Retirement Flashcards

Question

Deductibility of Stock bonus plan dividends

Answer 1

Need to be: - paid in cash to participant or beneficiary - distributed to participant or beneficiary - used to make payments on loans - paid to plan and reinvested

Answer 2

If 55 or older and you have been there 10 years, you have the right to diversify up to 50% of the balance. Need to be offered 3 investments or cash it out.

Answer 3

Plan is to provide a max benefit to HCE while benefits for other employees are designed to provide the minimum. Basically its trying to separate classes to then give the classes more benefits. New Comparability: Managers are separated and they have a specific formula used for their contribution. Cross testing (Not ESOPs): - Tests DC plans for nondiscrimination on basis of benefits and DB plans on basis of contributions. - no fixed formula, instead, the plan is designed to provide max benefits to HCE and lowest to NCHE. - Needs to be the lower of 5% or 1/3 of HCE benefits - If age-weighted, need to have an average difference of 15 years between NCHEs and HCEs Cross tested DC plans are tested in terms of benefits and DB are tested in terms of contributions.

Answer 4

Money Purchase - Want stable work force, simple plan, stable cash flow, young employees Target Benefit - alternative to a DB plan but has lower cost and more simple Profit-Sharing - profit varies from year to year, wants a qualified plan, employees are young 401k plan - provide a salary deferral option and can afford minimal expenses, increase savings on a tax deductible basis ESOP and Stock Bonus - broaden ownership, create a market, give employees a sense of ownership and a way to acquire stock DB plan - maximize employer benefits and to older employees Cash balance - more simple DB plan, lump sum payout is lower and benefit is annuitized at the end

Answer 5

DB plan funded completely with insurance, life and annuities. Exempt from minimum funding standards. This is best for those that needs life insurance.

Answer 6

Most DC plans: - will contribute the same amount regardless of market returns, salary changes will change contributions and so can forfeitures DB plans: - need to fund depending on returns

Answer 7

Max payout is lower of $275k or average of three last years salaries capped at $345k Unit benefit: Percentage of earnings per year of service formula (takes into account years of service and pay and is one of the best) Final average: Average over a number of years - usually 3 to 5 Past service credit: for those that worked before the inception of the plan and important for NEW plans

Answer 8

Qualified 1. ERISA 2. Age and service eligibility 3. Top heavy rules (Key) 4. Vesting schedules 5. Coverage testing / ADP & ACP testing 6. Cross testing (not ESOP) 7. Integration (not ESOP) 8. Aggregate deferrals and annual additions (same) 9. investment options 10. lump-sum distribution (10-year) 11. rollover 12. distributions (20% withholding and possible 10% penalty) 13. QP penalty exceptions 14. RBD (73) 15. QJSA / QPRA / QDRO 16. Creditor protection (ERISA) 17. Deductibility of contributions 18. Need to establish in tax year for which you want to take deduction Nonqualified 1. No ERISA 2. SIMPLE and SEP have eligibility 3. None 4. None 5. None 6. None 7. Integration is SEP only 8. Aggregate deferrals and annual additions (same) 9. investment options (IRA rules / no life insurance) 10. None 11. rollover - IRA rules 12. distributions (possible 10% penalty)(SIMPLE 25% first 2 years) 13. IRA penalty exceptions 14. RBD (73) 15. None 16. Varying creditor protection 17. Deductibility subject to phaseout 18. Establishment date varies by type of plan

Answer 9

First is the age and service requirements then Coverage requirements then Minimum participation for DB plans or ADP/ACP testing for DC plans for failed coverage requirements

Answer 10

Ratio Percentage Test - Plan must cover a percentage of NCHEs that is at least 70% of HCEs who are covered. Average Benefit Test - Average benefits for all NCHEs must be at least 70% of those for HCEs. If failed, then you move to ADP/ACP If failed, company will need to take corrective steps to get back in

Answer 11

Must benefit the lesser of: - 50 employees - Greater of 40% of all eligible employees or 2 employees (1 if there is only 1)

Answer 12

A plan is top-heavy is more than 60% of its aggregate accrued benefits are allocated to key employees.

Answer 13

If the goal is to RETAIN employees then choose the 2-6 or 3-7 graded vesting schedule, if not to retain then choose the cliff.

Answer 14

This can affect anyone that is a key employee or HCE that has more than 5% ownership. Employees who are the family of this 5% or more owner Key or HCE are deemed to be Key or HCE employees themselves because of their relationship even if they don't meet the requirements. This includes spouse, parent, child, or grandparent of >5% owner. Can be child under 21 if the parent is the owner. Not siblings

Answer 15

401ks, ESOPs, and 403(b)s are not tested on discrimination rules but must satisfy ADP and ACP testing which are both focused on contributions. NHCE: 0%-2% then HCE can contribute a max of x 2% NHCE: 2%-8% then HCE can contribute a max of + 2%

Answer 16

Deferral is capped no matter how many different places you go to work. Contributions can be applied separately to each unrelated employer plan so you could have max employer matches at unrelated places. Max of 100% of salary or $69k per employer for DC plans. Controlled Groups that are considered "related" - Parent-Subsidiary: One entity that owns at least 80% of another entity. - Brother-Sister: Five or fewer owners of two or more entities that own 80% or more of each. - Affiliated Service Group: Apply primarily to service organization that provide professional services in the field of health, law, accounting, engineering. - Employee Leasing: Reduce discrimination potential from an employer leasing an employee rather than hiring outright. If working between any of these "related" companies, than the aggregate limits for the employer apply the same.

Answer 17

404(c) limits the max deduction and contribution to 25% of eligible salaries You can contribute more than that per person if you have more than one employee (more to one and less to another) 415 limits additions (contributions, deferrals, and forfeitures) to the lesser of $69k or 100% of salary If excess additions are received, you can reallocate, apply in later years, or use to reduce plan contributions

Answer 18

Taxable compensation paid or accrued during a tax year. Also includes elective deferrals under 401ks and 457s in addition to salary reduction by a 125 plan.

Answer 19

401k / 403b / SIMPLE - $23,000 + $7,500 SIMPLE and another SIMPLE - $16,000 + $3,500

Answer 20

These are qualified plans for sole proprietors and partnerships

Answer 21

Need to provide a minimum benefit for non-key employees if top heavy DB Plans: Need to provide a 2% of compensation * years of service (max of 10 years) (B is 2nd letter) DC Plans: Need to provide a 3% employer contribution of each non-key employee's salary (C is 3rd letter)

Answer 22

Can borrow tax free if: - Loans are under a legit agreement - Total loan is less than 50% or vested balance up to $50k. Can borrow more percentage wise if under $10k - Loan is repaid over 5 years unless used for personal principal residence. Does not need to be pledged as security to pay over 5 years. - Payments are to be made in level installments at least quarterly. Need spouse approval if married Loan needs to be secured Tax free and penalty free from a plan.

Answer 23

Never deductible for key employees and treated as consumer interest unless: - Loan is for participant's primary residence - Loan is secured by primary residence (Cannot be a key employee) Qualified plans are not required to provide loans but can. IRAs, SEPs, SIMPLEs, and Roth accounts are not permitted. Loans need to be available to all participants

Answer 24

If a self-employed person, than it is 20% (.1859) If in a corporation with 1 person then 25% of salary

Answer 25

Max contribution is $7k with a $1k catch up over 50 Need compensation to contribute, and that is counted as wages, salaries, tips, professional fees, bonuses, alimony and separate-maintenance payments are counted (pre-2019) If retired, they do not have income

Answer 26

If married person does not work they can still contribute if the couple have enough collective income

Answer 27

Single: $146k-$161k MFS: $0-$10k Eligibility does not matter for Roth, only for deductibility. Can always make a nondeductible contribution if active. Active means you are receiving additions in your account. Employer, employee, or forfeitures. $7k limit is between deductible and Roth. No mandatory distribution from Roth. Contributions can be made after 73.

Answer 28

NOT ALLOWED If all or part of an IRA is pledged as security for a loan, that portion is a distribution. It can disqualify the IRA

Answer 29

No income level to make a Roth conversion. Roth conversion does NOT satisfy a RMD. Distributions (60 days) from a regular IRA or SEP, SIMPLE, 403b, or Governmental 457 can be converted to a Roth.

Answer 30

Any non-spouse beneficiary who inherits a qualified plan can convert it to an inherited Roth IRA. Needs to be a direct transfer. Needs to be distributed within 10 years.

Answer 31

First: Contributions (never taxed or penalized and can be pulled whenever) Second: Conversions: (never taxed) - Held for 5 years: No penalty - Held for less than 5 years: If for a qualified reason then no penalty. If not a qualified reason, penalty. Third: Earnings: (can be taxed and penalized) - Held for 5 years: If for 59-1/2, death, disability, or first home, then tax and penalty free. - Held for 5 years: If for any other qualified reason, no penalty but taxed. - Held for less than 5 years: If qualified reason, then no penalty but taxed. - If no reason whether held for 5 years or not, then it is penalized and taxed.

Answer 32

Need to: - Distribute within 5 years if no designated beneficiary - Need to distribute over 10 years by designated beneficiary - If spouse, they can wait until the deceased would've been 73 and take RMDs (with an inherited IRA based on survivor life expectancy) or rollover to their own account and treat as their own (no distributions). - EDB over their lifetime.

Answer 33

This is when you have excess contributions into a Roth IRA. When you contribute early in the year and your AGI is over the phaseout, you can undo the contribution by changing it to a traditional IRA. Need to get the trustee to change it.

Answer 34

Only 401k, 403b, and Governmental 457 plans can offer Roths. Same max deferral and no income limits. Rollovers are only into other Roth accounts. For Roth 401k, the distribution must be made after the 5-year period and either for 59-1/2, death, or disability (no first home). Subject to normal in service distribution rules and NO RMDs. Employer match can be Roth or pre-tax.

Answer 35

Can contribute $18k annually. Distributions for qualified disability expenses are not included in gross income if the person was disabled before 26. Exempt from $2k limit for Medicaid. Can rollover 529 to ABLE and it counts as a contribution as long as for the same beneficiary.

Answer 36

Contributions must be the same for employees as it is for owners. Part time workers count Completely at discretion of employer This is a great option for those without many short-term workers, but if you have a lot, you will have to contribute for them 25% for employees and 20% for employer if self employed Very easy and inexpensive to start

Answer 37

No more than 25 employees 50% of eligible employees must participate Deferral limit is $23k New employees can be grandfathered in

Answer 38

$16,000 max deferral with $3,500 catch up over 50 (technically it is $10k indexed) No nondiscrimination testing. Fully vested Employer needs to either make a 2% non-elective contribution or match 100% on first 3% (can drop down to 1% in no more than 2 out of 5 years) Eligible employees are those who have worked there for 2 years and earned $5k and will earn $5k this year Cannot offer any other plan at the same time. Fully vested and additional 25% penalty if taken out in first 2 years. SIMPLE 401k adopts the SIMPLE format but for a 401k. Exempt from ADP and ACP and from top-heavy. It is an ERISA plan (exempt from creditors) but may not choose 1% match election. Most people choose SIMPLE IRA Not integrated with SS Max employer contribution is 3% up to $533,333 so $16k

Answer 39

Age 50 catch-up of $7,500 and and additional $3k contribution for those who have worked there for 15 years in addition to the catch up. Limited to annuity contracts, life insurance or mutual funds. NO individual securities. Cannot be a government directly. For charities and schools mainly

Answer 40

Government units, NOT churches. Max of $23k deferral. Final three years you can contribute lesser of amount you did not max last year or $23k. Only greater of that amount or age 50 catch up of $7,500 is allowed. 457 plans are NOT coordinated with other plans, so you can have this too. Does not count for active participation for IRA deductibility. Governmental 457s can be rolled over, nongovernmental 457s cannot be. Subject to QDROs. Subject to SS and withholding when paid out.

Answer 41

All the details and requirements for qualified plans. Imposes duties, standards, and prohibitions on plan fiduciaries. Fiduciary: - Anyone who renders investment advice for a fee directly or indirectly. - With respect to money or other qualified plans.

Answer 42

Investment Advice (2 parts) - Value of advisability or investing in property - Regularly gives advice to the plan written or not on the plan assets either with direct or indirect control over a plan. DOL recognizes that broker/dealers give a lot of research. Their position is that the provision of research is not itself the rendering of investment advice unless done pursuant to a mutual agreement.

Answer 43

ERISA standards: - Solely for the beneficiaries interest - For exclusive purpose of providing benefits to beneficiaries - With prudence - Diversification Prudence and diversification are very big in this. Not a test of performance but of prudence and diversification. Fiduciary cannot receive anything from the plan or deal with the assets in its own account.

Answer 44

ERISA is a big player. DOL enables ERISA. PBGC governs DB plans. IRC does the tax side of stuff for qualified plans.

Answer 45

Guarantees DB and Cash balance pension plans. Guarantees a monthly benefit and covers non-forfeitable benefits and pension benefits and only vested benefits. DB plans can be voluntarily terminated by the company (if they have enough assets to pay) or involuntarily terminated by the PBGC if: - Employer is in a bankruptcy liquidation - Employer is in a bankruptcy reorganization - Employer can prove the plan needs to end Only PBGC can involuntarily terminate a plan.

Answer 46

Plan documents need to be established within the tax year when you want to take the deduction for its contribution. Safe harbor 401ks need to be adopted before the beginning of the plan year. Standard 401ks with deferrals need to be established before the first deferral can be made. SIMPLE 401ks may be adopted anytime on or after Jan 1st but not after October 1st. SEPs can be set up after the tax year until finishing the return.

Answer 47

Unrelated business taxable income that exceeds income is subject to income tax in that year. UBITA is only from limited partnerships and margined accounts.

Answer 48

Pure death benefit (death benefit - cash value) is excluded from income. Pure insurance portion (cash value) is taxed as ordinary income. Qualified plans can hold disability insurance. Only profit sharing plans can hold second-to-die policies

Answer 49

Catch-up contributions for those making over $145k has to be Roth. Can convert 529 balances to Roth up to a lifetime amount of $35k and can only contribute the limit each year. Must be opened for 15 years and can't contribute anything from past 5 years.

Answer 50

These are distributions from a qualified plan WHILE still working. Allowed only in 3 situations: 1. Attainment of age 59-1/2 for DC plans 2. Attainment of age 62 for DB plans 3. One of the hardship withdrawals Hardship is immediate and heavy needs to meet needs test (actually need it) and resources test (don't have the resources currently)

Answer 51

- Medical expenses for participant or dependents - Tuition, room, board, for post-secondary education - Funeral expenses - Purchase a primary residence - Prevent eviction from primary residence - Repair damage to primary residence Cannot be in excess of immediate need and limited to vested amount. Does not mean it will not be subject to tax and 10% penalty! Participant cannot be forced to take a loan or stop contributing to 401k Can also take hardship for other reasons but those are safe harbor reasons. Can take hardship if you have an immediate and heavy financial need. The reasons automatically qualify but I guess it can be others also.

Answer 52

Exception to 10% penalty Payments need to be: - Paid at least annually - Greater of 5 years or to age 59-1/2 - Based on reasonable life expectancy - Based on reasonable interest rate - Based on reasonable mortality If changing the payments at all, then all the amount previously paid are taxed and subject to 10% penalty at anything before age 59-1/2.

Answer 53

QJSA: Post-retirement death benefit for spouse. (has to be the spouse) Qualified pension plans (money purchase and target benefit too) are required to provide this and must not be less than 50% or more than 100% QOSA: Optional survivor annuity, must be at least a 50% benefit and participant can elect out of only with written spousal consent. Election must be made during 180 day period prior to annuity start date. QPSA: Preretirement benefit for participant's spouse paid on death of someone before the start date of the QJSA. Can't be less than QJSA.

Answer 54

QDRO has to go into another plan. SIMPLEs can only be rolled over after 2 years or go to another SIMPLE. SIMPLE also has to be 2 years old to accept a rollover. Nondeductible IRA contributions cannot be rolled into a qualified plan. IRA owner can withdraw the balance and reinvest within 60 days without a penalty. Once per year.

Answer 55

Distributions from qualified plans are subject to a 20% automatic withholding. Check is payable to the participant. It is tax free if transferred into another qualified plan or rollover IRA within 60 days. Direct Transfers go directly from a qualified plan to the rollover account or another qualified plan. Employees cannot take a direct distribution.

Answer 56

Great way to temporarily hold qualified assets between going from one qualified plan to another. Can hold at a conduit IRA.

Answer 57

If still working and NOT a 5% owner of a company, then you can defer that qualified plans RMDs.

Answer 58

Divide the balance at the end of last year by the age factor. If spouse is more than 10 years younger, then you can use a lower number and a longer distribution period.

Answer 59

25% penalty if you don't take it 10% if you take it within 2 years

Answer 60

Charitable distribution from your qualified plan to a charity to a max of $105,000 annually. Can start at 70-1/2 and no charitable deduction but also not included in income. Satisfies RMDs.

Answer 61

Same for Death before and after the RBD - Keep assets in the owner's IRA and treat as theirs still (take RMDs when deceased would've turned 73 based on surviving spouse's life expectancy)(take RMDs the year after death)(rolling into an inherited IRA for early withdrawal) or 5 years if that is longer - Roll assets into your own IRA and take based on your life If taking RMDs at deceased spouse age you still use your life expectancy With deceased spouse of qualified account you can roll into your IRA, or roll into your qualified account, or into inherited IRA.

Answer 62

Death before the RBD: Take within 10 years (no RMDs) Death after the RBD: Take over 10 years (RMDs)

Answer 63

Can take RMDs based on their life expectancy for these five situations: 1. Spouse 2. Child under 18 (becomes 10 years once 18) 3. Disabled person 4. Chronically ill person 5. Person who is not more than 10 years younger

Answer 64

Death before the RBD: Take within 5 years (no RMDs) Death after the RBD: Take over 5 years (RMDs)

Answer 65

Take RMDs based on your own life (Roth too) or within 5 years Spouse can take based on their life expectancy, based on when deceased would have to start taking payments or move to their own account

Answer 66

If before RBD: No RMD If after RBD: RMD needs to be taken

Answer 67

If a non-spouse then you need to: - arrange for a direct transfer (if the money is sent to you then you pay tax on it even if quickly deposited) - set up an inherited IRA (if you deposit in your own IRA it is taxable) If a spouse: - can roll into your own IRA or keep in theirs (inherited Roth IRA)

Answer 68

Separation from service at 55 is a way to avoid the 10% penalty from 401ks. But this is not the case with IRAs. If you rollover your 401k and need a distribution before 59-1/2 then it will be taxable and penalized.

Answer 69

Cannot reassign retirement plans unless: - IRS collects taxes - Spouse attached a qualified plan through QDRO QDRO cannot require the trustees to make a cash payment if there is no language in the plan. Cash distribution can be made at the earliest that they were originally supposed to with the spouse. Only for qualified plans.

Answer 70

Firefighters and public safety can receive benefits after separation from service at 50.

Answer 71

Avoid penalty by taking annuity distributions. Spread distributions out to lower tax Use after-tax investments first for retirement

Answer 72

Pure deferred comp plans use some of the employees compensation to fund the ultimate benefit.

Answer 73

Employer contributions are used to fund the plan.

Answer 74

Unfunded plans can be a naked promise or informally funded with life insurance, annuities, mutual funds, or others. With this, assets are both owned by the company AND subject to creditors. No deduction for contributions until employee is taxed.

Answer 75

162: Employee is owner and insured and names beneficiary, premiums deductible by employer and taxable to employee Deferred Comp: Employer is owner and beneficiary of employee who is insured. Premiums not deductible and death benefits not taxable. Benefits paid to dependents are deductible and taxable income. Included in gross estate.

Answer 76

Irrevocable trust established for employee. Funds are beyond creditors and taxed when funds are placed in the year the funds are placed in the trust. This is funded. Creditor protection.

Answer 77

Funds are taxed in the plan and the income generated is taxed to the employer.

Answer 78

Constructive Receipt: Cash is taxable to a person in the year received. Risk of forfeiture: If the right to something is conditioned on the performance of services and also if (1) employee relationship to stockholders or (2) relationship to officers Economic Benefit: Economic or financial benefit is received by a person then it is taxable to them.

Answer 79

When the options are allowed to be used. Expires usually within 10 years

Answer 80

Selling the shares to cover the cost of the options and the taxes due.

Answer 81

Only first $100,000 of ISOs that VEST in one calendar year are entitled to ISO treatment. Options granted over $100,000 are NSOs. Corporation does not receive a tax deduction for ISO but do for NSOs. Bargain element is AMT add back.

Answer 82

Right to buy a number of shares at a specified price. Two determinants of taxation: - Free transferability - Substantial risk of forfeiture expiration If either of these happen then NSOs are taxed to employee.

Answer 83

If exercise in one year and sold in another then no FICA tax. If exercised and sold in the same year then ordinary income and FICA tax. Upon exercise of NSO the gain is ordinary income. Upon exercise of ISO the gain is not income unless disqualified. When sold the gain is LTCG or STCG for NSOs When sold the gain is LTCG for ISOs (the entire amount)(Sales price less exercise price) For NSOs, the difference between grant price and exercise price is ordinary income.

Answer 84

Employee elects to recognize the tax at the time of award instead of at exercise. Any appreciation after that is not taxed until sold. Great if a lot of appreciation.

Answer 85

Vest after a certain period and once they vest, the employee receives shares of the stock. Value of the shares are taxed as compensation (FICA) and taxed as capital gains on the difference between sales price and value of shares upon selling.

Answer 86

SARs are rights to be paid the difference between value of a specified number of shares on date of grant and date of exercise. Phantom stock is a right to a cash bonus based on performance of shares of a corporations common stock. SARS have a choice to exercise, phantom does not. SARs are granted with options. Phantom usually carries dividend rights. These are best to offer when wanting to share economic value without actual equity, can create measurement of equity, nonprofit or government, or S-Corp that cannot offer conventional shares.

Answer 87

Offered as a lower tier and convert into regular shares.

Answer 88

Section 423 stock purchase plan, can offer 15% discount on stock's market value. No tax consequences on purchase, taxes are paid on sale. Treatment is similar to ISOs. Must be available to all employees.

Answer 89

With deferral based plans, the deferral is subject to FICA tax.

Answer 90

For IRAs you cannot name a trust as beneficiary except if the trust meets the requirements to be named a beneficiary. For qualified plans you can!

Answer 91

Need to calculate aggregate amount and then find the RMD from that. Can take from one IRA to satisfy the RMDs of all the accounts. This applies to IRAs only, not qualified plans.

Answer 92

If you don’t hear anything about deferrals, then probably rule out deferral options. If the goal is to save more, always look for catch up contributions because that is a huge advantage to 401ks Look at how much can be contributed, profit sharing 401ks give a huge jump

Answer 93

Not used anymore.

Answer 94

Difference between employers cost basis and market value at lump sum distribution to employee.

Answer 95

Can provide hardship provisions and do allow loan provisions. Only if they have 401k provisions for hardship withdrawals but they can allow loans without

Answer 96

End Balance: - age - salary - actuarial determined amount (more for target benefit) - investment performance Contributions: - salary - age (target benefit) - where forfeitures go - NOT investment performance

Answer 97

Means that the employee is contributing

Answer 98

Retire at an older age. This will give him more time to save up and decrease his retirement time. A single life annuity will give a level payments with no inflation hedge or value for his wife if he were to die.

Answer 99

US treasury securities. They may not trust banks anymore but may invest in US securities.

Answer 100

No SS taxes because it is a self employed business with a child under 18 working for their parent. He will not have to withhold federal tax because it is lower than her standard deduction.

Answer 101

AT THE BEGINNING OF THE MONTH

Answer 102

Yes, they need about $288k for the living expenses listed here

Answer 103

She should take hers. Hers will probably be significant and more than half the husbands. Waiting till FRA (67) is almost always smart because of how much more benefit you get

Answer 104

Mr. Kittle Daughter Ex-husband

Answer 105

$69k Technically it would be $70,206 but max is $69k

Answer 106

$345k * 15% = $51,750

Answer 107

Benefits are unpredictable is the serious disadvantage.

Answer 108

Corps can, S Corps, C Corps, Closely held Corps Partnerships cannot create an ESOP

Answer 109

No, just need to be taken within 10 years EDBs can take over their life expectancy to be started by Dec 31st of year following death

Answer 110

Stock bonus and ESOPs are a means to finance company operations while profit-sharing plans are not viewed as a means to finance company operations. Employer contributions to an ESOP or stock bonus are usually made in cash and then the plan uses the cash to buy shares from the company, funding operations.

Answer 111

3% * 30 years = 90% $345,000 * 90% = $310,500 Max benefit = $275,000 (max allowed) Max salary cap is $345k, max benefit is $275k

Answer 112

Has no effect because they never actually participate in the plan

Answer 113

Years to retirement Investment returns Salary levels Employer contributions Forfeitures

Answer 114

Highest salary they can use: $345k Highest benefit for a DC plan: $69k Highest benefit for a DB plan: $275k

Answer 115

Technically there is not max amount to contribute, max salary it can be based off is $345k and max end benefit cannot be more than $275k

Answer 116

Freeze because the rest of those are pension plans so if it cannot afford any then don't do any!

Answer 117

It would decrease since it would be used to decrease employer contributions.

Answer 118

Profit sharing

Answer 119

Profit sharing

Answer 120

Average pay of $100k, 30 years of service, 1.5% 1.5% * 30 = 45% .45 * $100k = $45k benefit

Answer 121

2-year / 100% schedule the other ones, 3 cliff and 2-6 are vesting requirements

Answer 122

Max salary that you can take into account for a key employee is $345k

Answer 123

HCEs rate must be both: Not more than 125% of the NHCE rate (ADP is 8% or greater) or... Not more than 200% of the NHCE rate and not more than 2 percentage points greater than NHCE rate (ADP is between 2% and 8%)

Answer 124

$345k * 6% = $20,700 If he were 50 he could also do the catch-up so it would be $28,200

Answer 125

No because of parent-subsidiary control groups If entity buys it then it is parent If owners buy it then it is brother sister

Answer 126

Base percentage + permitted disparity = excess percentage permitted disparity = lesser of 5.7% for DC or base and lesser of 26.25% for DB or base If $345k salary (max that can be used) and base of 17% then it would go as follows: $345,000 - $168,600 = $176,400 $168,600 * 17% = $28,662 $176,400 * 22.7% = $40,043 total = $68,705 (would be capped at $69k)

Answer 127

24.25 + 24.25 = 48.50%

Answer 128

No, they are flexible and not determined until year end

Answer 129

ESOPs, 401ks and matched 403bs are not tested on a benefits basis but must satisfy ADP and ACP tests which focus on contributions.

Answer 130

Cross-tested profit sharing plans are tested in terms of benefits

Answer 131

Equalize the employer's contributions for higher and lower paid employees. Without that, employer contributes a higher percentage for lower paid employees.

Answer 132

Graded schedule to help retain, unless specifically told that you don't want to retain

Answer 133

3 year cliff, no indication that the company wants to retain employees and the forfeitures will be allocated to long-term employees

Answer 134

In a sole proprietorship: - SEP/Keogh: Based on 20% of net income less half of SE tax which comes to 18.59% - Solo 401k: Same as above for the employer contribution part, and you can defer into the plan - your employees in these plans get 25%, but you technically only get 20% In a Corporation or S Corp: - SEP/Keogh Plan/Money Purchase: Based on 25% of SALARY (not distributions) - Solo 401k: Based on 25% of salary and can defer into the plan

Answer 135

- Reallocate among other employees - Apply in a later year to the same employee - Can be used to reduce future plan contributions

Answer 136

Max employer contribution is 25% so $50k Max deferral would then be $19k for the limit of $69k

Answer 137

Determined after claiming all allowable business deductions including the deduction for the employee only retirement contribution SE contribution or benefit is based on net earnings

Answer 138

Should be available to all participants on a reasonable equivalent basis and must not be available to HCE in an amount greater than the amount made available to NHCE

Answer 139

When it is constructively received then yes but when you are deferring it then it is not income yet

Answer 140

Disqualifies the entire IRA because the entire account was pledged. If only $15k was pledged then $15k would be taxed and penalized.

Answer 141

Very similar to traditional IRA with EDB able to take RMDs over their life expectancy or within 10 years Non EDB can take within 10 years

Answer 142

You may recharacterize the Roth contribution to a traditional non deductible IRA contribution No reconversions

Answer 143

401k 403b 457

Answer 144

When the owner has waited 5 years AND is 59-1/2

Answer 145

$7,000 457 plans do not count as active participation

Answer 146

21 years old to be a participant Worked for the employer for at least 3 of the immediately preceding 5 years Earn $750 in the current year

Answer 147

Yes No nondiscrimination testing for SIMPLE IRAs

Answer 148

They can invest in annuities, US Government minted gold coins But NOT life insurance, collectibles, and no loans Fully vested

Answer 149

SIMPLE IRA: 3% up to $533,333 to a total of $16,000 ER and $16,000 EE SIMPLE 401k: 3% up to $345,000 for a total of $10,350 ER and $16,000 EE

Answer 150

SIMPLEs have a lower limit SEPs are very easy and are a GREAT option Profit sharing is similar to SEP but a qualified plan The rest have specifics of their own to look for

Answer 151

No A governmental 457 can be rolled into those but not a non-governmental plan

Answer 152

YES to both Max deferral is $23k and 100% vested

Answer 153

SEP because it is entirely funded by employer contributions Deferral plans do have FICA on the deferral portion for employees

Answer 154

If they have enough income, solo 401k to get the full $76,500 because you get the catch-up here as well If net income exceeds $300k Employer contribution is high AND Employee contribution plus catch up SEP would only have employer contribution

Answer 155

Profit sharing plans are funded solely with employer funds so the participants can't argue that the investment manager was negligent. Plan calls for prudent investments, fiduciary is not required to be successful in managing the plans assets. Because a 401k if funded with employee contributions, the participants CAN argue against certain funds.

Answer 156

Fiduciary may be liable under the prudent person rule. Highly volatile may not be considered prudent. If the plan only offered four non-equity investments, answer would reflect that the fiduciary is responsible because there was no diversification.

Answer 157

Nothing because they are employer funds

Answer 158

Borrow from a bank if you are profitable OR wait until you file to make the contribution

Answer 159

Profit sharing plans

Answer 160

All qualified plans

Answer 161

Concern life insurance

Answer 162

Better to roll into an IRA and take a guaranteed lifetime income option She has trouble making decisions and this would help to not force a decision on her. She also needs benefits now.

Answer 163

Establishing a SEP is his only choice. Because it is the year after, he can establish the SEP up until his company files its return to get a deduction for the profit of last year. The other two would have to be established last year. He will have to contribute for the part-timers.

Answer 164

Most plans can be funded up until the tax return Most plans need to be created in the year they want to claim the tax deduction, including profit sharing, SIMPLE (by October 1st), Safe harbor (before year starts) Exceptions are SEPs which can be made before the return is filed

Answer 165

Pure death benefit is not taxable Cash value is taxable

Answer 166

DC plans - 59-1/2 DB plans - 62 Hardships withdrawals

Answer 167

YES If you have 401k provisions

Answer 168

Any time before termination for financial hardship.

Answer 169

You can withdraw the balance and as long as you reinvest it in another IRA within 60 days there is no taxable event. Can only happen once a year.

Answer 170

YES If it has been under 2 years since established and you are moving the SIMPLE to another qualified plan then it will have a 25% penalty. You NEED to wait 2 years before moving any qualified plan into a SIMPLE. Cannot do that unless the SIMPLE has been established for 2 years.

Answer 171

NOTHING because he still works there. He cannot rollover or take a distribution or anything because he is still there. That would be a in service withdrawal and not allowed unless for 1 of the 3 reasons. If he leaves he can, or when he turns 59-1/2 but until then he can't do anything with the money. (Also could take it out for hardship)

Answer 172

- In-service withdrawals start at separation of service or age 70-1/2 - 457s are not qualified plans so they are not subject to mandatory withholding rules (20%)

Answer 173

YES, IRAs have a RBD of April 1st of the year following the year your turn 73 regardless of whether or not you work and are contributing to a plan. For qualified plans if you are not a greater 5% owner you can hold off on RMDs while you work there and contribute but not with IRAs.

Answer 174

It goes to a person who then has to take it out within or over 5 years. Needs to be taken out by 5th year after the year in which the holder died. If Pete died in 2024 and it went to his estate, the entire balance must be withdrawn by December 31st 2029.

Answer 175

Yes, there is a tax deduction for the amount of estate taxes paid for the NUA portion if any

Answer 176

Any payments received before 59-1/2 will be penalized

Answer 177

He can rollover the SEP into the profit sharing plan. BUT... He is a greater than 5% owner of the company and therefore whether he has his money in a qualified plan or an IRA, he will have to take RMDs at his RBD.

Answer 178

Yes as long as the requirement for a trust to be beneficiary are met.

Answer 179

Basis is ordinary income, after that NUA is taxed at LTCG and after that depending on how long you held it

Answer 180

No because they get the death benefit

Answer 181

Bankruptcy because it is subject to creditors

Answer 182

All of them but corporations make the most sense because they can be deducted when included in income. All the other forms are pass-through entities so owners will have to report the amount contributed on their tax return so that does not really make sense.

Answer 183

The $10 of gain is ordinary income to the dad. This was a disqualifying disposition. ISO cannot be transferred by the optionee. During their lifetime, option can only be exercised by the optionee so all income goes to them. Exception is if the transfer before exercise is when dad dies before he can exercise, then the options maintain their ISO status.

Answer 184

Because $100,000 of ISOs were VESTED they maintain ISO status. There is capital gain on $1,000,000-$100,000 = $900,000 LTCG

Answer 185

Then only the half that is a disqualifying disposition are treated as NSOs, the rest still maintain their ISO status.

Answer 186

When over $100k ISOs are VESTED So if you are granted $120k of ISOs, $20k are NSOs If you are granted $75k in 2023 that vest in 2025 and granted $85k in 2024 that vest in 2025, then in 2025 $100k are ISOs and $60k are NSOs. The amount of NSOs stay NSOs regardless of when they are exercised. The value of ISOs granted in a single year does not cause the ISOs to lose their ISO status, but depends on when they vest. If a lot are granted one year but vest periodically, they maintain their ISO status. Max that can vest in one year and maintain their status is $100k

Answer 187

There will be an income tax liability on the NSO portion and a bargain element add-back item for AMT purposes on the ISO portion. For this type of problem, look for an answer that includes both an income tax liability and a possible AMT bargain element (preference item).

Answer 188

$345k is the max for a contribution of up to $69k

Answer 189

Of this list they can only offer phantom stock and section 162 life insurance. They cannot offer nonqualified deferred comp or ISOs.

Answer 190

Best answer is the salary continuation plan because it is not taxed to him now but provides him with a benefit. There is nothing about him needing life insurance so the two life insurance answers are a no. Cannot increase 401k contributions and secular trust would be taxable to him.

Answer 191

$100k remain as ISOs as the max $50k are exercised as NSOs

Answer 192

Because the plan is NEW he should set up a money purchase. There is more flexibility here than under cash balance plans.

Answer 193

Yes to a max of 100% of salary or $69k and as long as the total company contributions do not exceed 25% of all eligible pay.

Answer 194

SEP is the best answer, they may have to contribute for some of the part timers but that would not be a lot. There is nothing said about wanting to have deferrals so keep it with SEP. SEP is the most simplest plan.

Answer 195

She should direct roll it over into her qualified plan so that she has the option to distribute at separation of service at 55. If she rolled it into an IRA then it would penalized unless after 59-1/2.

Answer 196

Common stock

Answer 197

If MFS, the capital loss limit is $1,500 and don't forget to deduct (above the line) any medical expenses for health, dental, or qualified LTC if sole proprietor, partnership, or greater 2% S Corp owner. Also look at alimony and if they are paying for life insurance that qualifies as alimony. Pre 2019 is deductible.

Answer 198

Because they are both living together, decreasing his income and shifting income to her in a lower tax bracket would help their cash flow.

Answer 199

Phaseout is $0-$10k if active and for Roth Only option if you have income in this case would be a nondeductible IRA.

Answer 200

ALL of these would be good options. The main issue here is to get profits out of the business so that if malpractice does come up, it is limited to the business only (S-Corp). Annuities and cash value life insurance get profits out and are creditor protected.

Answer 201

Best answer would be Profit sharing 401k. The reason for this is that this plan allows Dan to make the highest contribution for himself. He can go up to $76,500 with the catch up of a 401k and can contribute the max to himself with a profit sharing plan because he has other employees and it has to stay at 25% of all eligible compensation.

Answer 202

Because this plan has a graded vesting schedule, the most stringent is 21 and 1. If the plan didn't care about a vesting schedule the most stringent eligibility would be 21 and 2.

Answer 203

25% penalty on all the RMDs he should've taken since 73.

Answer 204

For discrimination they are tested on contributions For cross testing they are tested on benefits

Answer 205

December 31st of year following death

Answer 206

December 31st of year following death

Answer 207

Any qualified plan can offer loans but need 401k for hardship withdrawals

Answer 208

Medicare: 1 - Retired 65 eligible for SS payments 2 - Retired railroad 3 - Disabled receiving SS disability for 2 years any age 4 - Disabled railroad worker 5 - Disabled widow above 50 with qualified worker 6 - Disabled before 22 any age SS Benefits: 1 - Age 62 fully insured 2 - SS definition of disabled 3 - Spousal options for retired, disabled, or deceased worker 4 - Dependent survivor benefits

Answer 209

Her PIA at FRA would be the greater of her or 1/2 of her husbands, so $750. If he died she would take the greater of hers or his, so in this case it would bump up to $1,500.

Answer 210

She earned $5,000 over the wage base of $22,320 so the Government will withhold $1 for every $2 above the wage base of her earned income. That means that the Government will withhold $2,500 of her benefit.

Answer 211

Because he has earned income above $59,520 and also has started receiving SS benefits the Government will withhold $1 for every $3 above the SS wage base that he is at. Since he is $10,480 above that, they will withhold $3,493.33 of his SS benefit. These apply to survivor benefits also.

Answer 212

$6k + $18k = $24k which is under the $25k limit so none of the SS will be included in her gross income or taxable. The benefits to the kids will be added to their other income to calculate their taxable portion (usually 0).

Answer 213

85% is taxable because $9k+$6k+$36k = $51k Muni interest is added and they are above the $44k threshold.

Answer 214

($90k+110k+$140k)/3 = $110k

Answer 215

($250k+$280k+$345k)/3 = $291,667 But the max benefit that can be provided is $275k so that is her max.

Answer 216

Max additions is $69k Max deferrals is $23k ($7,500 catch-up is considered a contribution NOT deferral) Max contribution is 25% of salary

Answer 217

Assume the max they can make for an employee is 25% of salary unless explicitly told that it is including less than 25% for other employees

Answer 218

NO only if it has 401k provisions. Can take vested amount and elective deferrals. 10% penalty will apply along with tax but no penalty if for one of the exceptions. 403(b)s can have hardship withdrawals too.

Answer 219

Employer can contribute $30k. No 25% limit for 403(b)s I believe.

Answer 220

Best would be profit sharing 401k with a 50% match. He could get $23k in with a 50% match and have a vesting schedule along with integrate it with SS. A SIMPLE cannot integrate with SS and immediately vests and limits his employer match.

Answer 221

401ks and 403bs Subject to 10% EWP if not for qualified reason and income tax.

Answer 222

YES After the NUA treatment any gain thereafter is treated by its holding period.

Answer 223

The distribution of cash would be withheld at 20% but the stock in the form of a NUA distribution would not be withheld.

Answer 224

No, need to take the whole thing.

Answer 225

Take the company stock as NUA and roll the other stock to IRA. Do not roll NUA to IRA. Has to be to taxable account.

Answer 226

Need to be careful that you are over 55 and retire or 59-1/2 to avoid 10% penalty applied to the basis.

Answer 227

Front of the 1040 as an adjustment to income if you are SE.

Answer 228

18.59% and 12.12% up to $168,600

Answer 229

$69k 25% of salary $345k of salary used No recurring and substantial rule

Answer 230

NO Treated the same as IRA distribution in terms of penalties and tax

Answer 231

$30,500 Deferral would be $23,000

Answer 232

Profit sharing are more complicated to install and they can exclude part time employees SEPs cannot exclude part timers but are very easy to set up. Generally if simplicity is all they need and nothing is stated about duration of employee working time, SEP is good.

Answer 233

Can be personally liable for all losses through improper use of plan assets.

Answer 234

21 and 1 21 and 2 are service requirements vesting is the cliffs or graded schedules to have vesting you need 21 and 1

Answer 235

When 60% of benefits or account balances are allocated to key employees

Answer 236

No but they have substantial and recurring

Answer 237

401k and 403bs and ESOPs

Answer 238

SIMPLE and ESOP

Answer 239

Age-weighted and new comparability Meant to provide the most amount of benefit to higher paid employees and minimize lower paid employee contributions Lesser of 1/3 of HCE contribution or 5% THIS PROVIDES THE MOST GENEROUS BENEFIT TO OLDER EMPLOYEES OR OWNER

Answer 240

RMDs and equal payments.

Answer 241

If from a QUALIFIED plan then it is always withheld 20% unless for one of the other reasons if a direct distribution. If a rollover or direct transfer trustee to trustee then there is 0% withholding.

Answer 242

Same for qualified plan

Answer 243

Switch from annuity or amortization to RMD method.

Answer 244

Taken over their lifetime

Answer 245

Lesser of 50% or $50k Up to $10k you can take all of it

Answer 246

Yes if a direct distribution No 10% penalty

Answer 247

Yes if it allows but no if it does not allow, the money is placed in a separate account.

Answer 248

We are not told if he has any earned income so NO. Also if not told that they are active participants do not assume they are.

Answer 249

Yes if I still have earned income. Also not impacted by active participation.

Answer 250

Yes because they are deferred comp. 457 deferrals also NOT subject to FICA tax because it is deferred comp.

Answer 251

She would be eligible for the $255 lump sum amount. A surviving spouse can't get SS benefits AND a railroad benefit so she will just get the lump sum. She is not entitled to Medicare until 65.

Answer 252

To avoid phantom stock it would be best to roll the entire balance over to an IRA and take a 72(t) distribution in the first year. This would mean he loses NUA eligibility but he would avoid any phantom income because he would be receiving payments.

Answer 253

He should choose the 412(e) or 412(i) plan. This would be a fully funded DB plan. Assumptions are usually lower than plan assumptions which means more contributions. The premium will be paid by the plan. Death benefits above cash value is excluded from income tax only if insurance cost was under the Table 2001 rate (standard rate) and has been paid with nondeductible contributions or has been taxable to the employee.

Answer 254

Most important factor is age right now. She cannot convert to Roth without taking a RMD if she is 73 or older. First dollars withdrawn are deemed to be the RMD until that amount is distributed. Once complete, then the remaining balance can be converted.

Answer 255

No penalty, age, or AGI requirements.

Answer 256

Vested account balance and elective deferrals.

Answer 257

NO Have to do 3% match

Answer 258

Only Roth IRA and inherited Roth IRA by spouse.

Answer 259

Taking from the taxable will give a tax of ($50k*15%) = $7,500 and the IRA would be ($80k*20%) = $16k $180k - $23,500 = $156,500 so that is around the amount they are looking for. Better to let the Roth grow.

Answer 260

Yes Also not subject to creditors

Answer 261

An unsecured creditor.

Answer 262

PV of payments to surviving beneficiaries is included in estate because the employee had a right to name beneficiaries under the deferred compensation plan (incident of ownership)

Answer 263

No 25% restriction Can have hardship withdrawals 20% withholdings for direct distributions

Answer 264

Yes! But growth after you transfer it out is STCG if sold within a year.

Answer 265

They become retirement benefits NO DISABILITY BENEFITS AFTER 65

Answer 266

First three years of reduction is 5/9 From 66, 65, 64 resulting in 6.67% decreases per year Next two years are 5 full percent decreases for 63 and 62 for a total of 30

Answer 267

They have hypothetical accounts for each employee. Interest rate and contributions are guaranteed.

Answer 268

Contributions start their 5 real rule from the start. Once you wait the first 5 years you are good with contributions. Conversions each have their own 5 year waiting period. So every new time you convert the 5 year timer starts for those assets.

Retirement Flashcards

(321 cards)