Retirement

Question 1

Highly compensated employee HSE

Answer 1

5% owner

Or

$110,000 compensation 2011, $115,000 compensation 2012

Question 2

Key employee

3 letters 3 rules

Answer 2

5% owner
Or
$150,000 comp & >1% owner 
Or
$165,000 comp & officer

Question 3

Top heavy DB or DC plan

Answer 3

60% of the sum of account balances are for key employees
Then
Accelerated vesting &
1) DC provide 3% match to non-key employees
2) DB provide minimum 2% benefit accrual

Question 4

Characteristics of group life

Answer 4

Cost of coverage in excess of $50,000 is taxable to the employee
&
Employer gets a deduction for premiums paid

Question 5

Qualifications for social security disability benefits

Answer 5

40 quarters & worked at least 20 of the last 40 quarters

Question 6

Qualification for social security survivor benefits

Answer 6

40 quarters OR 6 of the last 13 quarters

Question 7

Cash balance vesting schedule

Answer 7

NO grading maximum 3 year cliff

Question 8

Defined contribution (401k) EMPLOYER contribution limit

Answer 8

25% of payroll
Maximum $250,000

Includes matching, non-elective, and profit sharing

Question 9

50/40 test

Answer 9

ERISA testing requirement

At least 50 employees
OR
40% of eligible employes ** minimum 2 employees covered

Question 10

10% penalty withdrawal prior to 59 1/2 ALL retirement plans exceptions

Answer 10

Death
Fully disabled
Medical expenses above 7.5% AGI

Question 11

10% penalty withdrawal exceptions prior to 59 1/2 qualified plans

Answer 11

Death
Fully disabled
Medical expenses above 7.5% AGI
Separation from service after age 55
QTRO

Question 12

403b characteristics

Answer 12

Not qualified
Multiple agreement with 1 employer
Deferral limit $17,000 + $5,500 catchup (age 50+)
+ $3,000 long service rule 15 years+ must be HER org

Question 13

457 plan

Answer 13

Deferred comp plan
2 types government or non- government
Non-government NO rollovers & NO loans
Deferral $17,000, NOT reduced by other retirement plans
Final 3 year catch up up to 2x annual limit ($34,000), does not include catchup

Question 14

ISO incentive stock options

Answer 14

May not exercise more than $100,000 in one year
Qualifying disposition= exercise 2 years from grant + sale 1 year from exercise, qualifying create long term cap gain + AMT income
No qualifying disposition ORDINARY income, NO AMT
Can only be transferred at death, NO step up

Question 15

NSO non qualified stock option

Answer 15

No rules
Can be given to anyone, employee or non employee
Taxed as ordinary income W2 
NO time limitation
Never subject to AMT

Question 16

Ten year forward averaging

Answer 16

Born before 1935
Lump sum
10 yr average on ordinary income
Per 1974 portion taxed as LT cap gain
Only one per lifetime

Question 17

Net unrealized appreciation NUA

Answer 17

• Basis taxed as ordinary income
• NUA taxed as long term cap gain ALWAYS
• additional appreciation/depreciation taxed at sht term or long term depending on holding period

Question 18

10% penalty exceptions for IRA

Answer 18

Death
Fully disabled
Med expenses above 7.5% AGI
1st time home buyer, up to $10,000
Qualified higher education (not room and board)
72t
Payment of medical ins premium while receiving unemployment

Question 19

Employer qualified plan loan provisions

Answer 19

• $50,000 limit, reduced by previous loan balance
• 50% of present value of vested balance or up to $10,000, if available
• if balance is less than $10,000 can borrow 100%
• quarterly payments required
• must be repaid within 5 yrs, unless used for primary residence

Question 20

FICA tax rates

Answer 20

Social security taxable wage base $110,100

• SS 10.4%
• Medicare 2.9%

Question 21

The use of Life insurance in a qualified plan

Answer 21

• DB , life insurance is not more than 100x expected monthly benefit
• DC, cost/ premium must be less than 25% of all plan benefits

Question 22

RMD NO beneficiary

Answer 22

Death before RMD, 5 yr rule

Death after RMD, deceased life expectancy

Question 23

Stock bonus plan

Answer 23

• Employer advantage, cashless contribution, helps cash flow
• NUA advantage to employee
• CAN integrate with SS
• employee contribution diversify immediately
• employer contribution, after 3 years of service, must be offered 3 alternative investments and the immediate right to diversify

Question 24

ESOP, employee stock ownership

Answer 24

• can NOT integrate with SS
• ESOPs must invest in company stock, NUA advantage
• diversification requirement: at age 55 or over at least 10 years of service, transfer up to 25% of account to any of 3 alternative investments….offered over 6 years, in last year 6, 25% increased to 50%

Question 25

Simple IRA

Answer 25

not qualified, NO loans 25% penalty for early withdrawal in first 2 years of the plan Employer may have no more than 100 employees who earn at least $5,000 No other plan can be provided $11,500 deferral + $2,500 catchup (over 50) Employer required to match 3% of contribution, no salary cap Or Employer required non elective 2% of salary, $250,000 cap

Question 26

Simple 401k

Answer 26

Qualified plan, loans can be made available Employer has no more than 100 employes making over $5,000 No other plan may be provided Employee deferral $11,500 + $2,500 catchup Employer required to match 3% employee contribution, up to $250,000 cap Or 2% non elective, based on salary, $250,000 cap

Question 27

Cross-tested profit sharing plan

Answer 27

Eligible employees are put into different groups The business can allocate a larger portion of the contribution to select groups Allowable disproportionate allocations if: Non- discriminatory test is passed Min contribution of 5% non highly compensated Or Highest allocation to high compensation no more than 3x

Question 28

Brother sister test

Answer 28

5 or fewer people own at least 80% of voting power The same 5 people or fewer own more than 50% of the control

Question 29

Owner Keogh plan contribution

Answer 29

1) Net business profit less 7.65%= self employment income subject to tax 2) self employment tax SS $110,100 x 10.4% = a x 59.6%= A Med total x 2.9%= b x 50%. = B 3) A + B= C 4) net business profit - C = net earnings 5) net earnings x (%/1.%) = contribution

Question 30

Controlled group retirement benefit coverage

Answer 30

Parent -subsidiary (80%ownership) or brother sister relationship -all employees who meet ERISA eligibility requirements in a controlled group MUST be included when testing for coverage

Question 31

Non qualified deferred comp

Answer 31

Pure deferred comp funded by employee Supplemental plans funded by employer: Excess benefit plan makes you whole (matching for salary above $250,000)

Question 32

IRA deduction limit Single Married filing jointly Spousal IRA

Answer 32

Single. $58,000 - $$68,000 Married filling jointly. $92,000 - $112,000 Spousal IRA. $173,000 - $183,000

Question 33

Roth IRA phase out Single Married filling jointly

Answer 33

Single. $110,000 - $$125,000 Married filing jointly. $173,000 - $183,000

Question 34

SEP

Answer 34

``` Inclusion rules 1) employed 3 out of past 5 years 2) income of at least $550 3) at least age 21 Employer contribution only, up to 25% of income, not to exceed $45,000 ```

Question 35

Ratio percentage test

Answer 35

The % of non highly compensated employees benefiting from the retirement plan MUST be at least 70% of the HCE benefiting from the plan

Question 36

IRA contribution deadline

Answer 36

Contributions must be made by April 15 of year following the tax year to which they relate, NO extensions

Question 37

Incidental life insurance benefits of dc plan

Answer 37

- Current term benefit cost must be less than 25% of the cost of all plan benefits - Current ordinary life benefit cost must be less than 50% of the total benefit cost

Question 38

Unit benefit formula

Answer 38

Benefit is expressed as a % of compensation per year of service - favorable to employees with many years of service

Question 39

Attained age level method

Answer 39

Actuarial method of DB plan cost: | Does NOT credit prior years of service, prior to plan installation

Question 40

Entry age normal

Answer 40

Actuarial method of DB cost: | DOES credit prior years service, prior to plan installatio

Question 41

Social security integration DC plan

Answer 41

- For the amount over $110,100 - Permitted disparity is the lesser of 5.7% or base % contribution - The excess benefit percentage would be the disparity+base%

Question 42

Social security integration DB plan

Answer 42

- for the amount over $110,100 - The permitted disparity is the lesser of 26.25% or base contribution - the excess benefit percentage would be 26.25% + base

Question 43

All,defined Benefit plans must meet 50/40 test and 1 of 2 others

Answer 43

1) ratio % test: (HEAD count) % of non highly compensated employes benefiting from the plan must be 70% of the highly compensated employees benefiting from the pan Or 2) average benefits test:( DOLLARS) the plan must provide an average benefit % for non highly comp employees that is at least 70% of the avenge benefit % for highly comp employees