Retirement Savings and Income Planning Flashcards

Question

Standard eligibility requirements for qualified plans

Answer 1

An employee is eligible after 1 year of service (at least 1,000 hours) and age 21. Part-time employees are now eligible to participate if they have completed at least 500 hours each year for 3 consecutive years and at least age 21 (SECURE act).

Answer 2

As an exception, a qualified retirement plan may require that an employee complete 2 years of service to be eligible. If elected by the employer, plan participants are 100% vested once eligible - NOT eligible for 401ks.

Answer 3

More than 60% of the total accrued benefits of the plan are for the benefit of key employees. Funding must be at least 2% x years of service x compensation factor. Plan participants' benefits must vest at least as quick as 2-6 year graduated or 3 year cliff schedules.

Answer 4

More than 60% of the total account balances of the plan are for the benefit of key employees. Funding is a 3% minimum to all eligible employees or less if less provided to the key employees. Participants' benefits must vest at least as quick as a 2-6 year graduated or 3 year cliff schedules.

Answer 5

Covered comp - $330,000 Maximum benefit is the lesser of: - $265,000 or - Average of 3 highest consecutive years of compensation (or as defined in the plan summary documents)

Answer 6

Covered comp - $330,000 Maximum benefit is the lesser of: - 100% compensation or - $66,000 (not including catch up)

Answer 7

Consists of two tests - 25% and 50% depending on the type of life insurance provided. - If term or universal policies purchased within the plan, aggregate premiums paid for the policy cannot exceed 25% of the employers aggregate contributions to the participant's account. - If whole lie purchased within the plan, the aggregate premiums paid for the policy cannot exceed 50% of the employers aggregate contributions to the participant's account.

Answer 8

Annual actuary Employer bears investment risk Forfeitures must reduce plan costs PBGC insurance Credit for prior service Social security integration to offset or excess Commingled investment account Favors older employees

Answer 9

No annual actuary (except target benefit at inception) Employee bears investment risk Forfeitures can reduce plan costs or allocate to other plan participants No PBGC insurance No credit for prior service Social security integration for excess only Separate investment accounts Favors younger employees

Answer 10

A technique of allocating plan contributions to employees' accounts so that a higher contribution will be made for those employees whose compensation is in excess of the social security wage base. Profit sharing plans only allow use of the excess method. The excess rate is limited to the lesser of 2x the base rate or a difference of 5.7%. As a result, the excess rate is generally 5.7% higher than the base rate.

Answer 11

Corporations Partnerships LLCs Proprietorships Tax-exempt entities

Answer 12

$22,500 contribution limit $7,500 catch up No income limits, but must have income for the deferral Does not allow conversions from a traditional IRA Allows loans A qualified distribution requires 5 years and on account of disability, death, or after 59.5 Non-qualified distributions consist of basis and earnings Follow RMD rules

Answer 13

Stock Bonus Plan - Plan establishment by Dec. 31 - Contribution by due date of tax return plus extensions - Generally stock contributions - Deductible contribution limit of 25% of covered comp - Valuation generally needed - Eligibility is 21 and 1 year of service of 2 years with 100% vesting - Allocation method is % of compensation or formula based on age/service of classification - Integration with social security - Vesting schedule of 3 year cliff or 2-6 year graduated - No portfolio diversification - Generally have voting rights - Generally stock distributions - In service withdrawals after two years - Loans usually not allowed - Distributions taxed as ordinary income with NUA treatment available ESOP - Plan establishment by Dec. 31 - Contribution by due date of tax return plus extensions - Generally stock contributions - Deductible contribution limit of 25% of covered comp plus interest paid on loan - Valuation generally needed plus dividends - Eligibility is 21 and 1 year of service or 2 years with 100% vesting - Allocation method of % of compensation or formula based on age/service of classification - No integration with social security - Vesting schedule of 3 year cliff or 2-6 year graduated - No portfolio diversification - Voting rights - Generally stock distributions - In service withdrawals after two years - Loans usually not allowed - Distributions taxed as ordinary income with NUA treatment available

Answer 14

Taxpayers who receive a lump-sum distribution of employer securities (stock) may benefit from using a special tax treatment on distribution. Allows for the more favorable capital gain tax treatment instead of ordinary income tax treatment on the NUA portion until the distributed securities are sold. The excess of the FMV of the employer stock at the date of the lump-sum distribution over the cost of the employer stock at the date the securities were contributed to the plan.

Answer 15

Surviving spouse Child of employee/IRA owner who has not reached majority - at age of majority becomes designated beneficiary Disabled or chronically ill Any other individual NOT more than 10 years younger than the employee/IRA owner Beneficiary can receive distributions over their remaining single life expectancy Spouse only can rollover plan balance to their own IRA Minor child must use designated beneficiary rules upon reaching age of majority

Answer 16

Any individual designated as a beneficiary by the employee not meeting eligible requirements Any beneficiary greater than 10 years younger Account balance must be distributed by the 10th anniversary of the owner's death

Answer 17

Non listed beneficiary, charities, and some trusts Before RMD - distribute account within 5 years After RMD - distributions must continue over the remaining distribution period of the deceased owner - the decedent's remaining distribution period is reduced by one each year

Answer 18

A fiduciary of the plan A person providing services to the plan An employer, any of whose employees are covered by the plan An employee organization, any of whose members are covered by the plan Any direct or indirect owner of 50% or more of any of the following: - The combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation that is an employer or employee organization - The capital interest or profit interests of a partnership that is an employer or employee organization - The beneficial interest of a trust or unincorporated enterprise that is an employer or employee organization A member of the family of any individual

Answer 19

Traditional IRA - $1,000 Roth IRA - $1,000 SEP - N/A SARSEP - $7,500

Answer 20

W-2 income Schedule C net income K-1 income from an LLC (self employed income) K-1 income from a partnership where the partner is a material participant (general partner) Alimony payments for divorces pre-2019

Answer 21

Earnings/profits from property, such as rental income, interest income, and dividend income Capital gains Pension and annuity income Deferred compensation received Income from a partnership for which you do not provide services that are a material income producing factor Any amounts excluded from income - foreign income and housing costs Unemployment benefits Investment returns as a limited partner in a partnership Income flowing from an S corporation via Schedule K-1 Social security benefits Worker's compensation Alimony received post 2018

Answer 22

Mainly life insurance and collectibles. If either are purchased in an IRA, the purchase is deemed as distributions, and the value of the purchase is subject to tax and/or penalty. Eagle coins are an exception. Gold, silver, platinum, or palladium bullion are permitted as well.

Answer 23

If an individual or beneficiary engages in any of the following, the account will cease to be an IRA as of the first day of the current taxable year: - Selling, exchanging, or leasing any property to an IRA - Lending money to an IRA - Receiving unreasonable compensation for managing an IRA - Pledging an IRA as security for a loan - Borrowing money from an IRA - Buying property for personal use with IRA funds

Answer 24

C Corporations S Corporations Limited Liability Companies (LLCs) Partnerships Proprietorships Government Entities

Answer 25

Employees who earned $5,000 or more from the employer in any two of the preceding calendar years Employees are expected to earn $5,000 during the current calendar year

Answer 26

Available for not-for-profit institutions (ex. large universities) Self-reliance savings plans - employee only contributions If organized as a qualified plan, subject to ERISA Establish by end of year Elective deferral contribution limit $22,500 plus catch up Available contribution $66,000 or 100% of compensation including elective deferrals Additional after-tax contributions can be permitted by the plan Employee has investment choices and bears risks Limited to insurance annuities and mutual funds 10% early withdrawal penalty applies Loans are permitted Allows rollovers to IRA, qualified plan, or other 403b Not ERISA protected if governmental or church TSA 100% vested at all times for contributions and earnings

Answer 27

Nonqualified deferred compensation plan Employees of state and local government, tax-exempt governmental agencies, and 501 entities Self-reliant, employee elective deferred savings Not a qualified plan Establish by end of year Deferred compensation plan Elective deferral contribution limit: lesser of $22,500 or 100% compensation plus catch up Employee contribution is allowed but not usual No additional after-tax contributions allowed Employee selects investments and bears risk Broad investment selection 10% early withdrawal penatly Loans are NOT permitted Public 457 plans can be rolled over No ERISA protection Allows in service withdrawals

Answer 28

A qualified stock sale requires waiting 2 years from the date stock was granted and 1 year from the date the stock was exercised. Sales prior to either holding period being met are disqualified dispositions and terminate most of the tax benefits - effectively it triggers similar treatment to NQSO.

Answer 29

Can only be granted to an employee of the issuing corporation At the date of grant, the exercise price must be greater than or equal to the FMV Cannot be transferred except at death The aggregate FMV of ISO grants must be less than or equal to $100,000 per year per executive. Any excess grant is treated as NQSO Executive must be an employee of the corporation continuously from the date of the grant until at least 3 months prior to exercise

Answer 30

Regulations provide for an exclusion of the value of qualified transportation benefits from an employee's gross income. This exclusion is subject to limitations: - $300/month for commuter highway transportation and transit passes combined, and - $300/month for qualified parking For any given month, if the value of a benefit is more than the limit, any excess amount above the limit (less any amount the employee paid) is included in the employee's income.

Answer 31

Premiums paid by the employer are deductible by the employer and are not included in the employee's gross income. Any disability income benefit received by the employee is taxable if premium was paid for by the employer. If the employee pays the entire premium with after-tax income or the employer pays the premium and the employee includes the payment in income, any benefits received will be considered tax exempt.

Answer 32

Accident and health benefits (but not medical savings accounts or long-term care insurance) Adoption assistance Dependent care assistance Group term life insurance coverage (including costs that cannot be excluded from wages)

Answer 33

Archer Medical Savings Account Athletic facilities De minimus benefits Educational assistance Employee discounts Lodging on employer's business premises Meals Moving expense reimbursements No-additional-cost services Transportation benefits Tuition reduction Working condition benefits

Answer 34

The employer owns the life insurance policy on the employee and pays the policy premiums. The employer withholds the right in the plan to be repaid for all of its premium either at the employee's death or the surrender of the policy. Usually any death benefit or cash surrender value in excess of the employer's refund is paid to the beneficiary.

Answer 35

The employee owns the life insurance policy and the employer makes a loan to the employee to pay the policy premiums. At the employee's death or at the surrender of the policy, the employer loan will be repaid and any excess will be paid to the beneficiaries.

Answer 36

Established before 2006 For employers with less than 50 employees or self-employed individuals Health insurance deductible: single $2,650 - $3,950; family $5,300 - $7,900 Max out of pocket: single $5,300; family $9,650 Max contribution: single is 65% of deductible; family is 75% of deductible No catch up contribution Nonqualified expenses taxed as ordinary income and a 20% penalty if under 65

Answer 37

Established 2004 or later Any individual Health insurance deductible: single at least $1,500; family at least $3,000 Maximum out of pocket: single $7,500; family $15,000 Max contribution: single is 100% of deductible limited to $3,850; family is 100% of deductible limited to $7,750 Catch up contributions of $1,000 if 55 and older after 2009 Nonqualified expenses taxed as ordinary income and 20% penalty if under 65

Answer 38

40 credits (quarters of coverage) To earn 1 credit in 2023, worker must earn $1,640 Maximum of 4 credits earned per year

Answer 39

The worker's average indexed monthly earnings - index the covered earnings for each year, selecting the 35 highest years, totaling those earnings and dividing by 420 (35 years x 12)

Answer 40

Primary Insurance Amount The basic unit used to determine the amount of each monthly benefit payable under social security - the amount the worker will receive if they retire at full retirement age

Answer 41

Golden Handshakes: severance package, often designed to encourage early retirement Golden Parachutes: substantial payments made to executives being terminated due to changes in corporate ownership Golden Handcuffs: designed to keep employee with the company

Answer 42

Limited contribution amounts Contributions cannot be made after money is received Plans usually have limited investment options No or limited access to money while an active employee Distributions usually taxed as ordinary income above basis Early withdrawal penalties Mandatory distributions at 72 Only ownership permitted is by the account holder Cannot assign or pledge collateral Cannot gift to charity before 70.5 without tax consequences Any year a deductible contribution is made to an IRA and a charitable distribution is made from an IRA, the allowable charitable deduction will be reduced by deductible contributions made after 70.5 Limited enrollment periods Considered to be income in respect to a decedent asset, subject to income and estate tax and no step-up Costs of operating the plan

Answer 43

Monthly - $6,750 Yearly - $81,000

Answer 44

Accrued Benefits - a defined benefit plan is subject to mandatory funding requirements calculated by an actuary. If termination prior to retirement, the benefit payable is equal to the benefit earned to date. Account Balance - in a defined contribution plan the benefit is simply the account balance reduced by any non vested amounts.

Answer 45

Qualified plans may permit loans up to the lesser of: - 1/2 of the vested plan accrued benefit up to $50k, or - the greater of $10,000 or the vested accrued benefit Loans associated with 401k and 403b plans Generally, must be repaid within 5 years, except if associate with the purchase of a personal residence, which must be reasonable and could be as long as 30 years

Answer 46

The ESOP must own at least 30% of the corporation's stock immediately after the sale. The seller must reinvest the proceeds into qualified replacement securities within 12 months and hold them for 3 years. The corporation must have no class of stock outstanding that is tradable on an established securities market. The seller/relatives/25% shareholders in the corporation are precluded from receiving allocations of stock acquired by the ESOP through the rollover. The ESOP may not sell the stock acquired through the rollover for 3 years. The stock sold to the ESOP must be common or convertible preferred stock and must have been owned by the seller for at least 3 years prior to the sale. *If the seller purchases and retains qualified replacement securities, there will be no taxable event.

Retirement Savings and Income Planning Flashcards

(70 cards)