CH 6 - SEPs, SIMPLEs, & 403(b) Plans Flashcards
What is annual contribution limit for a Simplified Employee Pension (SEP) and 403(b) plan related?
$54K
What are the THREE features of a SEP?
- Employers can make discretionary contributions
- 25% maximum deductible contribution
- distributions/withdrawals allowed anytime
What THREE features make a Simplified Employee Pension (SEP) different than a profit-sharing plan?
- SEPs require 100% vesting and profit-sharing uses cliffing (3 cliff and 6 years)
- funded with IRA
- Allocation formula must be leveled and not skewed to older employees unless you’re using an integration with Social Security
Is the administration of a SEP simple or complex?
simple
What are the eligibility requirements for a SEP and SIMPLE?
SEP:
Must be 21 years old in the following calendar year or have 3 years of service in last five years with $600 in earnings
SIMPLE:
must cover those who earned $5K in two prior years
SEPs do not allow salary deferrals unless…
you have a grandfathered SARSEP.
What is the maximum number of employees required to have a SIMPLE?
100 or fewer
What makes a SIMPLE unique compared to the other plans?
You CANNOT hold any other tax-advantage plan.
What are the deferred limits for a SIMPLE and how does it compare to a 401K?
SIMPLE: $12,500 with a $3K catch-up
401Ks: $18,000 with a $6K catch-up (same as 403(b))
SIMPLEs and SEPs are funded with IRAs. Just like SEPs, SIMPLEs have… (3)
- 100% vesting
- NO loans
- distributions allowed anytime
What are the TWO employer contribution requirements for SIMPLE plans?
- 2% contribution for all eligible employees OR
- 100% (dollar for dollar) match on first 3% deferral (reduce to 1% two of five years)
403(b) plans are funded with ______ and _____.
annuities
and
mutual funds
What makes 403(b) plans more unique in comparison to other tax-advantage plans? (2)
- Only established by public schools
- Can’t cover independent contractors (eg - some doctors at hospitals)
403(b) plans must allow ________ to make salary deferrals.
ALL full-time employees (20 hours a week)
What are the FOUR key features to a 403(b) plan?
- employer match and/or nonelective contribution
- can allow Roth elections
- discretionary loans
- 25% maximum deduction