EA Part 2-Passkey 19 Retirement Plans

Question 1

In order to deduct their own retirement contributions on Sch C or Sch F or from a partnership, self-employed must have a __

Answer 1

net profit. They take deduction on Form 1040.

Question 2

A Simplified Employee Pension (SEP) is simplest/least expensive method for employers to make contributions for themselves & their employees. SEP may be established __

Answer 2

as late as the due date, including extension, of company’s inc. tax return. No “plan document” required, just a formal written agreement to provide benefits to all eligible employees.

Question 3

IRS Form 5305-SEP is used to __

Answer 3

setup a SEP and eliminate the need to file annual info forms with IRS.

Question 4

Under a SEP, employers make contributions to an Individual Retirement Arrangement (SEP-IRA), which must be set up for each eligible employee and. It is owned and controlled by __

Answer 4

the employee, and the employer makes contributions to the financial institution where SEP-IRA is maintained. SEP-IRAs are funded exclusively by employer.

Question 5

A SEP cannot discriminate in favor of HCEs, but is for all eligible employees who:
(note: employer can set less restrictive requirements)

Answer 5

*age 21
*have worked in a least 3 of last 5 years for employer
*have received in least $550 compensation in 2012
Can exclude:
*employees covered by a union agreement
*nonresident aliens with no U.S. source inc. from employer

Question 6

If an employee withdraws money from a SEP-IRA before age __

Answer 6

59 1/2, a 10% additional tax generally applies.

Question 7

Participant in SEP-IRA must being receiving required minimum distributions by April 1 following year the participant reaches age 70 1/2.

Answer 7

However, unlike a traditional IRA, contributions can be made to participants over age 70 1/2.

Question 8

Employer must contribute cash to a SEP, and for all participants who had qualified compensation, including __

Answer 8

employees who die or terminate employment before the contributions are made.

Question 9

SEP limits in 2012 for an employee:

Answer 9

Contributions cannot exceed the lesser of 25% of the employee’s compensation or $50,000.

Question 10

SEP limits in 2012 for self-employed individual:

Answer 10

contributions cannot exceed the lesser of 20% of net self-emp. inc., after considering both the deduction for self-emp. tax & deduction for the SEP-IRA contribution, or $50,000.

Question 11

SIMPLE plan (Savings Incentive Match Plan for Employees)

Answer 11

can be established by business with
100 or < employees who received
$5,000 or more in comp. during preceding year.

Question 12

SIMPLE plans can be structured in one of two ways:

Answer 12

• using SIMPLE IRAs or as a part of a

* 401(k) plan (SIMPLE 401(k)

Question 13

SIMPLE IRA must be set up for each eligible employee, who is one who received __

Answer 13

at least $5,000 in comp. during any 2 years preceding and reasonably expected to receive at least $5,000 in current year.
Exceptions: employees covered by union agreement or nonresident aliens who rec’d no U.S. source inc. from employer

Question 14

SIMPLE IRA limits

Answer 14

$11,500 Employees 50 ($14,000 total)

Question 15

SIMPLE IRA employer contributions can be dollar-for-dollar:

Answer 15

3% of participant’s comp., but employer can elect to make matching contributions at less than 3% but not lower than 1% for no more than 2 years within a 5-year period.

Question 16

SIMPLE IRA employer contributions can be nonelective contributions of 2% of each eligible employee’s comp.

Answer 16

Comp. limited to $250,000.
Contributions are 100% vested.
If employee doesn’t contribute, employer doesn’t match or contribute.

Question 17

Early distributions from SIMPLE – before age 59 1/2 – means __

Answer 17

a penalty tax of 10%.

If withdrawal occurs within 2 years of starting in plan, tax is 25%.

Question 18

SIMPLE 401(k) plans must file Form 5500 annually and participants are fully vested.

Answer 18

• plan may offer optional participant loans and hardship withdrawals
• no other retirement plans can be maintained

Question 19

Qualified retirement plans (defined contribution & defined benefit) are subject to federal regulation under ERISA, the __

Answer 19

Employee Retirement Income Security Act.

Question 20

Form 5500 Annual Return/Report of Employee Benefit Plan must be filed ___

Answer 20

by the last day of the 7th month after the plan year ends.

Question 21

Traditional 401(k) Plan: a defined contribution plan that allows employees to defer __

Answer 21

receiving a portion of their salary, generally on a pretax basis. Pretax deferrals are not subject to inc. tax w/h and not included in taxable wages on W-2. However, they are subject to Soc. Sec., Medicare and federal unemployment taxes.

Question 22

A prohibited transaction is a transaction between a plan and a disqualified person, which may include:

Answer 22

• fiduciary of the plan
• any person providing services to the plan
• an employer who employees are covered by the plan
• an indirect or direct owner of 50% or more of business
• a member of the family of anyone above
• an officer, director, 10% or more SH, or HCE of entity administering the plan.

Question 23

An initial __% tax is applied on the amount involved in a prohibited transaction for each year, and if not corrected, an additional tax of __% is imposed.

Answer 23

15%
100%
Payable by any disqualified person who takes part in a prohibited transaction.

Question 24

The penalty for not taking RMDs (required minimum distributions:

Answer 24

50%

Question 25

The annual benefit for a participant in a defined benefit plan cannot exceed the lesser of __

Answer 25

$200,000 or 100% of the ave. comp. for his highest 3 consecutive calendar years.

Question 26

A combined limit of $__ applies to each employee’s elective deferrals and salary reduction contribution, other than catch-up contributions, to all __

Answer 26

$17,000

__defined contribution retirement plans and any SIMPLE IRA plan under which he is covered.

Question 27

Catch-up contributions are limited to $__ for each participant in a SIMPLE plan and $__ for each participant in other defined contribution plans.

Answer 27

$2,500

$5,500

Question 28

Annual contributions to the account of a participant in a defined contribution plan cannot exceed the lesser of $__ or __

Answer 28

$50,000 or 100% of the participant’s compensation.

Question 29

An employer’s deduction for contributions to a defined contribution plan cannot be more than __%

Answer 29

25% of the compensation paid or accrued during the year for eligible employees.
$250,000 is max comp. that can be considered by each employee.

Question 30

Employers may be able to claim a tax credit equal to __% of the cost to set up and administer the plan, up to a maximum of $___ per year for __

Answer 30

50% of cost
$500 per year
for each of the first 3 years of the plan

Question 31

To claim a pension start-up credit, employer must have had __ or fewer employees who received at least __

Answer 31

100 or few employees

$5,000 in comp. for preceding year.

Question 32

Retirement Savings Contributions Credit for individuals, including self-employed, is:

Answer 32

10% to 50% of eligible contributions, up to
$1,000 ($2,000 for MFJ).
It is subject to specified limits on AGI.

Question 33

SEP cannot be a Roth IRA, and

Answer 33

contributions will not affect the amount individual can contribute to a Roth or Trad IRA.