Retirement

Question 1

What is NUA?

Answer 1

• Tax strategy that can be used when employer stock is held in qualified plan
• Lump sum distribution of Employer stock to taxable account
  − Lump sum means all must be distributed in the same year
  − Other assets can be rolled to an IRA
• ER stock basis is taxed at Ordinary Income at distribution
  − Doesn’t have to be 100% ER stock; can do partial if desired and roll rest to IRA
• NUA (FMV – basis) will lock in LTCG rates for the time that it is sold
• Amount above FMV (date of distribution) will be taxed based on holding period
• 10% penalty applies to distribution under age 59 ½ unless exception

Question 2

Qualified Plan vs Non- Qualified Plan

Answer 2

Question 3

Deferred compensation is a form of qualified or non qualified plans?

Answer 3

Deferred compensation is a form of non-qualified plans. Set up rabbi trust, still subject to creditors.

Question 4

ER gets a tax deduction when an nonqualified plan is exercised. True or False?

Answer 4

True

Question 5

A client being granted ISOs, grant price $0.17/share, client exercised the option, AMT bill is like 400k. AMT add back, as soon as exercise the ISO, the stock dropped. The stock is projected to go down, market is going down. What do you have your client do as soon as they can do it?

Answer 5

Sell the stock intentionally fails this holding period so ISO can be taxed like a NQSO, avoid AMT.

Question 6

ISO cashless exercise

Answer 6

Date of exercise and sale is the same day, no AMT.

Question 7

What can executive do with NQSO that they cannot do with ISOs?

Answer 7

People can gift away NQSO, they cannot gift ISOs.

Question 8

ISO vs NQSO

Answer 8

Question 9

If client A been granted ISO, on grant date value $7, strike price $10. 2 years later, exercise at $25. 1 years later sold at $45. What is the tax treatment at grant, exercise and sale?

Answer 9

At grant: None. At exercise: $15 AMT, not taxed. At sale= $45 – 10=$35 LTCG

Question 10

If a qualified plan require age 21 and 2 yrs of service. Is it possible?

Answer 10

Yes, Not possible for 401(k). 100% vested immediately.

Question 11

Qualified Plan Entrance requirements

Answer 11

If somebody meets eligibility, enroll within 6 months. 1/1 and 7/1 enrollment

Question 12

Qualified Plan coverage requirements and test

Answer 12

Coverage: annual, cover 70%, only considers eligible EE

• Safe harbor test/coverage test: #NHC enrolled / # of NHT eligible >=70%. Does not relate to HC.
• Ratio benefits: : (#NHC enrolled / # of NHT eligible) / (# of HC enrolled/ #HCT eligible) >=70%
• Average benefits test: AB% of NHC covered / AB% of HC covered >=70%

Question 13

Qualified Plan Vesting

Answer 13

Vesting: ERISA – no more than 7 yrs.

DB plan: 3-7 yr graded or 5 yr cliff; top heavy is 2-6 yr graded or 3 yr cliff

Cash Balance plan: 3 yr cliff ONLY

DC plan: 2-6 yr graded or 3 yr cliff

Question 14

What is top heavy qualified plan?

Answer 14

> 60% of plan assets are for KEY employees; DC– 3%, DB – 2% (C—third letter, B— 2nd letter)

Question 15

If a son owns 35% of the company, Dad works in this company salary 35k, Dad Highly Compensated Employee?

Answer 15

Yes

Question 16

Joe, works 40 yrs FT, company this year set up a profit sharing plan and ER contributed 6k to this plan. What is Joe’s vesting percentage for this yr?

Answer 16

$0

Question 17

Joe, works 40 yrs FT, company 30 years ago set up a 401(k) plan and ER contributed 6k to this plan this year. What is Joe’s vesting percentage for this yr?

Answer 17

$6k – previous credit count if the plan is old.

Question 18

Jerry Jones, age 40, earnings $100,000, wants to establish a DB plan. He employes 4 ppl who’s combined salary are $60,000 and range in age from 23 to 30. Average employment period is 3.5 years. What is the best vesting schedule for Jerry’s plan: 3 yr cliff, 3-7 yr graded, 5 yr cliff, 2-6 yr graded. Which one to choose?

Answer 18

This is a top heavy plan — go with 2 to 6 yr graded

Question 19

Which plans allow employee deferral?

Answer 19

401(k) plan, 403b, SIMPLE

Question 20

What testing does 401(k) plan offer?

Answer 20

Traditional(testing) or safe Harbor(exempt for all testing)

Question 21

401(k) ADP testing

Answer 21

look at NHC and HC’s deferral

Question 22

If 401(k) plan fails the ADP test, how to correct?

Answer 22

Corrective distribution to HC, refund HCE as 1099-R;
QNEC(Qualified Nonelective Contribution)to the NH to bring up, the QNEC is 100% vested and goes to all eligible ppl, doesn’t matter enroll or not.

Question 23

What is 401(k) safe harbor election?

Answer 23

3% flat non elective contribution to all eligibles;
100% $ for $ match up to 4% of pay for those ppl actually put money in the plan and 100% vested

Question 24

401(k) safe harbor match – If EE puts 10%, how much will ER give?

Answer 24

ER give 4%

Question 25

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 401(k). How much can they put in their 401(k) new plan?

Answer 25

$0. Already hit the limit for XYZ.

Question 26

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 403(b). How much can they put in their 403(b) new plan?

Answer 26

$0. $22,500 for all deferral sources

Question 27

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan in the Q1 of the year. Are they eligible immediately if they quit their job and go to ABC company 457Plan. Can they contribute in 457 Plan?

Answer 27

Yes

Question 28

What is 401(k) annual contribution limit?

Answer 28

Lessor of 100% of compensation or $66,000, per ER

Question 29

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan on Jan 2 of the current year. How much could XYZ ER put in? They quit their they quit their job and go to ABC company with 401(k). How much can EE and ABC contribute to the plan?

Answer 29

$66k-22.5k=$43,5k. EE - $0. ER- $66k

Question 30

If a person work for 5 companies, could potentially get $66k from all 5 companies. True or false?

Answer 30

True

Question 31

Client Joins XYZ 401(k) plan under age 50, they plugged $22,500 into the 401(k) plan on Jan 2 of the current year. They quit their they quit their job and became self-employed. Making a solo IRA wouldn’t make any sense. The client could create SEP IRA, how much could contribute to the SEP IRA this yr?

Answer 31

$66k

Question 32

Ricky makes $400,000 per year and just turned 53. His employer sponsors a 17% money purchase pension plan and a 401(k) plan with a 50% match. What is the most, in dollars, that can be deferred in this 401(k) plan by Rickey in 2023?

Answer 32

Start with $66,000. Money purchase pension contribution=$330,000 x 17%=$56,100. $9,900 left. 1.5 times X = $9900 X=$6,600, while the client is age 53 and has a catchup contribution of $7500 $6600 + $7500=$14,100, total is $14,100.

Question 33

An employee, age 45, earnings $350,000 can have what maximum amount put in the following retirement plans: a 10% money purchase plan and a 401(k) plan with no employer match (2023).

Answer 33

$22,500 + $330,000x10%=$55,500

Question 34

Pension vs Profit Sharing vs Other Tax Advantage Accounts

Answer 34

Question 35

Pension vs Profit Sharing vs Other Tax Advantage Accounts FICA paid on deferrals

Answer 35

PS, Other TAA

Question 36

Pension vs Profit Sharing vs Other Tax Advantage Accounts 10 year averaging / Capital Gain treatment

Answer 36

Pension Pension, PS -- Lump sum distribution strategy

Question 37

Pension vs Profit Sharing vs Other Tax Advantage Accounts Subject to NUA

Answer 37

Pension, PS ---- Lump sum distribution strategy

Question 38

Pension vs Profit Sharing vs Other Tax Advantage Accounts >10% of ER $$$ in ER stock

Answer 38

PS, Other TAA

Question 39

Pension vs Profit Sharing vs Other Tax Advantage Accounts In service withdrawals allowed

Answer 39

PS, other TAA

Question 40

Pension vs Profit Sharing vs Other Tax Advantage Accounts 100% vesting

Answer 40

Other TAA

Question 41

Pension vs Profit Sharing vs Other Tax Advantage Accounts Annuities required

Answer 41

Pension

Question 42

Pension vs Profit Sharing vs Other Tax Advantage Accounts Annual Funding Required

Answer 42

Pension

Question 43

Pension vs Profit Sharing vs Other Tax Advantage Accounts 20% withholding required on lump sum distribution (partial)

Answer 43

Pension, PS

Question 44

Pension vs Profit Sharing vs Other Tax Advantage Accounts Creditor protection

Answer 44

ALL

Question 45

Pension vs Profit Sharing vs Other Tax Advantage Accounts Life Insurance allowed as an investment

Answer 45

Pension, PS

Question 46

What plans are included in Profit sharing plans?

Answer 46

4 Penguins Swim Every Time Near Antarctica 401(k) Profit Sharing Stock Bonus Plan ESOP New Comparability Plans Age-based Profit Sharing Plans

Question 47

What plans are included in Other Tax Advantage Accounts?

Answer 47

SEP SIMPLE Traditional IRA Roth IRA SARSEP 403(b) TSA TDA

Question 48

What plans favors old people?

Answer 48

DB Plan TB plan Age weighted Porfit Sharing plan

Question 49

WHich plan requires an actuary?

Answer 49

DB, CB, TB

Question 50

Which plan requires PBGC insurance?

Answer 50

DB, CB

Question 51

Pension plan always have a contribution every single year. True or false?

Answer 51

True

Question 52

Pension plan ER money only. True or false?

Answer 52

True

Question 53

How much can go into DB plan in a yr?

Answer 53

No limit. The withdrawal is limit to $265,000.

Question 54

What is ESOP great in?

Answer 54

ESOP is really great in exit planning and liquidity planning

Question 55

403(b) 15 year catch up contributions

Answer 55

$3000

Question 56

403(b) max deferral contributions

Answer 56

$22,500 + $7500 (age 50) + $3000 (15 yr catchup)

Question 57

SEP - qualifications, who fund, fund amount, fund date, delay funding possible, PT possible?

Answer 57

ER funded IRA age 21 and employed 3 out of 5 yrs ER money only, $66,000 Funded by 4/15, extension could delay the payment to 10/15 ER would possible have to pay SEP for all PT EE

Question 58

SIMPLE IRA: qualifications, contributions; early withdrawal penalty

Answer 58

<100 EEs, 5k earnings to contribute $15,500 /3500 A. 2% non elective contributions($330k). B. Match $ for $ to 3%(no limit) ; First 2 yrs early withdrawal penalty is 25%

Question 59

What is 6%,, 10%, 25% penalty?

Answer 59

6% Overcontribution to an IRA 10% Normal early withdrawal penalty 25% People move money out of a SIMPLE IRA within 2 yrs; RMD

Question 60

2/10/24 $6500 Contribute a Roth. While they made more money than they thought and exceeded the Roth IRA limits. What would be the consequence?

Answer 60

If not reclassify as a traditional IRA by next 4/15. Then the entire amount in the Roth will be subject with 6% penalty.

Question 61

If IRA convert to Roth, what will happen?

Answer 61

Pay tax tax contributions not deductible; Coordinate with other contributions;

Question 62

Qualified distribution of Roth IRA

Answer 62

5yrs + 59.5/death/disabled/first home (10k) Earnings come out tax free.

Question 63

10% Penalty Exceptions

Answer 63

10% Penalty Exceptions (no tax)

Question 64

Who is qualified for 72t?

Answer 64

Qualified plan if you no longer work there, needs to meet longer of 5 yrs or 59 ½.

Question 65

QDRO paid to ex-spouse at age 35, subject to 10% penalty?

Answer 65

No tax penalty.

Question 66

If client, age 61, had Roth IRA for 15 yrs. If the client withdraws all the money for Roth IRA. What is the tax and penalty consequences?

Answer 66

Earnings are tax free, no penalty.

Question 67

Your client, single, first funds a Roth IRA when she is 59 yrs old. When she turns 61, she takes all of the funds to out to buy a Porsche for her son. What is the tax treatment of the earnings?

Answer 67

Ordinary income and no 10% penalty

Question 68

When is NUA applies?

Answer 68

ER stock in a qualified plan, lump sum distribution strategy.

Question 69

Client has ABC 401(k) --mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account, how is the tax treated in the brokerage account.

Answer 69

Need to pay 10k OI . The 90k NUA is tax free until sold.

Question 70

Client has ABC 401(k) --mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account on 2/10. Sell it on 4/1 for $110,000 of the same year. What is the tax consequence?

Answer 70

90k LTCG, $10k STCG.

Question 71

Client has ABC 401(k) --mutual fund $400k(basis $400k) and $100k(basis $10k) ABC stock. Client age 45 and quit. Mutual fund $400k will goes into IRA. The 100k stock goes to brokerage account on 2/10. Sell it on 4/1 for $110,000 of the same year. Is the brokerage account subject to 10% penalty? How much will be subject to penalty?

Answer 71

Only 10k basis(contribution) is subject to 10% penalty.

Question 72

The client works for a 401(k) company, they died, they have appreciated stock in their 401(k). The beneficiary can elect anyway on the stock as if they were the employee when they inherited. True or False?

Answer 72

True

Question 73

NUA - Basis, taxation on pre and post distribution

Answer 73

Question 74

If a client with NUA dies, what is the basis to heirs? Any taxation?

Answer 74

NUA is income in decedent. If holder dies, basis to heir=FMV- NUA

Question 75

Which plans cannot integrate with Social security benefits?

Answer 75

4^3 STRES: 401(k), 403(b), 457, SIMPLE, Traditional IRA, Roth IRA, ESOP, SARSEP

Question 76

Which plans can integrate with Social security benefits?

Answer 76

SEP

Question 77

Non-qualified distribution of a Roth 401(K) Plan

Answer 77

Distribution on pro-rata basis

Question 78

Qualified Plan Loans may not exceed

Answer 78

The lesser of $50,000 or ½ Vested account balance. Reduced by the highest outstanding loan balance within the previous 12 months period.

Question 79

Qualified Plans Required Minimum Distribution

Answer 79

Age 72 Before 12/31/2022 --- RMD age 72; Age 72 after 1/1/2023---- RMD age 73.

Question 80

Wayne turned 72 on 12/1/2022 – calculate his RMD, what date he will need to take it?

Answer 80

1st RMD by 4/1/2023; 2nd 12/31/2023

Question 81

Oscar turned 72 on 1/5/2023 – calculate his RMD, what date he will need to take it?

Answer 81

1st RMD by 4/1/2024

Question 82

Felix turned 73 on 1/10/2023 – calculate his RMD, what date he will need to take it?

Answer 82

1st RMD by 4/1/2023; 2nd 12/31/2023. Know he will need to continue RMDs or will need to take two in 2023 if he delayed the 2022 RMD.

Question 83

Account balance on 12/31/2023 $400,000. Age 72 on 1/12/2024, age factor 26.5. Distribution required FOR 2024 ( by April 1, 2025) ?Distribution required in 2024?

Answer 83

Distribution required FOR 2024 ( by April 1, 2025) = $400k/ 26.5=15,094.34. Distribution required in 2024=$0

Question 84

Roth IRA Non-qualified distribution

Answer 84

Question 85

EE is 3 years prior to normal retirement age, 457(b) max contribution= ?

Answer 85

$45,000.

Question 86

Secular trust Characteristics

Answer 86

Not available to creditors; taxable immediately

Question 87

Rabbi trust Characteristics

Answer 87

May be available to creditors; not currently taxable