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CFP > Retirement > Flashcards

Retirement Flashcards

1
Q

What are the defined benefit pension plans?

A

Defined benefit pension plan, Cash balance Pension plan

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2
Q

What are the defined contribution pension plans?

A

Money purchase pension plan, target benefit pension plan

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3
Q

What are the defined contribution profit sharing plans?

A

Profit sharing plans, stock bonus plans, ESOPs, 401(k) plans, Thrift plans, New comparability plans, age-based profit sharing plans

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4
Q

Pension Plan - what is the legal promise of the plan?

A

Paying a pension at retirement

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5
Q

Profit sharing Plan - what is the legal promise of the plan?

A

Deferral of compensation

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6
Q

Pension Plan - in service withdrawals?

A

Yes (Over 59 1/2)

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7
Q

Profit sharing plans - in service withdrawals?

A

Yes (But after 2 years)

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8
Q

Pension Plan - Mandatory funding?

A

Yes

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9
Q

Profit sharing plans - Mandatory funding?

A

No

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10
Q

Pension Plan - Investment in ER Securities

A

10%

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11
Q

Profit sharing Plan - Investment in ER Securities

A

100%

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12
Q

Pension Plan - QJSA & QPSA?

A

Yes

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13
Q

Profit sharing plans - QJSA & QPSA?

A

No

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14
Q

Defined Benefit - what is the annual contribution limit?

A

Not less than the unfunded current liability

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15
Q

Defined Contribution - what is the annual contribution limit?

A

25% of Covered compensation

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16
Q

Defined Benefit - Who assumes the investment risk?

A

Employer

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17
Q

Defined Contribution - Who assumes the investment risk?

A

Employee

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18
Q

Defined Benefit - How are forfeitures allocated?

A

Reduce plan costs

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19
Q

Defined Contribution - How are forfeitures allocated?

A

Reduce plan costs or allocate to other participants

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20
Q

Defined Benefit - Is this covered by PBGC?

A

Yes (Except professional firms with less than 25 EE)

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21
Q

Defined Contribution - Is this covered by PBGC?

A

No

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22
Q

Defined Benefit - Does this plan have separate investment accounts?

A

No, these accounts are commingled into one account and have accrued benefits

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23
Q

Defined Contirbution - Does this plan have separate investment accounts?

A

Yes, they are separated and have account balanaces

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24
Q

Defined Benefit - Can credit be given for prior service?

A

Yes

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25
Q

Defined Contribution - Can credit be given for prior service?

A

No

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26
Q

Defined benefit & Defined contribution - which favors young and which favors older?

A

DB - older // DC - Younger

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27
Q

Employer contributions avoid which tax?

A

Fica (Payroll tax)

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28
Q

Eligibility for qualified plans

A

1) 21 year old and 1 year of service (1,000 hours worked during one plan year) OR 2) 2 years of service with 100% vesting - not available to 401(k) plans

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29
Q

For education institutions, what is the oldest someone has to be to enter into a plan?

A

26

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30
Q

How many entrance dates must the plan have?

A

2

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31
Q

401(k) Eligibility for qualified plans (For part time employees)

A

500hrs each year for 3 consectuative years

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32
Q

Coverage tests - Safe harbor test Calculation

A

≥ 70% of NHC Covered

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33
Q

Coverage tests - Ratio % test Calculation

A

(% of NHC Covered / % of HC Covered) ≥ 70%

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34
Q

Coverage tests - Average benefits test Calculation

A

(AB % of NHC Covered / AB % of HC Covered) ≥ 70%

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35
Q

50/40 Test - who is this for?

A

Defined benefits plans only

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36
Q

50/40 Test - How to calculate this

A

Lesser of: 50 EE or 40% of employees

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37
Q

Highly compensated employee - qualifications

A

> 5% this year or last year OR compensation in excess of $150,000 for prior year

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38
Q

Tactic to lower the amount of employees as HCE?

A

Rank top 20% as HCE ranked by Salary

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39
Q

Vesting - Defined contribution plan

A

ER contribution - 2 to 6 year graduated or 3 year cliff // EE contribution - 100% vested

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40
Q

Vesting - Defined Benefit plan

A

3 to 7 year graduated or 5 year cliff

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41
Q

What % of assets in a DB/DC plan make it top heavy?

A

> 60% of account balance (DC) or accrued benefits (DB) to key employees

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42
Q

Key employee - qualifications?

A

> 5% owner // >1% owner and compensation in excess of $150k // Officer with compensation in excess of $215,000

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43
Q

Top Heavy Defined contribution plans - What must be the minimum funding amount?

A

Equal to 3% of non key EE’s compensation except if the key EE is less than 3%

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44
Q

Top Heavy Defined benefit plans - What must be the minimum funding amount and vesting?

A

2% per years of service (Max is 20%) times the EE average annual compensation AND increase vesting to either 2-6 year graduated or 3 year cliff

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45
Q

Non Top Heavy Defined benefit plans - What must be the minimum funding amount?

A

1.5% * by average 3 highest years of compensation * Years of service

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46
Q

Defined contribution - plan funding limits

A

Covered compensation of $330k

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47
Q

Defined benefit - plan funding limits payouts

A

Lesser of: $265k OR 100% of the average of the EE’s highest consecutive years salary

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48
Q

Defined contribution - Maximum contribution for the year

A

Lesser of: 100% of EE compensation OR $66k (The limit consists of EE contributions ($22,500 + $7,500), ER contributions, any forfeiture

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49
Q

Pension plans - which need an need annual actuary and which only need actuary at inception?

A

Required annually - Defined benefit pension plan, Cash Balance pension plan // Required at inception - Target benefit pension plan (No other plans need an actuary)

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50
Q

What is social security integration?

A

Allocating plan contributions in favor of participants who are in excess of the social security base

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51
Q

Social Security Integration - Formula and how is permitted disparity solved?

A

Base rate + Permitted disparity = Excess rate //
Base rate can be anything
Permitted disarity can be double the base rate up to 5.7%
Excess rate is when you add the two

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52
Q

Social Security Integration - Excess method - what is this and who can use it?

A

Provides and excess benefit to those particpants whoes earnings are in excess of the social security wage base (DB and DC plans use this)

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53
Q

Social Security Integration - Offset method - what is this and who can use it?

A

Reduces benefit to those EE whose earnings are below the Social security wage base

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54
Q

Excess method - How the calculation works

A

You double the base rate up to 5.7% - then you add 5.7% instead. (Base -4%, Max - 8%) (Base - 6%, Max - 11.7%)

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55
Q

Which plans cant be integrated with Social security? 4^3STRES

A

401(k), 403(b), 457, Simple, traditional IRA, Roth IRA, ESOP, Sarsep,

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56
Q

Defined benefit plan - does this favor young or older participants?

A

Favors older

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57
Q

Defined benefit plan - Flat Amount Forumla, Flat percentage formula, Unit credit formula

A

Flat Amt - Equal dollar benefit // Flat % - % of salary // Unit credit - YOS x % x Salary

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58
Q

Cash Balance Pension plans - what is the vesting for this?

A

ONLY 3 year cliff 100% vested

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59
Q

Cash Balance Pension plans - favors younger or older?

A

Young

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60
Q

Cash Balance Pension plans - What is this?

A

Quasi-Separate accounts that gaurantee contribution rate and gaurantee earnings on the contributions

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61
Q

Money Purchase Pension Plans - Favors younger or older

A

Younger

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62
Q

Money Purchase Pension Plans - who bears the investment risk?

A

EE

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63
Q

Money Purchase Pension Plans - Separate or conmingled accounts?

A

Separate

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64
Q

Target Benefit Pension Plans - Who bears the investment risk?

A

EE

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65
Q

Target Benefit Pension Plans - actuary is needed when?

A

at inception of plan

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66
Q

Target Benefit Pension Plans - favors older or younger?

A

Older

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67
Q

Target Benefit Pension Plans - How is the contribution determined?

A

By participants age

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68
Q

Money Purchase Pension Plans - How is the contribution determined?

A

Fixed percentage mandatory up to 25%

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69
Q

Profit sharing plan contributions - they are discretionary but must be ___________

A

Substantial and recurring

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70
Q

What social security integration method can Defined benefit plans use?

A

Excess or offset

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71
Q

What social security integration method can profit sharing (DC plan) plans use?

A

Excess method

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72
Q

Profit sharing plans - when must the contributions be made by?

A

By the company’s income tax return

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73
Q

New comparability plan - what does this plan take into consideration?

A

Dependent upon EE classification (Owner, Officer, Rank-and-file)

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74
Q

What can be attached to a profit sharing plan?

A

CODA/401(k) plan

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75
Q

401(k) plans - Vesting

A

EE - always 100% vested // ER - 2-6 graduated or 3 yr cliff

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76
Q

ADP (Actual deferral percentage) test - what is the purpose of this plan?

A

to ensure that HC’s deferrals gap is not that big between them and the NHC

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77
Q

ACP/ADP Calcuation Chart

A

0-2% HC - 2x for NHC // 2%-8% HC - 2% plus ADP for NHC // 8% and over HC - 1.25x for NHC

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78
Q

If you fail the ADP/ACP tes, you can: 1)Corrective distributions, 2)Recharacterization 3)QNEC, 4)QMC

A

1) CD - Decrease ADP of HC 2)Rechar - Change pretax contributions to after tax contributions 3)QNEC - Increase ADP of NHC (All NHC EE) 4)QMC - Increase ADP of NHC (Only NHC EEs that have contributed)

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79
Q

ACP (Actual Contribution Percentage) Test - what does this test?

A

EE after tax thift contributions and ER matching contributions

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80
Q

Safe Harbor 401(k) plans - They are not requried to pass _____

A

ACP/ADP tests

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81
Q

Safe Harbor 401(k) plans - Non-elective contribution and matching contribution

A

Non-elective contribution - 3% to everyone // Matching - 100% to 3% AND 50% from 3% to 5% (4% rule)

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82
Q

Safe Harbor 401(k) plans - Vesting

A

Safe harbor 401(k) ER contributions are fully 100% vested

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83
Q

Stock bonus plan - What benefit doest the ER get?

A

Cashless tax deduction

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84
Q

NUA - what plans does this apply to?

A

ESOP or Stock bonus plan

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85
Q

NUA - what is the NUA portion always taxed at?

A

LTCG

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86
Q

NUA - what is the allocated stock given to the EE taxed at?

A

Ordinary income

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87
Q

Qualified plans - what are the advantages to the ER?

A

ER contributions are tax deductible // ER contributions are not subject to payroll taxes

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88
Q

Qualified plans - what are the advantages to the EE?

A

Pretax contributions // Tax deferral of earnings // ERISA protection // Lump sum distributions (NUA)

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89
Q

Qualified plans - who has an accrued benefit and who has a Account balance?

A

DB has Accrued benefit and DC has accrued balance

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90
Q

Defined benefit plans - Treatment of fortfeitures can be allocated to?

A

Reducing plan costs only!

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91
Q

Defined contribution plans - Treatment of fortfeitures can be allocated to?

A

Reducing plan costs OR to other plan participants

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92
Q

What DB plan is a popular choice to get rid of expensive DB plans?

A

Cash balance plan

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93
Q

Which entities can establish a 401(k) plan?

A

Corporations, partnerships, LLCs, proprietorships, tax-expempt entities

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94
Q

What kind of plan is an ESOP?

A

Defined contribution Profit Sharing Plan

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95
Q

What are the voting rights of an ESOP? (For Public and Private Corps)

A

Public - Participants have the same rights as the shareholders // Private - Participants must be allowed to vote in major corporate decisions too

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96
Q

What happens in an ESOP?

A

Cash gets borrowed from the bank (Leveraged ESOP) to buy the employer stock, when then gets transferred into the trust to be distributed out.

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97
Q

How much interest is deductible on the loan of an ESOP?

A

Anything above 35%!

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98
Q

Can an ESOP use social security integration?

A

It cannot

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99
Q

Can an ESOP discriminate?

A

Yes - it be can be age- based

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100
Q

What are the two ways to distrubute ER securities for ESOP to participant?

A

1) Substantially equal periodic payment requirements (5 Years over $1.33M) 2) Lump sum (NUA is involved)

101
Q

ESOP participant protection - Put Options

A

EE can require that the ER repurchase the stock at FMV of distribution date (Withing 60 days of distribution date) // This reduces the EE risk but the ER needs to have existing cash to fulfull it (If needed)

102
Q

ESOP - Qualified participant

A

1) at least 55 2) 10 completed years of participation in the plan

103
Q

ESOP -Diversification requirement - How much can they diversify?

A

1) 25% for first 5 years of qualified election period 2) 50% for the 6th year

104
Q

ESOP -Diversification requirement - What can it be diversified to?

A

Distibution, transfer to another qualified plan or offering 3 investment options in the ESOP

105
Q

Pension plan - at what age can participants withdrawal from plan?

A

After 59 1/2

106
Q

Pension plan - When can EE make distributions?

A

After 59 1/2, participant death, disability, termination of service BEFORE and AFTER Full retirement age

107
Q

Pension Plan - when terminated from service BEFORE normal retirement age, what options with existing assets?

A

you can do lump sum, rollover, or leave assets in plan (Value must be more than $5,000)

108
Q

Pension Plan - when participant dies, what options with existing assets?

A

Can go to beneficiary, Participant estate, qualified preretirement survivor annuity (QPSA)

109
Q

Qualified preretirement survivor annuity (QPSA) - what is this?

A

It is an annuity benefit going to the participant spouse if the working spouse dies before the EE reaches its full retirment age

110
Q

Pension Plan - when terminated from service AFTER normal retirement age, what options with existing assets?

A

Qualified joint survivor annuity (QJSA), Lump sum distribution, Rollover plan assets to IRA or other qualified plan

111
Q

Qualified joint survivor annuity (QJSA) - what is this?

A

An annuity payout to the participant and his spouse as long as the both of them live. THERE is an election to do a single life annuity just on the participant (Higher payout) but more risk if participant dies

112
Q

What must happen to elect a single life annuity instead of a qualified joint survivor annuity?

A

Non participant spouse must sign it and be notarized

113
Q

Profit sharing plans - how long until they can make in service withdrawals?

A

2 Years

114
Q

Profit sharing plans - At termination of service, what can they do with the assets?

A

Lump Sum distribution, Rollover to IRA or qualified plan or purchase an annuity

115
Q

Distributions of qualified plans taxed ordinary income UNLESS it is

A

1) Direct Rollovers 2) the adjusted basis coming out of the plan 3) Lump sum distributions (NUA) 4) QDRO

116
Q

When you do a rollover to an IRA - you lose what 2 big things?

A

1) ERISA protection (Although you do get other protection) 2) NUA

117
Q

Rollovers to IRAs - what is a direct rollover?

A

Straight to the account - goes directly to the receiving account (No income tax withholding)

118
Q

Rollovers to IRAs - what is a indirect rollover?

A

A distribution to the participant (Check going to them first) and then a later transfer to the other account (Mandatory 20% income tax withholding)

119
Q

Indirect rollover - how long until they have to redeposit it all?

A

60 days

120
Q

Plan Loans - what is the amounts that you can get loaned out to you? For Normal Loans

A

May not exeed the lessor of: $50,000 or 1/2 the participants vested account balance UNLESS the account balance is under $20k in which you can take the lesser of $10k or the vested account balance.

121
Q

Plan Loans - the loan you are eligble to take out is reduced by the loan balance by _______

A

withing the previous 12 month period

122
Q

Plan Loans - what is the amounts that you can get loaned out to you? For QUALIFIED DISASTER AREA

A

The lesser of: $100k (Which is doubled the amount that can be taken out of a normal loan) OR 1/2 the participant vested account balance

123
Q

Plan Loans - what is the repayment period and how often payments are? (For normal and purchasing principal residence)

A

Normal - 5 years & Home purchase - 30 years // Payments must happen quarterly

124
Q

Plan loans - what happens to loan if the person fails to repay the loan?

A

It counts as a taxable distribution (Cancellation of debt)

125
Q

Plan loans - what happens to loan if the person gets terminated from employment?

A

Causes the loan to become due

126
Q

10% Early withdrawals penalty exceptions - BOTH Qualified plans and IRAs

A

1)59 1/2 2)Death, disability 3)Substantially equal periodic payment 4)Medical expenses in excess of Schedule A 5)Federal tax levy 6)Birth or legal adoption 6)terminal illness 7) $22k if qualifed disaster

127
Q

10% Early withdrawals penalty exceptions - Qualified plans ONLY

A

1)Separation from service at age 55 2)Separation of service 50 or with 25 years of service for PUBLIC SAFETY EE (Firefighter, police) 3)QDRO

128
Q

10% Early withdrawals penalty exceptions - IRA ONLY

A

1)Higher education costs 2) Health insurance for unemployed 3)First time home purchase ($10,000)

129
Q

Qualified plans - Substantially equal periodic payments - How often are payments // How are these calculated // when do they start?SKIP

A

Payments are made annually // calculated of life expectancy of lives // Start after separation of service

130
Q

Qualified plans - Substantially equal periodic payments - Differrent ways to calculate? 3 methods

A

1)RMD (Slowest) 2) Fixed amortization method 3) Fixed Annuitization method [Method 2 and 3 are faster than RMD]

131
Q

When do RMDs start - They must begin at ___ if they turn 72 BEFORE 1/1/23 AND they begin at ____ if they turn 72 AFTER 1/1/23

A

If before - 72 // if after 73

132
Q

When does the first RMD payment begin?

A

by April 1st of the following year

133
Q

Exception for not having to take RMD’s (ie. Delaying) (This exception does not apply to SEPS or SIMPLE IRAs)

A

Participant (not >5% owner) who is still employed can delay until the participant terminates the employment

134
Q

RMD Equation

A

(Fair market value of participants Account at December 31st of the preceding year) / (Table number based on age)

135
Q

Portfolio withdrawal strategies 1)Flat amount 2)Inflation-adjusted 3)Performance-based

A

1)Flat - fixed throughout lifetime 2)Inflation - Annual income increased based on inflation 3)Performance - based on performance of investment portfolio

136
Q

Distributions due to death - What is a designated beneficiary?

A

Anyone who isnt a Eligible designated beneficiary

137
Q

Distributions due to death - Designated beneficiary - when does the balance need to be paid out by?

A

10 years

138
Q

Distributions due to death - What is a eligible designated beneficiary?

A

Surviving Spouse // Child of IRA owner who has not reached age of majority (21) // Disabled or chronically ill (2/6 ADL) individual // any individual who is not more than 10 years younger than the EE or IRA owner

139
Q

Distributions due to death - Eligible Designated beneficiary - when does the balance need to be paid out by?

A

May be distributed over the eligible designated beneficiary’s life // Spouse can roll it over into their IRA // When Child gets to age of majority (21), they become designated beneficiary

140
Q

Distributions due to death - What is a non-designated beneficiary?

A

Can be an estate, charity or some trusts

141
Q

Distributions due to death - Non-Designated beneficiary - when does the balance need to be paid out by?

A

After RMD - Take RMD for year of death and continue // Before RMD - Entire balance by 5th year following year of death

142
Q

IRA Contibution limited to the lesser of:

A

$6,500 ($7,500 for catch up) or individuals earned income

143
Q

What is earned income?

A

W-2 Income, Income as general partner, Alimony (If before 12/31/18) and Schedule C net income

144
Q

What if a spouse does not have an income? Can they still contribute?

A

They can still contribute if the account owner has enough income ($13,000 combined for both spouses to contribute)

145
Q

What happens if you have excess contributions in an IRA?

A

6% excise tax for each year that the excess is still in the account

146
Q

When must IRA contriutions must be done in by?

A

April 15th of the following year (No extensions)

147
Q

What is the deduction on your IRA contribution based on?

A

Income and Qualified plan status

148
Q

Deductible Traditional IRA limit - If not a participant, what is the AGI limit for someone who wants to deduct the full amount?

A

Unlimited amount of money if not active participant

149
Q

Deductible Traditional IRA limit - What is an active participant for a defined benefit plan?

A

Someone that participates OR meets the eligibility requirements of the plan

150
Q

Deductible Traditional IRA limit - What is an active participant for a defined conrtibution plan?

A

Receives a contribution to the qualified plan during the year (Fortfeitures are included)

151
Q

Nondectible traditional IRA contributions - How is this taxed?

A

Basis is tax free but the earnings are tax-deferred growth

152
Q

Nondectible traditional IRA contributions - How are distributions will be returned in the form of…

A

Partial return of capital and partial earnings

153
Q

Nondectible traditional IRA contributions - Are there phase out limits to how much you can put in here?

A

No (As long as you have earned income)

154
Q

Nondectible traditional IRA contributions - Distributions of adjusted basis formula

A

(Adjusted tax basis before withdrawal) / (FMV of account at withdrawal)

155
Q

Roth IRAs - what is the contribution limited by?

A

Based on AGI (Single - $138k to $153) (MFJ - $218k to $228k)

156
Q

When you convert a traditional IRA to a Roth IRA - what does this create?

A

creates a taxable event

157
Q

Recharacterized contributions - what is this?

A

When you change the contribution from an IRA to a Roth IRA (Or vice versa) for that one year

158
Q

Roth IRA qualified distributions - how are these taxed?

A

Income tax free and not subject to 10% early withdrawal penalty

159
Q

Roth IRA qualified distributions - Requirements? (There are 2)

A

Distribution is made after 5 years after the first contribution AND Either 59 1/2, death, disability or first time home purchase

160
Q

Roth IRA NON-qualified distributions - How are contributions, conversions and earnings taxed?

A

(Contributions = T-No,10%-No)(Conversions = T-No,10%-Yes, if within 5 years of conversion)(Earnings = T-Yes,10%-Yes)

161
Q

Roth 401k vs Roth IRA - which does NOT have a phase out?

A

Roth 401k

162
Q

Roth 401k vs Roth IRA - Which one does not have RMD

A

Roth IRA

163
Q

Roth 401k - How is a nonqualifying distribution calculated? (Ie Roth IRA are done by FIFO - this is different from Roth 401k)

A

Prorata - Exclusion ratio

164
Q

IRAs- what are not permited investments?

A

Life insurance, collectibles, Other country coins (Maple leafs)

165
Q

Rollovers from Qualified plans to IRAs - what do you lose?

A

Lose lump sum distribution (NUA treatment), You cant do loans anymore, and lose ERISA protection

166
Q

SEPs - is this a qualified or unqualified plan?

A

Unqualified plan

167
Q

SEPs - what account is established in order to have a SEP?

A

IRA Account

168
Q

SEPs - ER must provided benefits to all Ees who meet the following requirements

A

Age 21 or older, performance of services last 3 out of 5 years, and $750 compensation during the year

169
Q

SEPs - ER must complete the following steps by the tax return (plus extensions) to create a SEP plan

A

1)Complete form agreement 2)Give eligible employees notice 3)Open Sep-IRA accounts for them

170
Q

SEPs - Secure 2.0 act of 2022 - What did this add for SEPs? (ie. Domestic employees AND ability to change contributions to ___)

A

Domestic employees are nannies and employees can change their employer contribution to a Roth account

171
Q

SEPs - Who contributes into a SEP?

A

Employer Only! (No EE contribution)

172
Q

SEPs - contribution max amount by ER?

A

Lesser of: 25% of EE covered compensation or $66,000

173
Q

SEPs - Can SEPs integrate with Social security integration?

A

Yes

174
Q

SEPs - What is the self employed contribution rate?

A

(Contribution rate to other participants) / (1 + Contribution rate to other participants)

175
Q

SEPs - What is the max self empoyed contribution rate?

A

20% (.25)/(1+.25)

176
Q

SEPs - Vesting schedule for EE?

A

EEs are fully 100% vested

177
Q

SIMPLEs - What types of business are these supposed to be for?

A

For small employers (100 or fewer Ees who each earned at least $5,000 in any 2 preceding years or $5,000 in current year)

178
Q

SIMPLEs - Can an employer have another plan?

A

No - this can be the only plan (No qualified plans)

179
Q

SIMPLEs - Vesting schedule for EE?

A

100% for EE and ER contributions if SIMPLE IRA // If SIMPLE 401(k) - then vested

180
Q

SIMPLEs - What is a major difference between SIMPLE and SEP plans for contributions? (On who gives it)

A

SIMPLE - EE and ER can contribute // SEP - Only ER can contribute

181
Q

SIMPLEs - What is the max amount of elective deferral for SIMPLE?

A

Maximum - $15,500 plus $3,500 as catch up!

182
Q

SIMPLEs - ER contributions - what are the two options they can elect?

A

1)Employer Matching contributions Dollar for dollar match up to 3% (Can be reduced but not permanent) 2)Nonelective ER Contributions - 2% of COVERED compensation to each eligible EE

183
Q

SIMPLEs - How are the contributions tax?

A

They are taxed deductible and tax deferred (Subject to payroll taxes)

184
Q

SIMPLEs - How are withdrawals taxed and penalized?

A

Taxed at ordinary income AND penalty of 25% if withdrawal is within first two years of EE participation in plan

185
Q

SIMPLE 401(k) Plans - what are the 1 main difference between SIMPLE 401(k) and SIMPLE IRAs?

A

1) If 401(k), you can take loan

186
Q

403(b) Plans - Who are these for?

A

Public schools //.Education Organziations // Tax-Excempt organizations (Religious)

187
Q

403(b) Plans - ERISA applies who which type of organizations that use 403(b)? Church, 501©(3), Governmental

A

501©(3) organizations (Nonprofits) UNLESS ER involvement is minimal and offers salary reduction agreement // Does not apply to Governmental and Church related 403(b)

188
Q

403(b) Plans - IF ERISA does apply - what must it have? (2 Tests and must offer something)

A

Tests: 1) Nondiscimination test 2)matching contribution ACP test // Must meet: QPSA & QJSA

189
Q

403(b) Plans - Eligibility?

A

Age 21 and one year of service

190
Q

403(b) Plans - Contirbutions by EE or ER? (Amounts)

A

(Similar to 401(k) - EE deferrals - $22,500 + $7,500 for catch up (If you have other CODA plans - this can be eaten up!) // ER can do matching or non-elective contribution

191
Q

403(b) Plans - Vesting for EE?

A

100% for EE // ER can require vesting on their contributions

192
Q

403(b) Plans - Catch up contributions? How much and requirements?

A

Permits additonal $15,000 ($3,000 per year) unuesed deferrasl // Requirements - 15 years of service to employer (Age does not matter)

193
Q

403(b) Plans - Catch up contributions for which organizations? HER

A

Health, Education, Religious

194
Q

403(b) Plans - What are the 3 investments this can be invested into?

A

Insurance Annuity Contracts, Mutual funds, Collective investment trusts (Proprietary funds)

195
Q

403(b) Plans - To be able to take a loan out of an 403(b) plan, it need to be from ____ plans.

A

ERISA

196
Q

403(b) Plans - Do they have to do an RMD?

A

Yes (like IRAs and qualified plans)

197
Q

ESOPs- Requirements to qualify for nonrecognition of gain treatment

A

1)ESOP must own at least 30% after sale 2)Sellers must reinvest within 12 months and hold onto securities for three years 2)ESOP must have not class of stock tradeable on the securities market 3)Seller or relatives of sellers are prevented from receiving allocations 4)ESOP cannot sell stock for 3 years 5)Stock sold to ESOP must be common or convertible and seller owned it for alteast 3 years prior

198
Q

For IRAs to avoid the 10% penalty, they say “HIDE ME”

A

Home purchase, health Insurance, Death and disability, higher Ed, medical expenses, Equal periodic payments …. And of course age

199
Q

Prohibited transactions that can hurt the plan or plan participants

A

Transactions between disqualified persons (Fiduciary, Owner, ER or famiy or any of these) and doing: 1)Self benefit of disqualified person, 2)Self dealing, 3)Cash for working with people, 4)Lending/borrowing

200
Q

What is not earned income?

A

Earnings from property (Rental, dividend income), Capital gains, pension and annuity income, unemployment benefits, social security benefits, workers compensation, limited partner income

201
Q

What is not allowed in an IRA?

A

Insurance and collectibles! (Gold, silver are permitted)

202
Q

Prohibited transactions of IRA

A

1)Selling or leasing property to IRA 2)Lending/Borrowing money to IRA 3)Receiving too much compensation for managing IRA 4)IRA as a loan 5)Buying property for personal use

203
Q

457 Plans - Is this a qualified or Non-qualified plan?

A

Nonqualified plan

204
Q

457 Plans - What are the three types of 457 plans?

A

1) Public 457(b), Private 457(b), 457(f)

205
Q

457 Plans - Out of the three 457 plans, which ware eligible/ineligble?

A

Eligible - Public/Prive 547(b) // ineligible - 457(f) (Which means only some people can do this plan ie. They can discriminate)

206
Q

457 Plans - Out of the three 457 plans, which have assets protected by trust?

A

Public 457(b) plans are protected by trust

207
Q

457 Plans - Out of the three 457 plans, which has an unlimited amount of contribution limit?

A

457(f)

208
Q

457 Plans - Who can the participants can be in public 457(b) plan?

A

All EEs

209
Q

457 Plans - Who can the participants can be in private 457(b) plan?

A

Key management and highly compensated AND if this a church, it can be all employees

210
Q

457 Plans - Who can the participants can be in public 457(b) plan?

A

all EE in public

211
Q

457 Plans - What can a public 457(b) plan rollover into?

A

Permitted into 401(k), 403(b), 457(b), IRA Plans

212
Q

457 Plans - What can a private 457(b) plan rollover into?

A

Only to other 457(b) plans

213
Q

457 Plans - What can a private 457(f) plan rollover into?

A

There are no permitted rollovers allowable in a 457(f) plan

214
Q

457 Plans - Special catch-up amount and requirements

A

Able to defer an additional $22,500 of prior unused deferrals ($45,000 max total) (You cannot double dip this the 50 and over catch-up) // has to be 3 years prior to retirement

215
Q

Nonqualified plans - to have tax deferral, What does substantial risk of fortfeiture and no constructive receipt mean?

A

(once both of these go - taxable income to EE) substantial risk of fortfeiture - Either there is a vesting component or risk of account from bankruptcy // Constructive reciept - cant have access to the money

216
Q

Nonqualified plans - Can you discriminate? When can the ER take the take deduction?

A

1) Yes they can discriminate to give more benefits to key employees 2) No deduction until the money gets paid to the EE

217
Q

Nonqualified plans - What are the two funded trusts called?

A

Secular Trusts and Rabbi Trusts (Preferred)

218
Q

Secular Trust - What characteristic prevents the funds from being taxed? When does it get taxed?

A

There is a vesting period // when the vesting period ends (then the ER gets the deduction)

219
Q

Secular Trust - is there a substantial risk of forfeiture?

A

No

220
Q

Rabbi Trust - is there a substantial risk of forfeiture?

A

Yes - the creditors of the ER can come after this if the company would go bankrupt

221
Q

Phantom Stock plans - What kind of plan is this?

A

Nonqualified defined contribution plan

222
Q

Phantom Stock plans - How des this work?

A

There is no actual stock issued but the ER give fictional shares to the EE - As time goes on, the EE can cash in on this and cash is given to the EE

223
Q

ISOs/NQSOs - What is the tax implications at the grant date?

A

No taxable income

224
Q

ISOs - what is the max an EE can get in $?

A

$100,000

225
Q

ISOs - If there is more than $100,000 of granted to executive, what happens?

A

The excess are treated as NQSO

226
Q

ISOs - to get preferable tax treatment, how long must the EE hold this option?

A

Must hold the stock onto 1) 2 years from date of grant 2) 1 year from date of exercise

227
Q

Stock options - What is the bargain element?

A

FMV at exercise - FMV at grant

228
Q

ISOs - when does AMT become a postive and negative adjustment?

A

Positive adjustment - When you exercise the option // Negative adjustment - when you sale the stock

229
Q

ISOs - What is the tax treatment?

A

Long term capital gain for all of it if you hold it for the period requirements!

230
Q

Disqualifying Disposition - How does this occur?

A

(You lose favorable tax treatment) When you have an ISO and you sell the stock before 2 years from grant date or 1 year exercise date

231
Q

Disqualifying Disposition - What are the tax implications? For EE and ER

A

EE - Appreciation over exercise price is ordinary income (Instead of capital gains) // ER - There is a tax deduction equal to the income

232
Q

Cashless Exercise - What is this?

A

When the executive does not have enough money exercise the option so they borrow cash from a (third party)

233
Q

Cashless Exercise - what are the tax implications of this?

A

the option becomes a disqualifying disposition and the bargain element is now W-2 income (Instead of waiting and getting capital gain treatment)

234
Q

NQSOs - Are there any holding period requirments?

A

No

235
Q

NQSOs - What are the tax implications?

A

Exercise - W-2 income for the bargain element (ER deduction) // Sale of stock - Capital gain/loss from with holding period from date of exercise

236
Q

Gifting ISO/NQSO - Can you gift these?

A

ISOs - not unexercised ISOs Can only be gifted if this is after exercise // NQSOs - Yes (EE will be taxed, ER deduction)

237
Q

Gifting NQSO - What is the tax implications for EE/ER and what is the donee’s basis?

A

EE - will have W-2 income // ER - tax deduction // Donee Basis - Exercise price + W-2 amount

238
Q

SARs - What happens in this?

A

Rights that grant the holder a cash amount equal to the excess of FMV

239
Q

SARs (Stock appreciation rights)- What are the tax implications for EE and ER?

A

EE - W-2 income for excess value above exercise price ER - Tax Deduction for W-2 amount

(No taxation at grant -Unless section 83(b) is selected)

240
Q

Restricted Stock plans - What does the EE get?

A

The EE gets shares of employer stock (Without paying for the stock)

241
Q

Restricted Stock plans - What makes this “Restricted?”

A

This plan is usually on a vesting schedule and there can be a substantial risk of fortfeiture (bankruptcy/creditors)

242
Q

Restricted Stock plans - What is the intent of this?

A

Increases employee retention

243
Q

IRC Section 83(b) - Overall, what is this?

A

An election to include the value of stock as W-2 income right away (When its given to the EE), then any gain over grant date FMV will be taxed at capital gains (Holding period starts whne the W-2 income was included)

244
Q

IRC Section 83(b) - How long will the EE have to make the election?

A

30 Days (Files statement with IRS)

245
Q

Employee Stock Purchase Plan - Overall, what is this?

A

Allows all EE’s to purchase ER securities at a discount price no greater than 15% (Of stock on date or average price)

246
Q

Employee Stock Purchase Plan - What is the limit per employee?

A

$25,000 per year

247
Q

Employee Stock Purchase Plan - What are the tax implications for the holding requirements?

A

1) If held 2 year from grant & 1 year from exercise (Like ISO) - the discount is taxed at Ordinary income (no payroll tax) 2) If not held for that required amount, taxed at W-2 Income (OI + Payroll tax) // After exercise, gain/lose is SL/LT (Depending on how long after exercise date)

248
Q

VEBA - Overall, what is this? (Purpose and tax implications of income on the contributions to VEBA)

A

Tax exempt trust vehicle specifically for reimbursements for healthcare costs (ER deductions on contributions and EE no recognition of income)

249
Q

LI Policy Ownership - Endorsement Method vs Collateral assignment, who owns the policy?

A

Endorsement method - ER owns LI policy (employeR owns if endoRsement) / Collateral method - EE owns LI Policy

CFP (7 decks)

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