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Retirement Flashcards

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1
Q

Partnerships don’t offer ESOPs because

A

Partnerships don’t issue stocks

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2
Q

Money Purchase Pension Plan max contribution

A

Lesser of 100% salary OR $58K

(employer contributions are mandatory)

(***This plan is unique compared to the DB plans because it acts just like a DB plan but the contributions are capped at $58K instead of $230 like a DB plan)

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3
Q

Profit sharing plan employer max contribution %?

A

25% or 100% of salary

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

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

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4
Q

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

Which plans can not be cross-tested?

A

1/3 plan contributions or 5%

ESOPs

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5
Q

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

A

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

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6
Q

Unit benefit formula

Final averaging formula

A

factor % times years of service

average of last few years of salary

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7
Q

When are hardship withdraws allowed for profit sharing plans?

A

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

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8
Q

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

A

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

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9
Q

Defined Benefit and Defined Contribution salary cap?

Simple IRA salary cap?

Defined contribution max contribution?

Defined Benefit max contribution?

Tandem plans -

A

DB/DC - $290K

Simple IRA - $450K (defacto salary cap)

DC - $58K

DB - stuff it like a pig!

Plans in tandem are the wrong answer!

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10
Q

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

A

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

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11
Q

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

A

Yes

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12
Q

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

A

IRAs (INDIVIDUAL retirement account)

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13
Q

Are DB plans exempt from creditors?

A

Yes

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14
Q

Do DB Plans allow for past credit service?

A

Yes

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15
Q

What 1 characteristics all DC plans have?

A

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

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

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16
Q

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

A

Fixed - Money Purchase & Target Benefit

Flexible - Profit Sharing (401K) & Stock Bonus

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17
Q

Which type of Plan can be integrated with SS?

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

A

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

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

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18
Q

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

A

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

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19
Q

DB plans; employer contributions

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

A

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

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20
Q

Pension Benefit Guaranty Corporation (PBGC)

A

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

(*CB is cash benefit plan)

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21
Q

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

A

Cash Balance Plan has guaranteed investment returns

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22
Q

There are no forfeitures with what type of retirement plans?

A

IRA plans

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23
Q

What is a forfeiture?

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

A

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

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

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24
Q

Profit Sharing Plan is contributions from who?

A

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

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25
What is a CODA plan? Or Qualified Stock Plan
401K or sometimes referred to as a stock bonus plan
26
For a 401K plan the deferral max? and contribution max?
Deferral max is $19,500 Contribution max is $26,000 (not included in the employer 25% deduction) (employer match is not included on the catch contribution)
27
For a question asking for deferral elective, be careful not to include ___?
The catch-up
28
For 401K plan, a match is included in the allowable ____
25% employer deduction or 100% of salary
29
Can a hardship withdraw come from a profit sharing plan?
No, must come from a 401(k) plan | Tax at ordinary income plus 10% penalty
30
Solo 401K has what 3 contribution benefits?
Deferral of $19,500 Catch-up of $6,500 Employer contribution of $58,000
31
NUA has 3 parts (basis, NUA, additional gains) how is each taxed upon retirement
Basis is taxed as ordinary income based on the year for separation of service NUA is taxed as Long-Term capital gains no matter how long the holding period Additional gains are taxed as short-term/long-term capital gains based on the holding period (NUA applied to profit sharing and ESOP plans so be careful to watch for 10% early withdraw penalty)
32
__% mandatory withholding from retirement plan withdraws
20% mandatory withholding for retirement plan withdraws, but not for STEPP withdraws or RMDs (doesn't apply to 60 day transfers or direct rollovers)
33
NUA loses it's tax advantage status for two actions?
IRA rollover 72(t) distribution (substantial equal payments)
34
Keogh plan is either a ___ or ____
Sole Proprietorship or Partnership (if one of the answers says just Keogh plan instead of Keogh profit sharing, then the answer is likely wrong because just "Keogh Plan" isn't specific enough)
35
SEP IRA employee requirements
employer can discriminate up to 3/5 years of service and at least $650 for income for current year (SEPs are great for companies with short term employees, but bad for companies with part-time employees)
36
403(b) catch ups
extra $3,000 for 15 years of service and extra $6,500 for age 50 (like a 401K plan)
37
Highly compensated employees Key employees Which is for vesting / discrimination and ratio %
(family members are included, but not sibilings) HCE - greater than 5% owner OR $130K Key employee - greater than 5% owner OR greater than 1% owner & $150K OR officer w/$185K vEsting - kEy ee (60%) hIghly comp ee - dIscrimination (70%) (the second letter for each match up)
38
Minimum contributions for DB / DC plans
DB - 2% (second letter) | DC - 3% (third letter)
39
For the NHCE average deferrals, how to figure out how much HCE can defer?
2 x up to 2% for NCHE, then add 2% there after If NCHE average deferral is 1% then HCE deferral can be up to 2% If NCHE average deferral is 5% then HCE deferral can be up to 7%
40
For determining to do SS integration or age-based discrimination, what factors should be considered?
SS Integration - owner under 50, makes under $200K, ees make under $90K Age-based - owner over 50, makes over $200K, ees are young
41
Most common approach for age-based testing is?
Cross-testing (aka new comparability plan)
42
If you have more than one employer retirement plans, then deferrals must be _____ between all plans
aggregated (can't do more than $19,500 plus catch up across all plans, excluding 457 plans) (this doesn't apply to unrelated employer deferrals)
43
Non permissible rollovers
Hardship withdraws RMDs Only Non Governmental 457 plans to Non Governmental 457 Plans
44
No catch ups for what kind on 457 Plan?
Non government
45
Is a 457 plan be subject to creditors?
Yes
46
What type of employee is exempt from RMD?
5% owners in a qualified plan or still in-service employee (not IRAs, they are always subject to RMD)
47
Substantial Equal Periodic Payments (STEPP) 72(t)
Allows for periodic of payments from qualified plans for 5 year period. Payments are not allowed to change even if owner has reach 59 1/2 (if owner messes up withdraw schedule, then 10% penalty on all 5 years plus interest)
48
QDROs avoid what regular tax penalty?
the 10% withdraw penalty
49
"Unfunded" aka Informally Funded would be like a company ___ plan
Life insurance
50
Rabbi trust is a trap door and the only people that can get through the trap door are ___
creditors This is an irrevocable trust
51
Main reason for choosing a rabbi trust would be for?
Merger, acquisition, change of ownership (protects important employees during a M&A)
52
ISOs miss out on what tax benefit? and are limited to how much?
deferred taxation $100K, then the excess is identified as $150K
53
ISO vs NSO $20 option granted, exercised at $100, sold at $200
NSO - $20 basis, $80 added to basis at exercise (ordinary income tax), $100 at capital gains ISO - $20 basis, $0 added to basis (no taxable event), $180 at capital gains, BUT must meet EGGS holding period requirements
54
For life insurance to be considered "incidental" for a group plan premiums paid must amount to less than:
Universal - 25% Term - 25% Whole Life - 50% Defined Benefit - 100x DB retirement payout
55
Employee deferral and catch up max for aggregated 401k/403b & SIMPLE/SEP? For two different 401k/403b plans? For two different SIMPLE plans? Which plans do not aggregate?
401k/403(b) & SIMPLE/SARSEP - $19,500 plus catch up $6,500 401k/403b - $19,500 plus catch up $6,500 SIMPLE - $13,500 plus catch up $3,000 457 plans do not aggregate
56
Keogh Contribution
Self-Employment Tax must be computed and a deduction of one-half of the Self-Employment Tax must be taken before determining the Keogh deduction If contribution 15%: multiply by 12.12% of net earnings If contribution 25%: multiply by 18.6% of net earnings
57
Stock Bonus Plan
Flexible contributions Maximum Annual Contribution lesser of 100% of salary or $58K 100% of contribution can be invested in company stock Cannot be integrated with Social Security or cross-tested (ESOP is a provision but can not be integrated with SS)
58
Money Purchase Plan
Fixed Contributions Favors Young employee (unlike the Target Benefit plan) Maximum Annual Contribution lesser of 100% or salary of $58K (2021)
59
Target Benefit Plan
Fixed Contributions Maximum annual contribution less of 100% of salary or $58K (2021) Favors older workers
60
Integration with SS
Lesser of Base % or Disparity (5.7% for DC 26.5% for DB) = Excess % (not an important question for the test)
61
Salary Reduction Plan vs. Salary Continuation Plan
both ways of funding an employee benefit Reduction - employee benefit that is reduced from salary Continuation - employee benefit that is continued salary
62
Safe Harbor Match / Vesting
The statutory contribution using match first 3% then $0.50/$1 on the next 2% OR Mandatory 3% to all employees that's immediately vested
63
Can NUA treatment be carried over from ESOP plan?
Yes, but will have 20% mandatory withholding on the basis
64
Section 415 Annual Additions Limit
100% of compensation or $58K (includes employer contributions, employee salary reductions and plan forfeitures)
65
If an educational seminar is done for a 401k employee, then who has liability for investment plan losses?
The employee
66
SS benefits stop for disable person (if disable before 22) once?
Marrying an abled bodied person
67
What accounting method allows for a mid-quarter convention if 40% of the assets were in place by the end of the last quarter last year?
MACRS

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