Book 5 Pages 54 - End Flashcards
what is the biggest difference between stock bonus plans and traditional profit sharing plans?
benefits are usually distributed in the form of employee stock in a stock bonus plan where as benefits are cash in a profit sharing plan
true or false?
a stock bonus plan may permit employee contributions
true
true or false?
contributions to a stock bonus plan must be allocated to an individual participant’s account
true
true or false?
stock bonus plans do not have nondiscrimination requirements
false
true or false?
dividends from employer stock in a stock bonus plan can be reinvested or distributed to the participants
true
how to calculate NUA?
FMV - basis
true or false?
for a lump sum distribution of employer stock, a participant has the ability to defer NUA on the employer securities
true
when a participant uses NUA treatment what value do they get taxed on at the time of distribution?
an amount equal to the value of the stock at the time of contribution to the plan
true or false?
shares of stock under a stock bonus plan do not have voting rights
false, they do
true or false?
plans that invest in employer securities have higher costs because of appraisals
true
true or false?
employer contributions to a stock bonus plan are tax deductible when made
true
true or false?
ESOPs and stock bonus plans are qualified defined contribution plans
true
when is an ESOP appropriate to use?
to provide a tax advantaged means for employees to acquire company stock at low costs to the employer
to provide an advantageous vehicle for the company to borrow money for business needs
when a company wants to broaden its ownership to help prevent a hostile takeover
Which of the following is an advantage of an ESOP:
- employees receive an ownership interest in the employer company that may provide a performance incentive
- a market is created for employer stock that helps improve liquidity for existing shareholders
- employees are not taxed until shares are distributed
- employer receives a deduction for contributions to the plan
- shareholder can obtain tax benefits by selling stock to the plan
all are advantages
the nonrecognition of gain treatment on the sale of stock by a shareholder to an ESOP occurs if the ESOP owns at least ___% of the stock, the owner holds the stock for at least ___ years before the sale, and qualified replacement property must be purchased within ___ year(s) after the sale or ___ months before the sale
30% , 3 years, 1 year, 3 months
true or false?
ESOPs can use social security integration
false
true or false?
ESOPs can decrease the value of existing shareholders’ stock
true
a qualified defined contribution plan with features that provide for an encourage after-tax employee contributions to the plan
thrift savings plan
true or false?
all 401k plans require employer contributions
false, not all of them do
401k accounts based on elective deferrals cannot be distributed before occurrence of one of the following_________
retirement death disability separation from service attainment of age 59.5 plan termination hardship
test that states the hardship withdrawal under a 401k plan must be due to an immediate and heavy financial need of the participant employer
financial needs test
test that states a participant using a hardship withdrawal must not have other financial sources sufficient to satisfy the need
resources test
true or false?
hardship withdrawals are taxable and could be subject to a 10% penalty
true
true or false?
401k withdrawals for the payment of unreimbursed medical expenses for employee, spouse, or dependents qualifies as a hardship withdrawal
true
true or false?
401k withdrawals used for the purchase of a primary residence as well as to repair casualty losses to a primary residence qualify as a hardship withdrawal
true
true or false?
payment for up to the next 12 months of higher education expenses for the participant, participant’s spouse, or dependent child qualifies for hardship withdrawals
true
true or false?
burial or funeral expenses qualify as a hardship withdrawal
true
true or false?
elective deferrals to a 401k are subject to FICA and FUTA taxes
true
true or false?
there is a tax credit available for elective contributions made to 401k’s, 403b’s, 457’s, etc
true, but depends on your AGI
if the ADP for nonhighly compensated employees is less than 2% what is the maximum ADP for highly compensated employees?
2 x ADP of NHC
if the ADP for nonhighly compensated employees is between 2% and 8% what is the maximum ADP for highly compensated employees?
2% + ADP of NHC
if the ADP for nonhighly compensated employees is greater than 8% what is the maximum ADP for highly compensated employees
1.25 x ADP of NHC
which test applies to employer matching contributions and/or employee after tax contributions?
ACP test
true or false?
to meet safe harbor requirements, the matching and qualified nonelective contributions must be 100% vested
true
what two options are available for a 401k plan if the plan fails the ADP test?
- a corrective distribution is made in the following tax year and will be included in the gross income of the HCE
- an additional contribution can be made for the NHCE and must be 100% vested
what two methods are available for a plan to avoid ADP and ACP testing?
- 100% match for first 3% of employee deferral then 50% for contributions between 3% and 5%
- 100% match up to 4% of compensation
true or false?
if a company offers a traditional and Roth 401k then they do not have to separately track the balances
false, they do
is the first time home buyer exception, which is applicable to Roth IRA’s, also applicable to Roth 401k’s?
no
are there RMD rules associated with a Roth 401k?
yes
under a traditional 401k plan, the option to delay RMD’s is not available to an owner who owns more than ___% of the company
5%
under a Roth 401k plan, the option to delay RMD’s is not available to an owner who owns more than ___% of the company
5%
true or false?
employer contributions to a Roth 401k are made with pretax dollars
true
true or false?
when you rollover a Roth 401k to a Roth IRA the employer contributions could be taxable if they also go into the Roth IRA
true
an age weighted money purchase pension plan that is also a hybrid between a defined contribution pension plan and a defined benefit pension plan
target benefit pension plan
who assumes the investment risk under a target benefit pension plan?
employee
how is a target benefit pension plan similar to a defined benefit pension plan?
the funding of each participant’s account is aimed at producing a target amount
how is a target benefit pension plan similar to a defined contribution pension plan?
the actual benefit to which the participant is entitled is the amount of the employee’s account at retirement
true or false?
older plan entrants are favored under an age based profit sharing plan
true
when are age weighted plans most appropriate?
when there are older employees whose retirement benefits would be inadequate under a traditional defined contribution plan because of the relatively few years remaining for participation in the plan
when employers want a plan with lower cost and simplicity
a closely held business or profession corporation has relatively large number of key employees who are ~ age 50 or older
true or false?
a target benefit pension plan is not subject to the minimum funding standards that apply to all other pensions
false, it is subject to minimum funding standards
true or false?
an age weighted profit sharing plan is not subject to the minimum funding requirements
true
is an actuary needed for target benefit pension plan? if so how often?
yes, but only when the plan is first implemented
is PBGC insurance available for target benefit pension plans?
no
are defined benefit pension plans safer or riskier than target benefit pension plans?
safer because of PBGC and employer guarantee benefit levels
true or false?
defined benefit pension plans allow for greater tax deductible employer contributions than a target benefit pension plan
true
true or false?
defined benefit pension plans are more complex and more costly to design then a target benefit pension plan
true
what is the automatic benefit a participant will receive unless waived from a target benefit pension plan?
a qualified joint and survivor annuity
can target benefit pension plans be integrated with social security?
yes
true or false?
a target benefit pension plan requires annual funding
true
true or false?
under a new comparability plan, contributions favor highly compensated employees
true
true or false?
under a new comparability plan, non highly compensated employees must receive certain minimum contribution levels
true
an employer sponsored retirement plan that covers one or more self-employed individuals
Keogh Plans
what must self employed individuals calculate their retirement plan contribution on?
net self employment income
not W-2 income
which of the following entities can open a self employed retirement plan (Keogh plan)?
- sole props
- partnerships
- LLPs
- LLCs taxed as a sole prop or partnership
- S corps
1, 2, 3, and 4
S corps do not have self employed owners and therefore do not have self employed retirement plans
Kim earns $70k of Schedule C income in the current year. What is her maximum contribution to her 25% profit sharing plan?
$70k - deductible self employment tax calculated (92.35% x $70k x 15.3% x 50%) $4,946 = $65,054 multiply by table factor .20 = $13,011
true or false?
under a SEP plan all contributions are made by the employer
true
true or false?
SEP plans require annual funding
false
true or false?
SEP plans are easier and less expensive to install and administer than a qualified profit sharing plan
true
what is the deadline to establish a SEP plan?
the tax deadline with extenstions
are employer contributions under a SEP plan always fully vested?
yes
can a SEP plan be integrated with social security?
yes
can a SARSEP plan be integrated with social security?
no
what entities can establish a SEP plan?
c corps s corps partnerships LLCs sole props
who bears the investment risk under a SEP plan?
employees
true or false?
a SEP plan alone is usually sufficient to meet an employee’s retirement needs
false
a SEP plan must cover all employees who are at least age ____ and who have worked for the employer during ____ of the preceding ___ calendar years
21 ; 3 ; 5
how is a target benefit pension plan funded?
employer contributions only
what are the two types of Traditional IRA’s?
- traditional retirement accounts
2. traditional retirement annuities
true or false?
there is an income tax credit for certain tax payers with respect to contributions to a traditional or Roth IRA
true
true or false?
loans are not permitted under an IRA
true
which types of IRA can be establish once an individual attains age 70.5?
- traditional IRA’s
- Rollover IRA’s
- Roth IRA’s
2 and 3
true or false?
when single taxpayers or both MFJ taxpayers are not active participants in a qualified plan, contributions to a Traditional IRA are fully deductible regardless of the taxpayer’s MAGI
true
What deduction is available under the following scenario?
married couple, Anne is an active participant in a qualified plan, John is not. they both make a $5,000 contribution to a traditional IRA. Their MAGI is $125k.
Anne is not allowed to deduct any of her contribution as their MAGI exceeds the top threshold of $119k
John can take a full deduction of $5,000 because he is not an active participant and he is under the MAGI threshold for a nonactive participant who makes a traditional IRA contribution
what deduction is available under the following scenario?
Steve participates in a 457 plan and his MAGI is $90k. He is a single tax payer. He contributes $5,500 to a Traditional IRA
Steve can take a full deduction for the $5,500
what plans are considered when determining if a taxpayer is an active participant in regards to deductible IRA contributions?
qualified retirement plans
403b
SEP plans
SIMPLEs
true or false?
if an employer makes a contribution to a defined contribution plan, then the taxpayer will be considered an active participant for deductible IRA purposes
true
what is the penalty for an excise contribution to a Roth IRA?
6%
true or false?
alimony received is included as earned income for Roth and Traditional IRA purposes
true
true or false?
MAGI includes income that is attributable to the conversion of a traditional IRA to a Roth IRA
false, it does not
true or false?
contributions to Roth IRA’s can be made after age 70.5, but contributions to Traditional IRA’s cannot be made after age 70.5
true
how to calculate the nontaxable portion of an IRA withdrawal when there is multiple IRA’s (traditional and ND)
(nondeductible contributions prior to current year + all contributions for current year) / (balances at end of current year + distributions received in current year) x total distributions during current year
when does the 5 year clock start in regards to Roth distributions?
January 1st of the taxable year the first contribution was made
example if a contribution is made on July 1, 2017 the clock starts on January 1, 2017
example if a contribution is made on Feb 1, 2017 and the contribution is for 2016 tax year then the clock starts on January 1, 2016
true or false?
a nonqualified Roth distribution for higher education expenses is taxable and subject to a 10% penalty
false, they are taxable but not subject to 10% penalty
true or false?
nonqualified Roth distributions for unreimbursed medical expenses are taxable and not subject to a 10% penalty
true
true or false?
nonqualified Roth distributions for medical insurance premiums while employed are not taxable and are not subject to the 10% penalty
false, they are taxable, but they are not subject to 10% penalty
true or false?
nonqualified Roth distributions used for substantially equal periodic payments are taxable and not subject to the 10% penalty
true
Barbara age 45 converted $20k to a Roth IRA in 2011 and $15,000 (in which she had a basis of $2,000) to a Roth IRA in 2013. No other contributions were made. In 2017 a $30k distribution that is not a qualified distribution is made to Barbara. What amounts are included in gross income from the two different sources?
none will be included in gross income because the amount is less than the total amount that was converted. But because $10,000 was converted within the last 5 taxable years Barbara will have to pay a 10% tax on $8,000. The $8,000 is the difference between the basis that was originally converted and the $10k that was distributed based on that conversion
a nonspouse beneficiary must begin distributions from an inherited Roth IRA account no later than ____ year after the year of death
one
what options do spouses have when they inherit a Roth IRA?
- treat it as their own and delay distributions as long as they want
- elect to be treated as a beneficiary and start taking distributions when the original owner would have been 70.5
stretches the period of tax deferred earnings of assets within an IRA beyond the lifetime of the person who established the IRA, typically over multiple generations
stretch IRA
true or false?
after an owner’s death, beneficiaries of an IRA are allowed to take distributions over their own life expectancies
true
true or false?
you cannot make a transfer to a HSA from a SEP IRA
true
true or false?
you cannot make a transfer to a HSA from a SIMPLE IRA
true
true or false?
you cannot make a transfer to a HSA from a Roth IRA
false
true or false?
you cannot make a transfer to a HSA from a Traditional IRA
false
true or false?
generally only one qualified HSA funding transfer/distribution is allowed during the lifetime of an individual
true
true or false?
selling property to an IRA is allowed
false
if an individual borrows money against an IRA annuity contract, what happens?
the individual must include in gross income the FMV of the annuity contract as of the first day of the tax year
___ include atrworks, rugs, antiques, metals, gems, stamps, coins, etc.
collectibles
true or false?
IRA’s can hold collectibles
false (besides for some gold coins, silver coins, platinum coins, and some bullion)
true or false?
if an individual’s IRA invests in collectibles the amount invested is considered distributed to the individual in the year invested
will the individual have to pay the 10% penalty if its a nonqualified distribution?
true
Yes
can life insurance be used as a funding vehicle for an IRA?
no
type of account targeted for low to middle income workers who may not have access to an employer sponsored retirement plan
myRA retirement account
under a myRA account, when a participant’s balance reaches $____ or after ___ years the account must be transferred to a regular Roth IRA
$15k ; 30 years
the myRA will earn interest at the same rate as ____
the government securities investment fund
true or false?
myRA accounts are Roth accounts
true
what does a SIMPLE plan stand for?
Savings incentive match plan for employees
employers with ____ or fewer employees who earned at least $____ during the preceding year and who do not maintain another another employer sponsored plan retirement plan may open a SIMPLE plan
100 ; $5,000
true or false?
a self employed person can open a SIMPLE plan
true
true or false?
employers can maintain a 457 plan and a SIMPLE plan
true
true or false?
employers can maintain a 401k plan and a SIMPLE plan
false
true or false?
employers can maintain a 403b or SEP plan and also a SIMPLE plan
false
true or false?
SIMPLE IRAs are not subject to nondiscrimination rules
true
true or false?
SIMPLE IRAs are not subject to top-heavy rules
true
true or false?
SIMPLE 401ks have to meet special ADP tests
false
true or false?
SIMPLE 401ks are subject to top heavy rules
false
SIMPLE IRAs allow employees to make elective contributions as a percentage of compensation up to $_____ for 2017
$12,500
what is the additional catch up amount for SIMPLE IRAs for 2017?
$3,000
true or false?
some taxpayers may be eligible for a tax credit for making elective contributions to a SIMPLE plan
true
what options do employers have in regards to making contributions to SIMPLE plans?
match dollar for dollar up to 3% of compensation
match 1% of comp for no more than 2 out of 5 years
make a 2% of compensation nonelective contribtuion
are all contributions to a SIMPLE plan immediately and fully vested?
yes
are after tax contributions allowed to SIMPLE plans?
no
how are contributions by an employee to a SIMPLE IRA treated?
excludable from gross income
subject to payroll taxes
tax deferred
can a SIMPLE plan purchase life insurance as a form of funding?
no
what is the contribution limit for SIMPLE 401ks?
$12,500 for 2017
what is the catch up contribution for SIMPLE 401ks if over 50?
$3,000
true or false?
employer contributions to a SIMPLE 401k are always 100% vested
true
true or false?
under a SIMPLE 401k an employer can reduce matching percentage below 3%
false
how are contributions by an employee to a SIMPLE 401ks treated?
tax deductible
subject to payroll taxes
excluded from gross income
SIMPLE IRA withdrawals made within two year of initial participation are subject to a ___% premature penalty tax, but after the 2 years the early withdrawal penalty reverts to ___%
25% ; 10%
a 403b plan is also know as a ___
TSA plan (tax sheltered annuity)
what types of organizations can use a 403b plan?
tax exempt organizations governmental organizations certain public/private schools and colleges hospitals churches
which of the following tests can a 403b plan meet to be an eligible plan?
ratio test
percentage test
average benefits test
all are acceptable, but only one needs to be met
is a 403b plan subject to non discrimination testing?
yes
does the ADP test apply to 403b plans?
no
does the ACP test apply to 403b plans?
yes
who bears the risk for investments inside a 403b plan?
individual participant
are individual stocks and bonds permitted inside a 403b plan?
no
under a 403b plan, are employee contributions subject to FICA and FUTA taxes?
yes
under a 403b plan, can earnings on employee contributions be distributed for hardship withdrawals?
no
are public 457 plans protected from the employer’s creditors?
yes
are private 457 plans protected from the employer’s creditors?
no
true or false?
you can rollover private 457 plans to a plan other than a 457 plan
false, private 457 plans can only be rolled over to other 457 plans
true or false?
all employees can participate in a private 457 plan
false, only key and highly compensated employees (unless it’s a church)
true or false?
all employees can participate in a public 457 plan
true
true or false?
you can rollover public 457 plans to a plan other than a 457 plan
true
if you are within 3 years of normal retirement age (under not over it) what happens to your 457 plan contribution limit?
it doubles
example if you are 64, then you can take the max for 2017 of $18k and double it, so you can contribute $36l
do all qualified pension plans provide a QSPA and a QJSA?
yes
states that once a participant is vested, the non participant spouse acquires the right to a preretirement survivor annuity payable to the spouse in the event that the participant dies before retirement
QPSA
qualified preretirement survivor annuity
a post retirement death benefit for the plan participant’s spouse
QJSA
qualified joint and survivor annuity
true or false?
most profit sharing plans, stock bonus plans, and 401k plans must provide for a QPSA and a QJSA
false
failure to elect a direct rollover will subject the distribution from a qualified plan to a mandatory ___% withholding for federal income taxes
20%
what is the automatic form of benefit under a defined benefit plan if the participant is married?
a joint and survivorship annuity
what is the automatic form of benefit under a defined benefit plan if the participant is single?
single life annuity
true or false?
money purchase pension plans must provide for a QPSA
true
true or false?
target benefit pension plans must provide for a QPSA
true
true or false?
403b plans/TSA’s have to provide for a QPSA
true
a plan participant born prior to January ___, ____ may be eligible to elect 10 year forward averaging for a qualifying lump-sum distribution
2, 1936
what is the potential benefit of 10 year forward averaging?
the taxpayer may avoid the distribution being taxed at higher income tax brackets
when using the 10 year forward averaging method, which years tax rates get applied?
1986
if a lump sum distribution received by a taxpayer who ceased participating in a qualified retirement plan before _____, the entire distribution will be eligible for ____% cap gains treatment
1974 ; 20%
true or false?
NUA will be treated as short term capital gains
false, long term
What is Brian’s NUA in the following example?
he received a lump sum distribution of stock equal to $1,000,000. The fmv of the stock contributed over the years was $250k.
NUA = $750k
he will be taxed on $250k as ordinary income this year but the $750k is treated as LTCG
his adjusted tax basis on the NUA portion will be $250k
Brian received a lump sum distribution of stock equal to $1million. The value of the stock contributed over the years totaled $250k. Brian dies with the value of the stock equal to $2million. What is the beneficiary’s adjusted tax basis?
$1,250,000
$2million - NUA
in general, a qualified plan benefit cannot be assigned or ____ by a participant, _____ or _____
alienated ; voluntarily ; involuntarily
a decree, order, or property settlement under state law relating to child support, alimony, or marital property rights that assigns part or all of a participant’s plan benefits to an alternate payee
QDRO
calculate the income tax consequences on the following scenario:
elaine age 40 withdrew the entire balance of her IRA which was $10k. Three years ago she opened the IRA with a nondeductible contribution of $2k, which represents the only contribution she made to the IRA.
her taxable distribution will be $8,000
(10k - 2k)
she will also have to pay 10% penalty equal to $800
what are the 3 methods of calculating substantially equal payments in relation to the early withdrawals from qualified plans?
- life expectancy method
- amortization method
- annuity method
substantially equal payments must continue for the greater of ___ years or until age ____
5 years ; 59.5
if over 55 and separated from service can you take a distribution from a qualified plan without an early withdrawal penalty?
yes
true or false?
within the first two years of opening a SIMPLE IRA, you can only roll it over to another SIMPLE IRA
true
true or false?
after the first two years of opening a SIMPLE IRA, you can roll it over to another qualified plan or IRA
true
distributions from a qualified plan or 403b plan not transferred directly to another qualified plan or IRA are subject to a mandatory ____ withholding requirement
20%
a participant’s qualifying lump sum distribution from an employer sponsored retirement plan may be rolled over to a SIMPLE IRA if the SIMPLE IRA has been in existence for ___ years
2 years
what 4 requirements must be met in order for a lump sum distribution from a qualified plan to be valid?
the entire amount is distributed
election must be made by participant or his/her estate
death, disability, 59.5, separation of service
for pre 1974 capital gain treatment election and the 10 year forward averaging election, the employee must have participated in the plan for at least 5 years
what is the penalty for not meeting RMD requirements?
50% excise tax to any shortfall amount
can a 5% or more owner delay their RMD’s in a qualified plan?
no
can you delay your RMD’s from a former employer if you are currently employed by another employer?
no, only current employer plans can be delayed for RMD purposes
Joe attained age 70.5 in March 2017. Joe will be 71 years old on December 31, 2017. What will his RMD be if his account balance on December 31, 2016 was $500k?
use the table for determining applicable divisor for minimum distributions
$500k / divisor for 71 year old
divisor for 71 year old = 26.5
rmd = $18,868
true or false?
if the participant’s designated beneficiary is the participant’s spouse and the spouse is more than 10 years younger than the participant, RMD’s will be calculated based on joint life expectancies
true
what are the options for RMDs if there is more than one beneficiary listed on an owner’s account who has passed away?
- take RMD’s over the shortest life expectancy
2. move appropriate balances to a new account for each bene and take distributions off their own life expectancy
if a charity is named the beneficiary of a qualified plan or IRA what are the payout options?
lump sum or distribution over 5 years
with this planning technique, the spouse will get an income stream for life without the drawbacks of leaving benefits to a nonqualifying trust
charitable remainder trust
what are the RMD options for a surviving spouse beneficiary if the owner dies before the required beginning date?
take distributions over their own life expectancy but starting at when the owner would have been 70.5
rollover to spousal IRA and start distributions when they (themselves) turn 70.5 - can only be made if the spouse is the sole bene
can distribute the whole account within 5 years of owner’s death
what are the RMD options for a non spouse beneficiary if the owner dies before the required beginning date?
distribution period is the remaining life expectancy of the designated bene (life expectancy is calculated using the age of bene in the year following the year of the owner’s death reduced by one for each subsequent year)
lump sum or installments that end before end of 5th year
what are the RMD options if there is no beneficiary listed if the owner dies before the required beginning date?
the account must be fully distributed as a single lump sum or in installments but fully distributed within first 5 years
what are the RMD options for a surviving spouse beneficiary if the owner dies after the required beginning date?
take distributions over their own life expectancy beginning in the year following the year of death
rollover to spousal IRA and start distributions when they (themselves) turn 70.5 - can only be made if the spouse is the sole bene
what are the RMD options for a non spouse beneficiary if the owner dies after the required beginning date?
the distribution must be distributed at least as rapidly as the remaining life expectancy of the designated bene(life expectancy is calculated using the age of bene in the year following the year of the owner’s death reduced by one for each subsequent year)
singe lump sum distribution
what are the RMD options if there is no beneficiary listed if the owner dies after the required beginning date?
single lump sum
distributions must continue at least as rapidly as over the remaining distribution period of the deceased owner (reduced by one each year)
assume Brewster is the majority shareholder of a closely held corporation with the following employee info:
Brewster age 30 earns $180k
Jack age 30 earns $30k
Patty age 35 earns $20k
John age 30 earns $20k
what type of retirement plan would you recommend to Brewster to provide himself with the maximum annual benefit?
A) SEP Plan B) 401k Plan C) Combo of 401k plan and profit sharing plan D) age based profit sharing plan E) Defined Benefit plan
What if he was age 55?
C
if he was age 55 then an age based profit sharing plan or defined benefit plan would make sense (age based profit sharing plan first though)
assume Brewster and Jack are equal shareholder of a small corporation with the following employee info:
Brewster age 55 earns $280k
Jack age 30 earns $245k
Patty age 35 earns $20k
John age 30 earns $20k
What plan would provide Brewster and Jack with the greatest amount of benefits?
A) Age weighted plan
B) SEP
C) SIMPLE
D) Profit sharing plan
D
a profit sharing plan is appropriate because Jack is younger than Brewster therefore an age weighted plan would provide more benefits to Brewster than Jack
Which of the following plans would be inappropriate for a corporation with the following objectives:
attract and retain employees
allow the employer to make all initial contributions using company stock
allow integration with social security
1) stock bonus plan
2) ESOP
3) profit sharing plan
4) SEP
5) SIMPLE
2, 4, and 5
ESOPs can’t be integrated with SSI
SEP plans require cash contributions
SIMPLE plans require cash contributions
which of the following plans would be inappropriate for the following objectives:
allow employees to save for their retirement (self reliance)
allow the employees to borrow from the plan in case of hardship
allow the employees to withdraw funds from the plan while still with the company
allow for some flexibility in emlpoyer contributions
1) 401k plan
2) SEP plan
3) pension plan
4) SIMPLE
2, 3, and 4
SEP plans don’t allow for loans
SIMPLE plans don’t allow for loans
pension plans don’t allow loans or in service withdrawals and are usually all employer funded
income derived from any trade or business that is regularly carried on (and not related to) a retirement plan’s tax exempt purpose
unrelated business taxable income (UBTI)
UBTI usually arises from _____ acquired with ____ funds
property ; borrowed
what is an example of UBTI?
any security purchased on margin by the trust of a qualified plan
true or false?
generally, the UBTI of a retirement plan is subject to income tax
true
can life insurance be provided through a qualified plan or 403b plan?
yes
true or false?
the cost of life insurance in a qualified plan is deductible for self employed individuals
false, it is not deductible
which of the following are allowed to hold life insurance?
- traditional IRA
- Roth IRA
- SIMPLE IRA
- SEP plans
- SARSEP plans
none of these can hold life insurance
under this test, the aggregate premiums paid for life insurance cannot exceed a certain percentage of the employer contributions to the plan
percentage test
no more than ___% of the employer contributions can be used to purchase whole life insurance
50%
no more than ___% of the employer contributions can be used to purchase term/universal life insurance
25%
for defined benefit plans, the life insurance death benefit cannot exceed ____ times the monthly benefit for the employee ; for example if the monthly benefit is $2,000 no more than $_____ of death benefit can be provided by life insurance
100 times ; $200k
true or false?
a participant in a qualified plan must include in gross income for federal income tax purposes each year the pure protection cost of life insurance provided in a qualified plan
true
does a decedent employee have to include in his/her estate the value of the life insurance that was inside a qualified plan?
yes
true or false?
non dividend paying stock is appropriate to hold in a tax advantaged account
false, if stock was held in a taxable account, the tax at sale would be based on favorable capital gains rates
true or false?
zero coupon bonds are an appropriate investment for tax advantaged accounts
true
true or false?
limited partnership interests are an appropriate investment for tax advantaged accounts
true
true or false?
income from other flow through entities is an appropriate investment for tax advantaged account
true
section 403b plans can only invest in _____ and ____
mutual funds and annuities
allows participants to allocate the lesser of 25% or $125k in their account to the purchase of a deferred annuity from which payments begin at an older age
longevity annuity
are the funds allocated to a longevity annuity included in RMD calculations?
no
Karen is a CFP professional. She became her firm’s leading retirement planning specialist a number of years ago. On a fee basis, Karen provides retirement planning services to individual clients and qualified plan design services to corporate clients. She no longer sells investment products on a commission basis, but rather refers her clients to colleagues to handle any investment product needs. In appreciation of Karen’s success in generating fee-based revenue for the firm, she is entitled to receive a bonus at year’s end. Which of the following statements regarding the CFP board standards of professional conduct is correct?
A) Karen’s compensation structure allows her to be considered a fee only planner
B) because Karen is not guaranteed a bonus, she need not disclose bonus compensation to clients and prospective clients
C) if Karen chooses to forego her bonus, she remains eligible to be considered a fee only planner
D) Karen is not eligible to represent herself as a fee only planner to clients
D
under the CFP Board Standards of Professional Conduct, compensation is defined as any non trivial economic benefit, whether monetary or non monetary, that a certificant or related party receives or is entitled to receive for providing professional activities
also a certificant may describe his or her practice as fee only if, and only if, all of the certificant’s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage, or performance based fees
what is the largest source of retirement income for the majority of Americans?
social security
social security benefits are indexed annually on the basis of the ____
CPI
the Medicare portion of social security offers health care expense protection to persons age ___ and over and persons who qualify as ____ under social security and have received benefit for ____ years
65 ; disabled ; 2
to be fully insured under social security you need ___ credits, which is about ___ working years
40 ; 10
to be currently insured you need ____ credits during the ____ quarter period ending with the quarter of death
6 ; 13
to be fully insured for disability social security you must have ___ credits in the last ____ quarters before disability
20 ; 40
if the worker is between 24 and 30 years old, he/she must have credits of coverage for ____ of the quarters since age 21 to qualify for social security disability
half
if the worker is under 24, he/she must have ___ credits out of the last ___ quarters to qualify for social security disability
6 ; 12
in 2017 a credit of coverage under social security is given for each full $____ in annual earnings on which social security tax is paid
$1,300
true or false?
railroad workers subject to the railroad retirement act are covered under social security
false
the OASDI program is financed through a portion of ___ payroll tax of ___% paid by the employer and ___% paid by the employee
FICA ; 7.65% ; 7.65%
true or false?
the .9% additional medicare tax is not deductible on the taxpayer’s income tax return
true
income subject to the 6.2% OASDI tax portion of the FICA payroll tax is capped at $_____ for 2017
$127,200
the benefit a person receives by electing to receive retirement benefits at the normal or full retirement age
primary insurance amount (PIA)
PIA is determined based on the workers ___
AIME
how much do social security benefits get reduced if you collect before FRA?
5/9 of 1% for each month before FRA
if benefits are received more than 36 months before FRA there is a reduction of benefits of ___ of 1% for each month beyond 36 month
5/12
the maximum reduction of benefits is ___% for an individual who has a FRA of 67 and ___% for an individual who has a FRA of 65
30% ; 20%
a divorced spouse who is ___ or older may collect “old age” divorced spousal benefits if he/she were married to the earner for ____ years
62 ; 10
unmarried children under age ___, under age ___ if still in HS, or any age if disabled before age ____ and are dependents of the earner are considered eligible for “old age” social security benefits
18 ; 19 ; 22
true or false?
self employed retirees who work more than 45 hours a month are considered retired for social security purposes
false
true or false?
self employed retirees who work less than 15 hours a month are considered retired for social security purposes
true
unmarried children under age ___ or ___ if still in HS can receive survivor SSI benefits
18 ; 19
dependent parents ___ or over are eligible for survivor benefits
62
surviving spouse age ___ or older are eligible for survivor benefits
60
disabled widow(er) age ____ to ___ are eligible for survivor benefits
50 ; 60
the waiting period for social security disability is ___ months
5
what is social security’s definition of disability?
expected to last 12 months or result in death
___% of social security benefits are taxable if MFJ and provisional income is over $32,000 or if single over $25,000
50%
___% of social security benefits are taxable if MFJ and provisional income is over $44,000 or if single over $34,000
85%
