Retirement

Question 1

The Social Security Act covers what social insurance programs?

Answer 1

1. Social Security –OASDI

Question 2

Worker’s Eligibility and Benefits for Social Security

Answer 2

1. Retired insured works age 62+
2. Entitled to DISABILITY benefits if he is under age 65 and has been disabled for 12 months and expected to be disabled for 12 more months. Or a disability that’s expected to result in death. 5 Month waiting period applies.

Question 3

Spouse’s Eligibility Benefits for Social Security

Answer 3

A. Spouse of a retired or disabled worker qualifies IF:

1. Age 62 or over
2. has a child in care under age 16 or 16+ and disabled

B. Surviving spouse of a deceased insured worker if they are age 60+

C. Divorced Spouse if married to insured worker for 10 years AND never remarried

D. Surviving spouse of a deceased insured worker qualifies regardless of age if caring for an entitled child of the deceased who is under 16 or disabled and under age 22

Question 4

Dependent’s Eligibility and Benefits

Answer 4

Surviving dependent, unmarried child of a deceased insured worker qualifies IF:

1. Under 19 and a full-time elementary or secondary school student. ie. NOT A COLLEGE STUDENT
2. Age 18 or over but has a disability which began before age 22

Question 5

Who is eligible for the Social Security Death Benefit of $225?

Answer 5

1. Spouse who was living in the same household as the deceased insured work

or (not both)

2. Dependent Child

Question 6

When do you use a Defined Benefit plan?

Answer 6

When an older controlling employee wants to maximize tax-deferred retirement savings for his benefit AND when the company has very stable cash flow with excess profits.

Question 7

Benefit Limit of Defined Benefit Plan

Answer 7

100% of average compensation in highest-earning 3 years up to $225K

Question 8

Unit Benefit Formula is capped at how many years of service?

Answer 8

30

Question 9

The main difference between a Cash Balance Plan and a Money Purchase Plan?

Answer 9

Cash balance plan has a guaranteed minimum rate of return on each participant’s account.

Money purchase plans do not.

Question 10

No forfeitures with what type of retirement plans?

Answer 10

IRA plans

Question 11

Who assumes the investment risk in a Target Benefit Plan?

Answer 11

The employee

Question 12

Section 401(k) difference between deferral and contribution

Answer 12

If the question says deferral, it is $19,000 maximum.

If the questions says contribution, it includes the deferral ($19k) and the catch-up ($6k) for a max of $25k

Question 13

How much can you take out of a 401(k) as a Hardship?

What about an IRA?

Answer 13

401(k): Equal to the participant’s total elective deferrals and vested profit-sharing contributions

IRA: None

Question 14

When would a stock bonus plan or ESOP be appropriate?

Answer 14

1. When a company wants to broaden its ownership of stock

2. Plus, the NUA may not be taxed to the employee when they receive distributions from the plan

Question 15

SIMPLE IRA premature distribution penalty

Answer 15

The 10% premature distribution penalty is increased to 25% during the first 2 years of participation

Question 16

Does a salary cap apply for SIMPLE 401(k)s? Max Contribution?

Answer 16

Yes, $280K x 3% = $8,400

Question 17

SEP’s unique participation rules

Answer 17

1. Must be at least 21 and worked for the employer 3 out of the preceding 5 years

AND

2. Must have compensation of at least $600

Question 18

SEP’s participation rules are an advantage to who?

A disadvantage to who?

Answer 18

Advantage: Employer with numerous short-term employees

Disadvantage: Employer with many RETURNING, part-time employees

Question 19

Ratio Percentage Test

Answer 19

The plan must cover a percentage of NHCE employees that is at least 70% of the percentage of HCEs covered

Question 20

Average Benefit Test

Answer 20

The average benefits for all NHCEs must be at least 70% of that for HCEs

Question 21

Minimum benefits and contribution for non-key employees in a

1. Defined Benefit Plan.
2. Defined Contribution Plan

Answer 21

1. 2% of compensation

2. Employer contribution must be no less than 3%

Question 22

ADP/ACP Tests for HCEs when the NHCEs average deferral is:

1. 1%
2. 2-8%

Answer 22

1. 2%

2. % of NHCE average deferral PLUS 2%

Question 23

Qualifiers to Integrate with Social Security or use an Age-weighted plan

Answer 23

1. Owner’s age is 50.
   Younger = SS
   Older = Age-weighted
2. Owner’s Income:
   Under 200K = SS
   Over 200K = Age-weighted
3. Rank & File Employees
   Making less than 90K = SS
   Younger than owner = Age-weighted

Question 24

The cross-tested plan is AKA…

Answer 24

New Comparability Plan

Question 25

What does the cross-tested plan achieve?

Answer 25

Provides maximum benefit to HCEs, and benefits to other employees are designed to provide the minimum contribution that's required by nondiscrimination regulations The most generous benefit to the older owner/employee

Question 26

Life Insurance Suitability for: 1. DC Plans 2. DB Plans

Answer 26

DC: Aggregate premiums paid for the participant's Death Benefit is less than 50% to Whole Life and 25% to UL and Term Policies DB: Insured Deth Benefit must not exceed 100 times the expected monthly benefit

Question 27

UBTI occurs when a plan invests in _____

Answer 27

Limited Partnerships

Question 28

Is a hardship withdrawal subject to the early withdrawal penalty?

Answer 28

Yes

Question 29

May a SEP be established after an employer's fiscal year end?

Answer 29

Yes, advantage

Question 30

A one-time election allows a participant to switch from the __1__ to the __2__. Fill the boxes with the appropriate terms. Depreciation Method, Amortization Method, RMD Method, Accrual Method

Answer 30

1. Amortization Method | 2. RMD Method

Question 31

Contributions made to non-business IRAs must be made by? Extension?

Answer 31

April 15th, no extension!

Question 32

Is alimony considered earned income?

Answer 32

Yes

Question 33

Does being active in a 457 plan count as being active for IRA deductions?

Answer 33

No

Question 34

Income Restrictions for Roth 401(k)s, 403(b)s, and 457(b)s.

Answer 34

None

Question 35

An unfunded plan is also known as _____

Answer 35

Informally Funded

Question 36

ISO limit usage

Answer 36

$100k per year. Anything over $100k is treated as an NSO

Question 37

What is the tax deduction for the corporation that grants an ISO?

Answer 37

No tax deduction at any time.

Question 38

The primary taxation difference between ISOs and NSOs at the date of exercise

Answer 38

ISOs are not subject to regular tax when exercised, but NSOs ARE SUBJECT.

Question 39

Can Profit Sharing plans be age-weighted?

Answer 39

Yes