Retirement Flashcards
(26 cards)
What plans favor younger employees
Money purchase plan and cash balance pension plan
What plans favor older participants
Defined benefit pension plans, target benefit pension plans
4 factors of cash balance plans
Employees can easily understand and as a cost saving measure. It’s a defined benefit plan. It has a guaranteed annual investment return. It is subject to minimum funding requirements.
Cross Purchase vs entity agreement - what plan is good for large amount of owners are involved
Entity agreement
Cross purchase vs entity agreement
Which would create a transfer for value
Cross purchase agreement when existing policies are transferred
Company has a defined benefit plan with 60 employees, what’s the minimum number of employees that have to be covered set forth by the IRC
Cover the lesser of 50 people or 40% of employees.
So answer is 24 people.
A person has 2 401k , and 3 IRAs. How do RMDs have to be taken.
An RMD from each 401k
Can take 1 aggregate rmd from the IRAs
2 characteristics of a defined contribution plan
Account value based on benefits
Fixed employer contributions based upon terms of the plan
For Ira contributions sake, if you contribute to a 457 plan, are you considered an active participant
No. You could still make ira contributions
If you elect the substantially equal periodic payments from an IRA, and how many years can you stop taking these distributions
Must continue to the greater of five years or age 59 1/2
Example, someone is 47 years old. How many years can you stop taking these distributions answer equals 13 years 
What is the percent penalty for over contributing to an ira
6%
Max simple contribution.
Megan is 56 earns $360,000. The company provides a non-elective 2% contribution what’s the maximum amount that could go into her account? 
Simples have 345k limit for figuring non elective contributions.
So 345k x .02 = 6900
+ 16k for normal
Then 3500 for catchup
= 26,400
What are the sources of statutory law concerning qualified plans
Internal revenue code and ERISA
What plans are subject to minimum funding requirement
All pension plans. DB and DC. And SIMPLE Ira’s.
Not a 401k, not a profit sharing plan.
What is the non-elective contribution limit for simples and 401ks
2% of compensation. But you can only go up to 345k when figuring out the 2%.
If you’re over 55 years old and retire and have a profit sharing plan
Eligible for rollover
Subject to 20% mandatory withholding
Exempt from 10% early withdrawal penalty
Coverage testing for qualified plans
Must pass one to be not considered discriminatory
Safe harbor= basically great than or equal to 70% of all NHC employees participate
Ration % test
% of NHC/ % of HC. Must be greater than or equal to 70%
Average benefits test
% NHC benefits total / HC benefits total
Must be greater than or equal to 70%
Defined benefit plans, just them, additional coverage test
Plan must cover the lesser of 50 employees or 40% of employees.
(They do this for small companies)
Top heave affect for funding
DC = must do 3% of employee salary
DB = must do 2% acrural rate
(DB plan has to do 2-6 year graded or 3 year cliff, at least)
Top heavy means that 60% of the total balance is funded towards Key employees.
345k
Applied to all plans for calculations.
For DB- you can only get max 275k/year payout in retirement.
For DC plans maximum
69k
But you can do the catchup of 7500 so you can do 76500 BUT that number can’t be more than your total earned income for the year
What needs actuary
DB and CB use actuary annually
TB uses it only at inception
Secular trust/ rabbi
Non qualified deferred comp
Sec- no available to employee or employers creditors
Has vesting schedule. They can pay you 800k, put 300 in your paycheck, then set aside 500k in the trust. You aren’t taxed on the 500k in the trust when it’s funded cuz you have a substantial risk of forfeiture cuz of the vesting schedule
Rabbi
Like longer term one
Has to have substantial risk
Not available to employer, can be available to the companies general creditors.
Not taxable to the executive until the funds are taken out of the fund at retirement.
ISOs
Grant date- no taxable income
Upon exercise - no regular tax (can be adjusted back to AMT
Sale- if it’s qualified disposition, you get LTCG
From the grant price to the sale price.
The employer does not get a tax deduction.
If it’s disqualified, doesn’t meet the 1 year 2 year rule.
From grant to exercise your taxed as ordinary income and the employer does get a dedecution.
From the exercise to the sale, can be LT or ST depending on your holding period
