CFP Retirement Flashcards
SEP Contributions
Up to 25% of covered compensation; max of $61,000
SIMPLE Contributions EE
$14,000 (3,000 catch up age 50+)
SIMPLE Contributions ER
Match 100% for first 3% contributed (can go as low as 1% in 2 of 5 years) OR contribute 2% flat for all eligible employees
SEP ER
Employer can decide whether to make contributions year-to-year
SIMPLA ER
Must match or contribute 2% of each eligible employee’s compensation
SEP Coverage
All employees at least 21, employed last 3 of 5 years & $650 of compensation
SIMPLE Coverage
All employees with $5,000 compensation in any prior 2 years and expected to earn $5,000 in current year
SEP Contributions
ER contributions only
SIMPLE Contributions
EE salary reduction and ER contributions
SEP deadline
can be established and funded up to the due date of employer’s tax return including extensions
SEP eligibility
any employer with one or more employees
SIMPLE eligibility
any employer with 100 or fewer employees
SEP loans?
no
SIMPLE loans?
no
SIMPLE penalty
25% in first 2 years
Section 83(b) Election for Restricted Stock
allows the recipient of a grant of restricted stock to pay taxes at the time of grant as opposed to the time of vesting (basis established at time of tax)
Restricted stock
taxed as compensation income to the recipient based on the value of the stock when it vests
Qualified Plan Nondiscrimination testing
cannot discriminate against non-highly compensated employees…
Must pass either Safe Harbor Test; Ratio Percentage Test; or Average Benefits Test
Safe Harbor Test
Plan must cover at least 70% of the non-highly compensated employees
Ratio Percentage Test
Plan must cover a percentage of non-highly compensated employees equal to at least 70% of the percentage of highly compensated employees covered
Average Benefits Test
The percentage of benefits received by non-highly compensated employees must equal at least 70% of the percentage of benefits received by highly compensated employees
Qualified Plan Social Security Integration
Provides additional contribution/benefit for income above the integration level (SS wage base)
- Excess Integration or Offset Integration
Excess Integration (Qual Plan w/ SS)
DC Plans or DB Plans
Base contribution rate made for all plan participants up to integration level; additional contribution rate is applied to compensation ABOVE the integration level (up to $305k comp limit)
Either double the base or base + 5.7% (lesser of)
Offset Integration (Qual Plan w/ SS)
DB Plan ONLY
Fixed amount or a formula amount reduces the plan formula to represent the existence of SS retirement benefits
Highest integration formula for qualified plans w/ SS integration
26.25% (3/4th of 1% for 35 years)
Solo 401(k)
Traditional 401(k) plan covering a business owner with no employees, or that person and their spouse
Same rules as any other 401(k)
EE deferral: 100% covered comp or $20,500 ($6,500 catch up)
ER NONELECTIVE contribution: 25% of covered comp; SE must adjust compensation
TOTAL cannot exceed $61,000
Top-Heavy Qualified Plans
When plan provides more than 60% of the aggregate accrued benefits (DB) or 60% of the aggregate account balances to key employees (DC)
Key Employees
Officers with earnings more than $200k
Owners more than 5%
Owners earning more than $150k that are more than 1% owners
What happens to a top-heavy qualified plan?
Must use accelerated vesting
For non-key employees…
DB: 2% of compensation x years of service (up to 10)
DC: 3% of covered compensation
