Chapter 18 Flashcards
Settlor functions
Fiduciary functions
ERISA defines fiduciary not in terms of formal title but rather in functional terms of control and authority over the plan.
- exercises any discretionary authority or control over the management of a plan or over the management or disposition of plan assets;
- renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of such plan;
- or has any discretionary authority or discretionary responsibility in the administration of such plan including appointing other plan fiduciaries or selecting and monitoring third-party service providers.
Settlor functions. The most common settlor functions are design decisions involving:
- establishment of the plan,
- defining who are the covered employees and benefits to be provided, = amending or terminating the plan.
A special rule under Section 529 allows the donor to
front-end load contributions and avoid paying gift taxes. Five years’ worth may be used under this method (5 × $17,000 = $85,000).
If he remarries, his wife may also consent to gift split, thereby doubling this amount to $170,000. Please note: The annual exclusion was increased to $17,000 effective January 1, 2023
18k for 2024
A nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees is called
A supplemental executive retirement plan (SERP) is a nonqualified plan
Section 404(c) is the fact that the plan must
offer a selection of at least three investment choices with materially different risk and return characteristics.
A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA,
they are taxed on a pro rata basis
The portion of the distribution that is nontaxable must be prorated with amounts that are taxable. For instance, if the individual contributed $2,000 in after-tax amounts and $8,000 in pre-tax amounts, a distribution of $5,000 would be prorated to include $1,000 after-tax and $4,000 in pre-tax assets.
One worker spousal rule can open
Each can open an IRA account with max contribution limits
Which of the following assets will have the greatest effect on minimizing financial assistance when an individual is applying to college and using the FAFSA application?
UTMA
IRS does not consider the following as income for IRA
capital gains, interest received, child support, passive from DPP, pension or annuity income,
50 years or older you can make, and from who
catch up contributions at 1k - because of EGTRRA
IRA contributions & excess contributions
Jan 1 - April 15 of the following year EVEN if you get an extension, deadline to contribute is still April 15
6% penalty tax
ROTH IRA
To withdraw
- after 5 years of opening the account
- first time residence house
- died or become disabled
Income limits around 140k, married close to 200k
no RMD
IRA investments
Prohibited: Collectibles, antiques, life insurance, municipal bond ok but not normal, no short sales, trading on margin, or any speculative strategy.
Property is OK but cannot have benefit, must be for the future, and no associated persons can benefit.
OK:
SEP IRA
Funded by the employer, SMB and self employed to create pensions, QUALIFIED PLAN,
eligibility: 21, worked 3 of 5 years, $650+ income from employer in same year
contribution: max 25% of salary up to 58k per year
no catch up provision & fully vested immediately
Employer contributions are tax deductible to employer
1 per year for IRA
transfers
IRA non spouse beneficiary
Take the cash now: 100% taxed as income
10 year rule, 10 years from the Dec 31st
Exceptions
- spousal transfer surviving from death
- disabled invidivudal
- chronically ill
- individual who is not more than 10 years younger than deceased
- minor child, 10 year rules applies once age of majority
If beneficiary does nothing by Dec 31st auto enroll in 10-year
