CH 6 - SEPs, SIMPLEs, & 403(b) Plans Flashcards

1
Q

What is annual contribution limit for a Simplified Employee Pension (SEP) and 403(b) plan related?

A

$54K

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2
Q

What are the THREE features of a SEP?

A
  • Employers can make discretionary contributions
  • 25% maximum deductible contribution
  • distributions/withdrawals allowed anytime
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3
Q

What THREE features make a Simplified Employee Pension (SEP) different than a profit-sharing plan?

A
  • 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
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4
Q

Is the administration of a SEP simple or complex?

A

simple

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5
Q

What are the eligibility requirements for a SEP and SIMPLE?

A

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

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6
Q

SEPs do not allow salary deferrals unless…

A

you have a grandfathered SARSEP.

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7
Q

What is the maximum number of employees required to have a SIMPLE?

A

100 or fewer

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8
Q

What makes a SIMPLE unique compared to the other plans?

A

You CANNOT hold any other tax-advantage plan.

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9
Q

What are the deferred limits for a SIMPLE and how does it compare to a 401K?

A

SIMPLE: $12,500 with a $3K catch-up

401Ks: $18,000 with a $6K catch-up (same as 403(b))

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10
Q

SIMPLEs and SEPs are funded with IRAs. Just like SEPs, SIMPLEs have… (3)

A
  • 100% vesting
  • NO loans
  • distributions allowed anytime
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11
Q

What are the TWO employer contribution requirements for SIMPLE plans?

A
  • 2% contribution for all eligible employees OR
  • 100% (dollar for dollar) match on first 3% deferral (reduce to 1% two of five years)
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12
Q

403(b) plans are funded with ______ and _____.

A

annuities

and

mutual funds

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13
Q

What makes 403(b) plans more unique in comparison to other tax-advantage plans? (2)

A
  • Only established by public schools
  • Can’t cover independent contractors (eg - some doctors at hospitals)
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14
Q

403(b) plans must allow ________ to make salary deferrals.

A

ALL full-time employees (20 hours a week)

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15
Q

What are the FOUR key features to a 403(b) plan?

A
  • employer match and/or nonelective contribution
  • can allow Roth elections
  • discretionary loans
  • 25% maximum deduction
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16
Q

What are the TWO most important 403(b) ERISA requirements?

A
  1. must have a formal plan document if not covered under ERISA
  2. matching contributions subject to ACP