- alternative to a qualified plan profit sharing plan that is easier and less expensive to install - contributions can vary year to year

- cannot exceed LESSOR of 50% vested benefit or $50,000 - small accounts can take $10,000 (if available)

Retirement Flashcards by Katelyn Martin

Workers Eligibility SS Benefits

RETIRED and over 62: retirement benefits

Disability benefits: under 65, 12 months disabled + 12 months expected disability, terminal illness w/ 5 months waiting period

How well did you know this?

Not at all

Perfectly

Spousal Eligibility SS Benefits:
- Spouse of retired or disabled benefits

Spouse of RETIRED or DISABLED works gets benefits if:
(1) 62 and over
(2) Any age with child in care under 16

How well did you know this?

Not at all

Perfectly

Spousal Eligibility SS Benefits:
- Surviving spouse

Surviving spouse:
- 60 and older
- child under 16 or disabled child before 22

How well did you know this?

Not at all

Perfectly

Surviving dependent eligibility of SS benefits

surviving dependent
unmarried child of deceased worker
under 19y/o + FT school
18y/o+ with disability pre 22 y/o

How well did you know this?

Not at all

Perfectly

Money Purchase Pension Plan selection
- contribution limit
- why choose?
- what does it require?

flat percentage contribution
stable work force (wants to retain key young employees)
simpler to administer
stable cashflow and profit to make fixed contributions

How well did you know this?

Not at all

Perfectly

Target Benefit Pension Plan selection

seeks ADEQUATE retirement benefits for OLDER employees

How well did you know this?

Not at all

Perfectly

Profit Sharing Plan selection
- ER contribution requirements
- favors who?

recurring and substantial
younger employees who are well paid

How well did you know this?

Not at all

Perfectly

Stock Bonus Plan / ESOP selection

company wants to broaden stock ownership (ESOP is 1 shareholder of the S Corp)
NUA

How well did you know this?

Not at all

Perfectly

SEP selection

alternative to a qualified plan profit sharing plan that is easier and less expensive to install
contributions can vary year to year

How well did you know this?

Not at all

Perfectly

DC/DB Max contributions

DC: $70k

DB: Stuff it like a pig. $280k back end

Both: $350k salary cap

How well did you know this?

Not at all

Perfectly

Keys for IRA, SIMPLE, SEP, SARSEP

No Loans, life insurance, or creditor protection
Immediate vesting
59.5 no 55 to avoid 10% penalty
MUST take RMD at 72

How well did you know this?

Not at all

Perfectly

Integrated with Social Security vs. Age Weighted Plan

Integrated with Social Security (wage based)
- Owner is 50 or under
- Owner income is under $200,000
- Rank and File Employees making $90,000 or less

Age Weighted Plan (age based)
- Owner is 50 or older
- Owner income is over $200,000
- Rank and File Employees are YOUNGER than owner

How well did you know this?

Not at all

Perfectly

Cross Testing (new comparability plan) most generous to:

Older owner/employee

How well did you know this?

Not at all

Perfectly

Parent-Subsidiary

One entity owns at least 80% of the other entities

How well did you know this?

Not at all

Perfectly

Brother-Sister

Five or fewer owners of two or more entities own 80% or more of each entity

How well did you know this?

Not at all

Perfectly

Affiliated Service Group

a service organization and a professional organization

How well did you know this?

Not at all

Perfectly

Direct Distribution to a Qualified Plan Participant

participant received the distribution DIRECTLY, the plan must withhold 20% and the participant has 60 days to transfer it to an IRA and stay there for 1 year or it will be taxed

How well did you know this?

Not at all

Perfectly

Qualified Charitable Distribution (QCD)

must be 70.5 or older
up to $100,000

How well did you know this?

Not at all

Perfectly

Qualified Plan Loans

cannot exceed LESSOR of 50% vested benefit or $50,000
small accounts can take $10,000 (if available)

How well did you know this?

Not at all

Perfectly

Roth IRA: contributions, conversions, earnings

contributions: can always withdrawal

conversions: 5 yr rule OR 59.5/special purpose
- if fails: 10% penalty

Earnings: 5 yr rule AND 59.5/special purpose
- if fails one: Income tax
- if fails both: 10% penalty and income taxable

How well did you know this?

Not at all

Perfectly

ISO tax implications

$20 grant, $100 exercise, $200 sale

Grant: no tax event

Exercise: AMT, no tax

Sale: $200 - $20 = $180 LTCG

MUST have EGG: sale 1 year from exercise and 2 years from grant

How well did you know this?

Not at all

Perfectly

NSO tax implications

$20 grant, $100 exercise, $200 sale

Grant: no tax event

Exercise: 100 - 20 = $80

Sale: $180 LTCG

How well did you know this?

Not at all

Perfectly

Pension Beneficiary

Spouse is always the beneficiary and controls the funds. Spouse needs to sign off to change beneficiary.

How well did you know this?

Not at all

Perfectly

NUA

Basis is taxed at distribution

Capital gain taxed only when the employee sells

How well did you know this?

Not at all

Perfectly

What are the three steps of retirement planning?

Inflate, adjust, invest

What is the first step in retirement planning?

Inflate to future dollars (solve for FV)

What does FV become in the second step of retirement planning?

PMT (Payment)

In retirement planning, what is calculated in the third step?

PV (Present Value)

True or False: Fully insured workers are eligible for Social Security benefits.

True

Who are not covered by Social Security?

Federal employees before 1984, student nurses, railroad employees, child under 18 employed by parent in unincorporated business

What are the requirements to qualify for disability benefits under Social Security?

Insured for disability benefits & under 65, disabled for 12 months, filed for benefits & completed 5 month waiting period

At what age can a spouse claim benefits from a retired or disabled worker?

62 years or older

What is the lump sum payout for a living with a covered worker and a minor child?

$255

What is the taxation rule for benefits if income plus half of SSA exceeds $25k/$35k?

Half of SSA is income

What is Non-Qualified Deferred Compensation?

Works for corporations only; discrimination allowed; no tax deduction for contributions

What are the risks associated with Non-Qualified Deferred Compensation?

Bankruptcy of employer & buyout means you won't get paid

What is a Rabbi Trust?

Unfunded non-qualified deferred compensation trust subject to creditors of the employer

What is the difference between Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs)?

ISOs have better tax treatment than NSOs

Fill in the blank: The difference between the grant price and exercise price of stock options is called the _______.

bargain element

What does breaking the EGGS rule in stock options mean?

Disqualifying disposition, turning ISO to NSO

What are Restricted Stock Units (RSUs)?

Company gives stock held until it vests

What are the two types of Qualified Plans?

Defined Benefit (DB) & Defined Contribution (DC)

What is the maximum annual contribution limit for Defined Contribution plans?

$70k

What is a Cash Balance Plan?

A mandatory contribution plan that guarantees contributions and minimum rate of return

What is the eligibility requirement for participating in a Qualified Plan?

21 years old & one year of service

What defines a Highly Compensated Employee?

>5% owner or comp > $160k last year

What is the vesting schedule for Defined Benefit plans?

2-6 year graded

Rules of SIMPLE IRA - EE deferral limits - ER contribution requirements - Salary cap

- EE Deferral: $16,500/year + $3,500 catchup - ER contribution: dollar for dollar match up to 3% of salary Non-elective deferral contribution: 2% salary regardless of deferral - $550k salary cap

In a 403(b) plan, what types of investments are allowed?

Annuity contracts or mutual funds

What is the early distribution penalty for SIMPLE IRA?

10% (25% if taken within first 2 years)

What is the vesting schedule for a DB plan?

2-6 year graded ## Footnote DB stands for Defined Benefit plan.

What is the vesting schedule for a DC plan?

3-7 year graded ## Footnote DC stands for Defined Contribution plan.

If a test asks about a DC schedule, what should you choose?

Fastest vesting schedule

Who is deemed to be a >5% owner in relation to a person's family?

Spouse, parent, child, or grandparent

What are the deferral limits for Highly Compensated Employees (HCEs) based on their deferrals?

0-2% = (x2), 2-8% = (+2)

What is a Parent-subsidiary control group?

A owns 80%+ of B

What is an Affiliated Service Group?

Professional services

What types of plans allow deferrals?

* 401k * 403(b) * 457 * SARSEP

What is the elective deferral limits

$23,500 + $7,500 catch-up

What is the Section 415 Limit for total contributions?

$70,000 total

What is the maximum contribution for Individual Retirement plans for individuals over 50?

$7,000 + $1,000 catch-up

What is the earned income limit to contribute to a Traditional IRA?

None

What happens if one spouse works and makes >$14k/year regarding IRAs?

Both can have IRAs

What is the deduction phaseout for single taxpayers participating in an employer retirement plan?

$79,000 - $89,000

What is the deduction phaseout for married filing jointly if one spouse is covered by a retirement plan?

1 deduction if < $236k; no deduction if > $246k

What is the penalty for early distribution before 59.5 y/o?

10% unless specific exemptions apply

When can you take distributions from a 401k without penalty?

At 55 y/o

What is the mandatory withholding tax for checks written directly to the recipient?

20%

What are the qualified distributions from a Roth IRA?

Tax-free

What is the 5-year rule for Roth IRA conversions?

Starts a new 5-year clock

What is the penalty for distributions from a Roth IRA without a 5-year hold?

Taxed & 10% penalty

What is the deferral limit for a Roth 401k?

$23,500 + $7,500 catch-up

What is the required beginning date for RMDs from IRAs?

April 1st of the year following the year you turn 73

What is the penalty for failing to take RMDs?

25%

What happens if a non-spouse beneficiary inherits an IRA?

10 year draw-down

Net Unrealized Appreciation - define - taxation

Difference between cost basis and market price at distribution of company stock from a 401k. NUA = LTCG Above NUA = ordinary income rates

What is the excess contribution formula for SSA integration?

Base + permitted disparity

What is the permitted disparity limit?

5.7%

What must be established for SARSEPs to allow new employees to participate?

Pre 1997

What does Section 415(c) limit?

Annual additions to a retirement plan to $70,000 or 100% of participant's gross compensation

What happens if you take SS benefits prior to 67 years old?

permanent reduction of payout calculated by by taking # of months taken early divided by 180

How is SSA taxed?

(AGI + muni interest) + 1/2 SSA = provisional income If provisional income over base amounts = taxed 50% 85% S $25k $34k MFJ $32k $44k

Charitable Deduction Limits: Long Term Appreciated Property requirements

(1) held longer than one year (2) use related property (stocks & real estate are always use related)

Donating long-term appreciated property - Value of donation - Overall write off - Amount you can write off this year

- Value of donation: basis or FMV - Overall write-off: Basis or FMV - This year's write off: If valued at basis: 50% AGI (basis has 5 letters) If valued at FMV: 30% AGI (FMV has 3 letters))

Types of entities that qualify for charitable deduction limits

Public charities: all churches, all schools, and all hospitals

Donating ordinary property - basis - write off this year

Value at basis. Write off 50% AGI this year

If I donate a highly appreciated piece of art to a university, how is it valued?

Ordinary property - not use related

If I donate a highly appreciated piece of art to an art museum, how is it valued?

Long term appreciated property. Value at basis or FMV

Traditional Defined Benefit Plan - pension plan? - salary cap - ER limits - EE limits - who goes if favor?

- pension plan - $350k salary cap - none - none - older employees

Which qualified plans favor older employees?

Traditional defined benefit plan Cash balance plan Target benefit plan

Which qualified plans favor younger employees?

Money purchase plan Profit sharing ESOP

When is a Money Purchase Plan appropriate? - ER wants wants to retain who? - ER must have what to make it work? - Simple or complicated?

ER wants to retain key, young employees Stable cash flow and profit (DC plan) Simple to administer

What is a Unit Benefit Formula and what qualified plan does it apply to?

Uses Both Factors (time and salary) Defined Benefit Plan

How are forfitures handled in DC plans vs DB plans

DB plans - forfeitures must reduce ER contributions DC plans - forfeitures can reduce ER contributions or be reallocated to other EEs

What is a CODA

Cash or Deferral Arrangement (401k plan)

What are the limitations of EE contributions in a 401k plan

ER contributions are limited to 25% of all eigible participant's compensation (i.e., EE only makes $100,000, ER contributions can only be $25k no matter how much EE defers

How much can a self-employed individual contribute to their own Keogh SEP plan if they have a 15% plan or 25% plan?

15% plan - multiply business profit by 12.12% 25% - multipl business profit by 18.59% | Self employed persons have to back out 1/2 of SE tax. Just memorize #s

SEP Contribution rules

- No salary deferrals - 25% of comp or $70k, whichever is less

Retirement Flashcards

(98 cards)