Back Of Beyond Flashcards
How is NUA taxed?
Basis (or the deduction the ER claimed) is taxed at distribution as OI.
At sale, the NUA (the gain on the stock from basis to distribution is taxed as LTCG)
Any other gain is taxed as holding period.
Must distribute all w/in a year for NUA treatment.
What happens if you roll NUA stock into an IRA?
You lose the NUA.
What type of businesses are Keogh plans for?
Non-incorporated ones! Sole proprietorships and partnerships.
Is the SIMPLE 3% match calculated based on a salary cap of $290k?
No! SIMPLE’s match actual income.
How does a 401k SIMPLE work?
All 401k rules except SIMPLE match (and deferral?) rules
Is the owner of an incorporated business self-employed? Is Keith?
No and no.
Are SEP’s QP’s?
No.
Who are ERISA plan fiduciaries?
All administrators and advisers. Anyone who has anything to do with the plan
Can you have life insurance in your IRA?
Collectibles?
Gold?
No LI or collectibles.
Gold is usually not allowed in your plan, but you can have it in a self-directed IRA.
When are ERISA fiduciaries liable for losses in plan assets?
When they don’t follow the rules of the plan.
What are the coverage tests and to whom do they apply?
They always apply to HC’s
- Safe harbor: plan must cover 70% of NHC.
- Ratio % test: plan must cover NHC’s to at least 70% of the HC’s it covers.
- Average benefit test: NHC’s must get 70% of what HC’s get, on average
- 40/50 test (DB only): Plan must cover at least 40 people or 50% of EE’s.
Top-Heavy tests apply to key employees. What are they and they’re consequences?
No more than 60% of accrued benefit goes to keys.
If top-heavy 3% to non-keys in DC plan, 2% to non-keys in DB plan.
Does ADP/ACP testing use HC or keys?
How does it go again?
It uses HC’s. It applies to CODA plans.
If NHC get (or defer) 0-2%, HC’s can defer 2x as much.
If NHC get (or defer) 2-8%, HC’s can defer +2 more
If NHC get (or defer) > 8%, HC’s can do 125% as much.
What plans cannot integrate with SS?
ESOP, SIMPLE, SIMPLE 401K
When is integrating with SS better than an age-weighted plan or vice versa?
Owner over 50 = 1 point for age weighting.
Owner making over 200k = 1 point for age weighting
Rank and file younger than owner = 1 point for age-weighting
What are new comparability plans? What’s the other name for them? What are they at root?
New comparability plans are also “cross-tested plans”. They are essentially age-based discrimination plans, that pay benefits to people by their job category. You can give 58k to one person and a 5% match to the next.
Do 457 plans count in aggregated deferrals?
No. They’re not ERISA for one thing.
What are parent/subsidirary and brother-sister relationships? What is an affiliated service group?
Parent/Subsidiary = one entity controls 80% of another. B/s = 5 or fewer owners own 80% of 2 or more entities ASG = A service organization and a professional organization.
LI must be incidental to retirement plans. How do DC and DB plans accomplish that?
For DC: Whole (or Ordinary) Life must be ≤ 50% of plan cost for participant, ≤ 25% for Universal or Term.
For DB: Death benefit must be ≤ 100x monthly benefit of pension.
What is UBTI? How do you answer UBTI questions?
Unrelated Business Taxable Income. When plans make income off of leveraged instruments it’s taxable.
Look for something with debt like limited partnership interests or maybe real estate.
What is the only roll-over option for a non-governmental 457 plan?
Another 457 plan.
If you receive a direct check from your retirement plan what does the government do?
Unless what?
It withholds 20%. You get it back if you put 100% of the money into another plan within 60 days. Note: you can only do 2 60-day roll overs in a year.
You can avoid withholding entirely by rolling over directly to custodian.
You can also avoid withholding if you have a qualifying reason for the distribution.
What does the CFP code require practitioners and clients to do regarding basic plan assumptions?
What if you can’t get there?
Client and practitioner must both agree on plan assumptions.
If you can’t get there terminate or limit the agreement.
What are the SIX exceptions to the 10% penalty on qualified plan and TSA distributions for those under 59.5?
If you don’t meet them, how do you best avoid the penalty?
- Death or total disability.
- Substantially equal periodic payments following separation from service.
- Separation from service at 55 or later.
- Distribution under a QDRO (to anyone in the QDRO terms)
- Medical expenses in excess of 7.5% of AGI
- $5,000 for birth or adoption of child.
The best way to avoid the penalty is thru a loan.
What are the conditions for substantially equal periodic payments after separation from service?
The later of:
- -Payments must go for 5-years
- -Attainment of 59.5
What is the penalty for insufficient RMD’s?
50% of the insufficiency.
Does the SEP start date include extensions?
Yes?
If you have a pension plan, and are married, how must you take your benefits?
How do you get out of that?
QJSA.
The only way to not do that is if your spouse opts out of it with signature.
A QP may be attached to a QDRO. If the plan has no cash out feature, what happens? When can the other spouse withdraw?
The plan makes a sub-account for the other spouse. They can withdraw when the worker becomes eligible to withdraw.
Can you have a QDRO for an IRA?
If you have a 457, does that count as being a plan participant for IRA contribution phase outs?
No and no.
What are the 6 conditions for penalty free IRA withdrawal?
- Death and disability.
- Qualified education expense up to 10k
- Medical expense > 7.5% of AGI.
- Health insurance after 12 months of unemployment
- Birth or adoption to 5k
- Substantially equal payments
Is there an age limit for Roth contributions?
No, as long as you have earned income.
How are Roth withdrawals ordered? What’s the significance of this?
Basis, conversions, earnings. It gives you the easiest tax treatment first, followed by the next easiest.
How are conversions taxed?
They are never income taxed, because the tax has already been paid. If they meet the 5-year holding period OR meet any of the penalty exemptions for Roth’s there’s no penalty either. If they don’t have the holding period or meet any of the exemptions there’s no income tax but a 10% penalty.
How are earnings withdrawn from a Roth taxed?
Hint: This is the most complicated.
The first question is, do they meet the 5-year holding period? If yes, do they meet one of the special exemptions (59.5, D+D, first home 10k)? If yes, no tax no penalty. If they meet one of the 2nd tier exemptions (medical, education, health insurance, birth/adoption, = payments), they will be taxed but no penalty. If they meet 5 year, but no exemption, tax and penalty.
If they don’t meet the 5-year holding period, they will be taxed. If they meet any of the exemptions, no penalty. If they meet none, tax and penalty.
What are the 3.5 ways a Roth can be distributed at death?
No named beneficiary - Must distribute in 5 years. Tax free.
Named beneficiary - Must distribute in 10 years, tax free.
Spouse is sole beneificary - Must begin distributions when owner would’ve been 72, OR may roll into their own ROTH IRA
How do Roth 401k plans work?
No income limit to participate
Deferrals are after tax and subject to FICA. ER contributions are pre tax.
Employer matches must go into pre-tax accounts.
How do non-qualified plans work?
- Can they discriminate?
- Does the ER get a tax deduction? When?
- In what cases are the funds earnings taxable to the ER?
- When should an ER use a non-qualified plan?
- They can discriminate
- No ER tax deduction until EE is taxed.
- Funds earnings are taxable to ER if LI or annuity
- Appropriate when ER wants to provide additional deferred compensation to EE beyond ERISA limits.
What are unfunded retirement plans?
What’s another term?
Are 457 plans unfunded?
Unfunded = informally funded. Assets have been set aside but are subject to company’s creditors.
This is true for 457 plans.
Is LI in a deferred compensation a funded or unfunded arrangement?
When are the premiums taxable to the EE?
If ER totally owns the policy, what happens?
- Generally unfunded
- Premiums are taxable to the EE when they have an incidence of ownership, such as naming the beneficiary (162).
If ER totally owns policy: - Premiums not currently deductible to ER
- Death benefit not taxable to ER
- $ value of policy grows tax deferred, basis can be recovered tax free
- Cash value of policy can be paid to employee as long as it’s “reasonable compensation”
- At EE death, if ER pays benefit to EE’s family they are taxable to family, and included in EE’s gross estate.
