Setting Up Every Community for Retirement Enhancement (SECURE) Act in December 2019.1 Anyone who is covered by the old rules (those born before July 1, 1949) has already begun paying RMDs and must continue to do so. Everyone else can wait until April 1 of the year following the year in which they reach age 72.

Answer 146

Rationale The correct answer is "C." Half of the self-employment tax is given, you can skip the 1st step in the self-employment contribution formula (multiplying by 92.35%) 140,000 - $9,891 = 130,109 x 20%*= 26,021.80 *The 20% is from the contribution rate formula: contribution rate / (1 + contribution rate) = self-employment contribution rate .25/ (1+.25) = .20. Note that if the employer has employees and contributes 15% for them, that is the contribution rate to use in this formula.

Answer 147

Rationale The correct answer is "C." Statements II and V cannot co-exist. She is not old enough for statement I. She is not subject to 10% penalty because this is a qualified plan and she is over 55. Distributions from qualified plans are subject to mandatory 20% withholding.

Answer 148

Employer contributions into a non-qualified plan are not tax deductible to the employer until the employee has constructive receipt and is taxed on the income. Most non-qualified plans are designed to avoid constructive receipt by the employee until retirement. In an informally funded plan (Rabbi trust), the employee has the segregated assets as security of the agreement, assuming the employer remains solvent and the assets are not taken by the employer's creditors. This risk of having creditors take the assets inside a "Rabbi trust" is what constitutes a substantial risk of loss or forfeiture and keeps the employee from being considered in "constructive receipt" of the formally funded assets.

Answer 149

Rationale The correct answer is "D." TSA salary deductions are subject to Social Security (payroll) taxes; contributions by the employer to the TSA are tax deductible by the employer but these contributions are not subject to payroll taxes, much like 401K contributions. Remember, TSAs are also known as a 403(b) retirement plan.

Answer 150

Rationale The correct answer is "D." The eligibility requirements must be the same for all employees. All other statements are accurate.

Answer 151

adj. 离开海岸的；国外的

Answer 152

The IRC and ERISA are laws or statutes passed by Congress. The Labor Department and Private Letter rulings are sources of regulatory law. Of course, the U.S. Tax Court only interprets statutory and regulatory law (theoretically), and is not a source of laws.

Answer 153

Rationale The correct answer is "C." Both statements are correct. ESOP distribution in stocks are NUA (Net Unrealized Appreciation). Employees in an ESOP may demand 25% of the current balance be diversified.

Answer 154

Rationale The correct answer is "C." The compensation limit of $285,000 applies to SIMPLE IRAs when non-elective contributions are made. Therefore the employer contribution is $5,700 and the employee can contribute up to $13,500 for 2020. In addition, Robert is 50 years old or older so he may make an additional catch-up contribution of $3,000. His total contribution is $5,700 + $13,500 + $3,000 = $22,200.

Answer 155

Rationale Solution: The correct answer is A. He is not eligible for the long service catch-up because the museum is not a Health, Education, Religious (HER) organization. The maximum contribution limits for 2020 are $19,500 plus the age 50+ catch-up of $6,500.

Answer 156

Capital Preservation Model The Capital Preservation Model assumes at life expectancy, as estimated in the annuity method, the client has exactly the same account balance as he/she started with at retirement. So if life expectancy is exceeded there is still capital available.

Answer 157

Rationale The correct answer is "B." Daisy is an active participant. She cannot opt out of a defined benefit plan. Reduction = 6,000 X [(115,000-104,000) ÷ 20,000] Reduction = 3,300 $6,000 - $3,300 = $2,700 deductible contribution. Donald is not active in the current year so he is eligible for a spousal IRA of $6,000. $6,000 + $2,700= $8,700 Formula: Contribution x [(your AGI – the bottom of the phase out range) divided by the amount of the range (124,000-104,000 is where the 20k comes from)]

Answer 158

His first RMD distribution was for 2019, the year he turned 70 1/2. His 2020 distribution is based on the $48,000 year end balance from 2019 and is subject to a 26.5-year life expectancy of the client, thus minimum distribution is $1,811 for 2020. If the client takes only $1,000, the balance ($811) is subject to a 50% excise tax or $411 penalty. The SECURE Act of 2019 changed RMD age to 72 for those turning 70 1/2 after 12/31/19.

Answer 159

Rationale The correct answer is "C." Simple must be considered because Complex owns more than 80% and the leased employees must be considered because their leasing company’s is not a pension plan. Universal would not be considered a subsidiary because it is only 55% not more than 80%. The union employees are excluded from testing by the IRC.

Answer 160

I. It may provide for benefits in excess of qualified plan limits. II. The contribution underlying the agreement may be structured as additional compensation to the employee. III. It must be entered into prior to the rendering of services to achieve deferral of compensation. IV. The contribution underlying the agreement may be paid from the current compensation of the employee. The underlying contribution may be structured as additional compensation (a so-called salary continuation plan.) Statement "IV" represents a so-called pure deferred compensation plan.

Answer 161

Rationale The correct answer is "B." Churches are not qualifying sponsors of 457 plans. In-service distributions are not allowed until age 70 1/2.

Answer 162

Retirement benefits can be adjusted based on sponsor profits, but the defined benefit plan can not adjust based on sponsor profits.

Answer 163

An actuary is needed to calculate the minimum funding level. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC).

Answer 164

A participant in an unfunded plan will not be currently taxed if the promise of benefits is unsecured and the agreement is executed prior to the first day of service under the agreement. Any funded plan is taxable unless a Rabbi trust is utilized. the NPV of the guaranteed future income will be included in the gross estate of the deceased participant.

Answer 165

Rationale The correct answer is "D." There is no provision for a distribution without penalty under this circumstance. Edward is only 40 and education withdrawals are allowed in IRAs, not from qualified plans. SECURE Act 2019 added penalty free withdrawals up to $5,000 taken within 12 months of birth or legal adoption.

Answer 166

A voluntary employees' beneficiary association (VEBA) plan is a type of tax-exempt trust used by its members and eligible dependents to pay for eligible medical expenses. It permits: I. Life, sickness and accident benefits I. Severance and supplemental unemployment III. Job training

Answer 167

I. Defined benefit pension plans. II. Money purchase pension plans. III. Target benefit plans. Profit sharing plans (including 401(k) plans) are exempt from minimum funding requirements, as are SIMPLE IRA plans. All pension plans are subject to minimum funding requirements.

Answer 168

The correct answer is "B." Defined benefit plan and cash balance plan (Answer "D") contributions are determined by age, as well as salary. Answer "A" doesn't require annual contributions. Answer "C" has employer contributions determined by the amount of employee deferrals.

Answer 169

Rationale The correct answer is A. She will be able to defer $57,000 plus the catch up of $6,500 to the 401(k) plan, where she can only contribute $57,000 to the target benefit plan and the SEP. She cannot set up a deferred compensation plan and defer tax.

Answer 170

A supplemental deferred compensation plan providing retirement benefits above the company's qualified plan AND without regard to Section 415 limits. SERP supplements the pension plan without regard to limits imposed upon salary levels (i.e., maximum salary of $285,000 in 2020) or the maximum funding levels of Section 415. Do not confuse with an excess benefit plan which extends the benefits of a company's qualified plan above the Section 415 limits but still adheres to maximum salary limitations.

Answer 171

A Cash Balance Plan is a defined benefit plan that acts in some ways like a defined contribution plan. Because it incorporates elements of both, it is sometimes called a “hybrid” plan. A defined benefit plan provides a specific benefit at retirement for each eligible employee.

Answer 172

Rationale Answer b is correct because his benefits under the defined benefit plan must be preserved. Answer a is not correct as “wearaway” was done away with as it negatively effected employees who were near retirement and resulting in employees not accruing additional benefits after a conversion from a defined benefit plan to a cash balance plan. Answer c is not correct as the PBGC does not fully guarantee benefits. Answer d is not correct as a cash balance plan will have a guaranteed rate of return. Employees do not self-direct their assets in a cash balance plan.

Answer 173

Rationale The correct answer is "A." COBRA benefits are required of employers who have 20 or more employees. Employers with fewer employees are not required to provide COBRA continuation, even if they offer a group a health insurance plan to employees.

Answer 174

A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the lessee, if the lessee could not use them, to a lessor that could use them.

Answer 175

Rationale The correct answer is "B." Under the safe-harbor leasing rules the plan must provide a 10%, non-integrated money purchase plan with immediate vesting. No more than 20% of the employer's non-highly compensated employees may be leased to qualify for the safe harbor rules.

Answer 176

Rationale | The correct answer is "B." Options I, II and V increase funding costs of a DB plan.

Answer 177

A)$0 Rationale The correct answer is "A." In the case of NQS Options, the option is not taxed at the grant if the exercise price is equal to or greater than the fair market value of the stock.

Answer 178

Rationale The correct answer is "C." Employee accrued benefits are established by the pension formula, therefore are not required to be provided each year. (Defined contribution plans must provide an annual statement of account.) Because the participant has no individual account in a DB plan, a detailed list of investments is not required. The participant in a DB plan generally has no input in the investment choices within the plan.

Answer 179

The IRS dictates you can withdraw funds from your 401(k) account without penalty only after you reach age 59½, become permanently disabled, or are otherwise unable to work.

Answer 180

Rationale The correct answer is "D." Contributions to a TSA are made before Federal/State withholding taxes are applied. Phase-outs apply to traditional IRAs, not TSA plans. Salary reductions into a TSA are subject to Social Security and Medicare taxes. Employers usually allow the employee to control the allocation of assets within their TSA.

Answer 181

Rationale The correct answer is "C." A normal retirement age must be stated in a defined benefit plan, so Statement "IV" is incorrect. Defined contributions plans (such as a money purchase plan) have retirement benefits which are determined by the value of the individual account whenever the participant retires. Forfeitures may be allocated to employees' individual accounts or used to reduce employer required contributions.

Answer 182

Rationale The correct answer is C. Wade is highly compensated because he is more than a 5% owner, so the maximum that he can defer to satisfy the ADP Test requirements is 6% (4% + 2%). Wade is also limited by the 415(c) limit of $57,000. Since the company contributes $42,000 (20% of $190,000 + $4,000 of forfeiture allocations), he only has $15,000 to split between the deferral and the match. Thus, he contributes $10,000* and the match is $5,000, which when added to the $42,000 totals $57,000. 6% of his salary of $190,000 is $11,400. However, he cannot defer this amount due to the 415(c) limit. *When he contributes they match 50%, so for every dollar he contributes 1.5 x that amount goes into the plan. Take 15,000/1.5 = $10,000

Answer 183

Rationale Solution: The correct answer is C. Total salary reductions for qualified 401(k) and TSA is limited to $19,500 per year in 2020. Contributions to 401(k)s and 403(b)s are aggregated such that they may not exceed the total annual limit. The TSA has make-up provisions that allow certain employees to make up contributions that could have been made in the past but were not. All assets in qualified plans are part of the gross estate of the account owner. Employers may make matching contributions or contribute a fixed percentage of an employee's compensation to a TSA.

Answer 184

OASDHI: old age (or retirement), survivors’, disability, and health (or Medicare) benefits, which include hospital insurance and supplemental medical insurance. The program can be separated into two broad parts. The first part of OASDHI is the old-age, survivors’, and disability (OASD) insurance program known as Social Security. The second part of the OASDHI program is Medicare (HI). The earnings test does not apply at, or after, normal age retirement. The monthly exempt amount is $4,050 ($48,600) in 2020 for those months in the year of normal retirement age BEFORE you actually reach normal retirement age. The test uses only earned income. No passive or portfolio income is used in calculating the earnings.

Answer 185

Cash balance plans are defined benefit plans due to the guaranteed investment returns and benefit formula, not simply a contribution amount. While cash balance plans provide guaranteed rates of return, they are not 100% guaranteed by the PBGC (PBGC has coverage limits). Cash balance plans use 3-year cliff vesting only.

Answer 186

Rationale The correct answer is C. Alex is highly compensated because he is more than a 5% owner, so the maximum that he can defer to satisfy the ADP Test requirements is 4.5% (2.5% + 2%) and because he is over 50, he can defer the additional $6,500 (2020) as a catch-up contribution. Alex can defer $8,000 (4.5% x $177,778) and $6,500 (the catch-up) for a total of $14,500.

Answer 187

The earliest age for social security retirement benefits is 62.

Answer 188

defined benefit plan (expensive) or a SEP, which is extremely easy to set up and one that he can contribute around $11,000 to annually. A SEP is much cheaper to set up and has no annual report requirements like the 401k. He was be able to contribute as an employer to the SEP, which will be based on 20% of net income, around the $11,000 amount (without doing the full self-employment calculation).

Answer 189

You must take required minimum distributions (RMDs) from a traditional IRA starting at age 72. Unlike traditional IRAs, there are no RMDs for Roth IRAs during the account owner's lifetime. Your account's beneficiaries may need to take RMDs to avoid penalties. The Roth 401(k) is subject to RMD If an employee is still working in the company, then he will not subject to this company's RMD

Answer 190

The standard eligibility rules are age 21 and one year of service, defined as 1,000 hours of service within a 12-month period

Answer 191

Non qualified distributions from a designated Roth account associated with a 401k are subject to tax on a pro-rata basis. Her total account is the 15,000 invested and the 5,000 of income for a balance of $20,000. Since 75% (15,000/20,000) of the value in the account consists of basis and the remaining 25% consists of earnings (5,000/20,000), that same ratio of basis to income will apply to the $12,000 distribution. It is not a qualified distribution because she has not held the account for at least five years.

Answer 192

Rationale The correct answer is A. As a result of the PPA 2006, qualified profit sharing plans must use a vesting schedule that provides participants with vested benefits at least as rapidly as either a 2 to 6 year graduated vesting schedule or a 3-year cliff vesting schedule. This requirement applies without regard to whether the profit sharing plan is a top-heavy plan. Options b, c, and d all vest less rapidly than the required schedule.

Answer 193

The unit credit formula rewards many years of service. The flat percentage formula will work well, as long as the Doctor has ten years of service. The maximum benefits under IRC 415(b) are reduced for participation less than 10 years. The flat amount would provide higher benefits for Nurse Nancy compared to Dr. DJ on comparative basis.

Answer 194

Rationale The correct answer is "B." Employees can be excluded up to 3 years or age 21, whichever is longer. Plans can be established and funded up to the date of filing the entity tax return, including extensions. Employee needs to earn only $600 to be included in the plan. C)I, II, III and IV. Simplified Employee Pension Plan (SEP) A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP.

Answer 195

Rationale The correct answer is C. The plan does not have to meet the ADP test because it is a noncontributory plan. The ADP test would apply if there were a non safe harbor 401(k) plan. The plan meets the ratio percentage test and fails the average benefits test. Ratio percentage test (75/150) divided by (35/50) equals 71.4% PASSES Average benefits percentage test: 4% / 5.8% = 68.97% FAILS

Answer 196

This ratio must be at least 70% for the plan to pass. Top-Heavy Test: compares the accumulated assets of key employees to non-key employees. Here the definition of a key employee differs from that of an HCEs, but the concept is similar. A plan is top-heavy if more than 60% of assets are attributable to key employees.

Answer 197

Rationale | The correct answer is "D." Harry must have earned 40 quarters of coverage.

Answer 198

In 2020, contributions are limited to the lesser of 100% of earned income or $6,000 or $7,000 if age 50 or over. Deductions may be taken even if an active participant, so being a non-participant is not a requirement. There are no age restrictions to make contributions into an IRA, just must have earned income (SECURE Act 2019). Contributions must be made prior to April 15 (or the mandated filing date for the year.) No extension to make the contribution is allowed after that date, even though an extension to file the return is granted.

Answer 199

Rationale The correct answer is A. All DB plans (DB and cash balance) must be covered by PBGC except for professional firms with 25 or fewer employees. Choice b is not correct because it is defined contribution plan and is not subject to PBGC. Choice c is not correct because although it is defined benefit plan, it is not subject to PBGC because it is a professional firm with fewer than 25 employees. Choice d is not correct because it is defined contribution plan and is not subject to PBGC.

Answer 200

Rationale The correct answer is "D." Statements "I", "III" and "IV" are correct. Statement "II" is incorrect because there are other methods by which allocations can be made (i.e., age weighted, unit weighted, etc.).

Answer 201

the employer is unable to deduct any contributions to a non-qualified plan until the employee actually takes constructive receipt

Answer 202

$19,500, the employee elective deferral

Answer 203

Rationale The correct answer is "D." The eligibility requirements must be the same for all employees. All other statements are accurate.

Answer 204

Rationale | The correct answer is "C." Actuarial assumptions are needed at the inception of the plan to provide the target formula.

Answer 205

A rabbi trust is established to avoid constructive receipt.

Answer 206

PBGC does not fully guarantee benefits.

Answer 207

realized gains on some personal use assets are recognized unless excluded. realized losses on personal use assets are not recognized.

Answer 208

Punitive damages are always included in income. They may be excludible if they are the only recovery in a wrongful death case (The Alabama Rule).

Answer 209

The IRS provides guidelines for the amount of premiums that are deductible based upon the insured's age. The amount of premiums paid is included in the medical expense deduction for total expenditures exceeding 7.5% of AGI (SECURE Act 2019) and is from AGI. The policy must be guaranteed renewable or non-cancelable to be qualified.

Answer 210

The IRS provides guidelines for the amount of premiums that are deductible based upon the insured's age. The amount of premiums paid is included in the medical expense deduction for total expenditures exceeding 7.5% of AGI (SECURE Act 2019) and is from AGI. The policy must be guaranteed renewable or non-cancelable to be qualified.

Answer 211

Cafeteria plans have a "use-it-or-lose-it" provision which requires any funds not used to pay qualified claims during the plan year be forfeited back to the plan sponsor. Forfeited funds cannot be rebated back to the individual employee who forfeited the funds. a cafeteria plan must have only two benefits, one taxable (salary) and one pre-tax (FSA).

Answer 212

Cafeteria plans have which of the following characteristics? I. Must offer a choice between at least one qualified "pre-tax" benefit and one non-qualified "cash" benefit. II. Medical Flexible Spending Accounts (FSAs) can reimburse medical expenses not covered by insurance for the participant and all dependents. III. Changes in election amount during the plan year can only occur with a "qualifying change in family status."

Answer 213

Direct investment in a business generates income which is UBTI. Any investment which is purchased with "leverage" or borrowed funds generate UBTI except for a qualifying ESOP or LESOP.

Answer 214

If a stock option is vested when it is received, and has a readily ascertainable value it is: Immediately taxable.

Answer 215

Rationale The correct answer is "A." The maximum annual addition to qualified plan accounts is $57,000. If Reviews Are Us contributes $35,000 ($175,000 x 20%) to the profit sharing plan and Lisa receives $5,000 of forfeitures, she may only defer $17,000 ($57,000 - $35,000 - $5,000) before reaching the $57,000 limit (2020). However, she will also be limited by the ADP of the non-highly employees because she is highly compensated (compensation greater than $130,000). If the non-highly employees are deferring 2% then the highlys can defer 4% (2x2=4). Therefore, she is limited to a deferral of $7,000 ($175,000 x 4%).

Answer 216

Roth monies are contributed with 'already been taxed' dollars, and therefore no longer taxable. And all Roth distributions are handled as follows: Withdrawal from a Roth IRA is treated as made first from direct contributions to the Roth IRA, then from conversion contributions (first-in first-out, or FIFO, basis), and then from earnings in the Roth IRA.

Answer 217

all life insurance in qualified plans is subject to income when purchased, regardless of the type.

Answer 218

Group survivor's income insurance provides for the survivor of the employee. The beneficiary designation cannot be altered

Answer 219

Employers generally contribute to Money Purchase Pension Plans, ESOPs, and Profit Sharing Plans. Employees contribute (thus contributory plans) to 401(k)s and Thrift Plans.

Answer 220

Only earned income qualifies for contributions into an IRA.

Answer 221

The adoption of a cash balance plan is generally motivated by two factors: selecting a benefit design that employees can more easily understand than a traditional defined benefit plan, and as a plan that has more predictable costs associated with its funding. Cash balance plans are defined benefit plans due to the guaranteed investment returns and benefit formula, not simply a contribution amount. While cash balance plans provide guaranteed rates of return, they are not 100% guaranteed by the PBGC (PBGC has coverage limits). Cash balance plans use 3-year cliff vesting only. Choice d is correct.

Answer 222

Defined benefit plans favor older participants. It also requires PBGC coverage as mandated by law and needs to be actuarially calculated. The maximum benefit listed is $230,000, but annual contributions cannot be made on an arbitrary basis.(任意依据。)

Answer 223

top-heavy key-employee maximum: $230,000 annual compensation limit: $285,000 employee contribution: $19,500

Answer 224

Payments under a "golden parachute" are considered ordinary income. Additionally, any amounts under the Social Security cap will be subject to the OASDI tax. All amounts will be subject to Medicare tax. "Golden parachute" payments are also subject to an additional 20% excise tax. Because these are non-qualified plans, no lump sum treatment or IRA rollover options apply.

Answer 225

Tax-Sheltered Annuity (TSA) provisions: The annual elective deferral limit may be increased by up to $3,000 for employees of certain organizations who have completed 15 years of service and meet certain other requirements. because TSAs can only invest in mutual funds or annuities and not any direct investments. the total excludable contributions must be for all prior years, not just the past three.

Answer 226

discretionary : 酌情决定的

Answer 227

Profit sharing plan : A hybrid plan that uses a discretionary contribution but adjusts for age

Answer 228

Lodging as a fringe benefit is only excluded if (1) it is furnished on the business premises (the place of work), (2) it is furnished for the employER's convenience, and (3) the employee accepts it as a condition of employment. A vacation stay does not meet any of the these criteria so it is fully taxable.

Answer 229

Participating in a 457 plan is not considered being an “Active Participant.” She can contribute and deduct her contribution to a Traditional IRA $6,000 (2020) since she is not an active participant and therefore not subject to an AGI limitation. She is unable to contribute to a Roth IRA because she is above the AGI limitation of $124,000 - $139,000 (2020). Because she is 50 or older she is allowed to make the $1,000 (2020) catch up contribution.

Answer 230

In a qualified retirement plan, the loan can be up to 50% of the employer's accrued balance or $50,000, whichever is less. There are mandatory repayments which must occur at least quarterly. The term of the loan can be for a maximum of five years, unless the proceeds are used to purchase a residence, then the loan can be for a longer period of time. Most plans have a minimum participation requirement of two years before loans are available. A reasonable interest rate must be charged. Many plans have a minimum loan amount of $10,000.

Answer 231

IRC Section 457 plans are nonqualified deferred compensation plan, and therefore do not make the employee an "active" participant in a qualified retirement plan. The 401(k) is a qualified plan and the 403(b) and SEP are ‘wannabe’ be plans that would make the employee an "active" participant.

Answer 232

A person is not subject to 10% penalty from a profit sharing plan because this is a qualified plan and she is over 55. Distributions from qualified plans are subject to mandatory 20% withholding.

Answer 233

非自愿终止雇佣

Answer 234

ESOP distribution in stocks are NUA (Net Unrealized Appreciation). Employees in an ESOP may demand 25% of the current balance be diversified.

Answer 235

Short-term disability benefits usually start the eighth day of an illness (first day for an accident) and generally last no more than six months.

Answer 236

A top heavy plan mandates a 3-year cliff vesting or 2-6 graded vesting schedule (or faster if elected by sponsor.) Top heavy plans must make a minimum contribution of 3% to non-key employees. This PSP had already made a 5% contribution so no additional contribution is required. Top heavy plans are still qualified as long as minimum vesting and contribution requirements are met.

Answer 237

SEP is an ACTIVE participant

Answer 238

Tax Sheltered Annuity (TSA): employers may make matching contributions or contribute a fixed percentage of an employee's compensation to a TSA.

Answer 239

Qualified plans have tax-deferred contributions from the employee, and employers may deduct amounts they contribute to the plan. Nonqualified plans use after-tax dollars to fund them, and in most cases employers cannot claim their contributions as a tax deduction.

Answer 240

Profit sharing plan: default contribution rate by employer is 3%. The fact that the plan is top heavy is irrelevant since all employees are receiving a contribution greater than 3%..

Answer 241

Rationale The correct answer is "A." Profits are not required to make contributions to a profit-sharing plan. Minimum funding is required only in pension plans. Forfeitures may be reallocated to remaining employee accounts.

Answer 242

Roth IRA early withdraw: Earnings will be TAXABLE, but not for basis and conversion. Contributions are NOT subject to the early withdraw penalty 10%. Other parts, such as earnings and conversion could pay penalty if the number of holding period on the account is less than 5 years. Roth distributions are tax free if they are made after 5 years and because of 1)Death, 2)Disability, 3) 59.5 years of age, and 4)First time home purchase. Withdrawal from a Roth IRA is treated as made first from direct contributions to the Roth IRA, then from conversion contributions (first-in first-out, or FIFO, basis), and then from earnings in the Roth IRA.

Answer 243

Defined benefit plan has: II. Actuarial assumptions required. IV. Employer bears investment risk.

Answer 244

SIMPLE IRAs require a 25% penalty for early withdraws in the first two years if the participant does not meet any of the early withdrawal exceptions.

Answer 245

An excess benefit plan extends the same benefits to employees whose contributions to the plan are limited by Section 415 (e.g., employee earns $285,000 yet receives $57,000 contribution instead of $70,000 contribution due to Section 415 limitation on a 25% money purchase plan). An excess benefit plan would put additional $13,000 into non-qualified retirement plan. Do not confuse with a SERP which provides benefits in excess of the Section 415 limits AND ignores the covered compensation limits (i.e., $285,000 in 2020) applied to qualified plans.

Dalton Quizzes Flashcards

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