Lesson 1 of Retirement Planning: Introduction to Qualified Plan Flashcards
Qualified Plan Overview!
Introduction
Pension Plans vs. Profit Sharing Plans
Defined Benefit vs Defined Contribution Plans
Advantages of Qualified Plans
Qualification Requirements
Controlled Groups
Affiliated Service Groups
Introduction
Each retirement plan has unique benefits and characteristics, but if the plan is to be qualified plan, it must follow a standard set of rules and retirements to attain “qualified” status under Internal Revenue Code (IRC) Section 401 (a).
Qualified Plans consist of pension plans and profit sharing plans, not just 401 (k) plans. They are further categorized as either defined benefit and defined contribution qualiifed plans.
Different Plans Chart
How Many Plans?
Pension Plans:
Profit Sharing Plans:
Defined Benefit Pension Plans:
Defined Contribution Pension Plans:
Defined Contribution Profit Sharing Plans:
Pension Plans: 4 Types
Profit Sharing Plans: 7 Types
Defined Benefit Pension Plans: 2 Types
Defined Contribution Pension Plans: 2 Types
Defined Contribution Profit Sharing Plans: All 7
If It’s a Pension Plan and Defined Benefit Pension Plan?
Defined Benefit Pension Plan
Cash Balance Pension Plans
If It’s a Pension Plan and Defined Contribution Pension Plans?
Money Purchase Pension Plan
Target Benefit Pension Plans
If its Profit Sharing Plans and Defined Contribution Profit Sharing Plans
Profit Sharing Plans
Stock Bonus Plans
Employee Stock Ownership Plans
401 (k) Plans
Thrift Plans
New Comparability Plans
Age-Based Profit Sharing Plans
Exam Tip
You will need to know the chart above AND the charts for pension vs profit sharing plans AND defined benefit vs defined contribution to answer the assorted “pick-a-plan” questions.
Exam Question
Which of the following is not a qualified retirement plan?
a) ESOP
b) 401 (k) plan
c) 403 (b) plan
d) target benefit plan
Answer: C
A 403 (b) plan is a tax-adventaged plan, not a qualified plan. All of the others are qualified plans.
Exam Question
Which of the following is an example of a qualified retirement plan?
a) Rabbi trust
b) 401(k) plan
c) Nonqualified stock option plan
d) ESPP
Answer: B
A 401 (k) plan is a qualified plan. All of the others are not qualified retirement plans.
Pension Plans vs Profit Sharing Plans
A pension plan is a qualified retirement plan that pays a benefit, usually determined by a formula, to a plan participant for the participant’s entire life.
Under profit sharing plans, plan participates usually become responsible for the management of the plan’s assets (investment decisions) and sometimes even responsible for personal contributions to the plan (contributory plans).They are a qualified retirement plan too.
The following chart contrasts the differences between pension and profit sharing plans.
Both type of plans are qualified retirement plans,
Exam Tip
Know the difference between pension plans and profit sharing plan.
Pension & Profit Sharing Chart
Characteristic:
- Legal promise of the plan
- Are in-subject withdrawals permitted?
- Is the plan subject to to madatory funding standards?
- Percent of plan assets available to be invested in employer securities
- Must the plan provide qualified joint and survivor annuity and a qualified persurvivor annuity?
Defined Benefit vs Defined Contribution Plans
All defined benefit plans are pension plans, but defined contribution plans can either be pension plans or profit sharing plans.
Pension Plans can either be defined benefit or defined contibution, while all profit sharing plans are defined contribution plans.
The following chart compares the characteristics of defined benefit and defined contribution plans.
Exam Tip
Know the differences between defined benefit vs defined contribution plans.
Defined Benefit and Defined Contribution Plans Chart
Characterisitcs:
- What is the Annual Contribution Limit
- Who assumes the investment risk?
- How are forfeitures allocated?
- Is the plan subject to Pension Benefit Guaranty Cooporation (PBGC) coverage?
- Does the plan have seperate investment accounts?
- Can credit be given for prior service for the purpose of benefits?
Exam Question
a) The plan specifies the benefit an employee receives at retirement.
b) The law specifies the maximum allowable benefit payable from the plan is equal to the
lesser of 100% of salary or $265,000 (2023) per year currently.
c) The plan has less predictable costs as compared to defined contribution plans.
d) The plan assigns the risk of pre-retirement inflation, investment performance, and ade-
quacy of retirement income to the employee.
Answer: D
Option D describes characteristics of a defined contribution plan. Defined benefit plans assign
the risk of pre-retirement inflation, investment performance, and adequacy of retirement income to the employer, not the employee.
Advantages of Qualified Plans
“Qualified plans” under Section 401 (a), provide employers with: (1) current income tax deductions and (2) payroll tax savings. They provide plan participants with (1) income tax deferrals, (2) payroll tax savings and (3)
federally provided creditor asset protection.
Tne trade off for the tax advantages of qualified plans are the cost of the plan (both the operational expenses and contributions) and compliance, including vesting, funding, eligiblity, nondiscrimination testing, IRS reporting, and employee disclosure.
Income Tax
Payroll Taxes
ERISA Protection
Income Tax
Employers receive a current income tax deduction for contributions made to plans; they are an ordinary and necessary cost of business.
Employers are limited to a maximum of 25 percent (or as actuarially determined for defined benefit plans) of the total of covered compensation paid to its employees as a contribution to a qualified plan.
Employees are not currently taxed on the related plan contribution; employees will be taxed when the funds are distributed from the plan.
This tax structure is an exception to the “normal”
matching principle that allows the employer a
deduction only when the employee has income.
Payroll Taxes
In addition to income taxes, an employee’s wages are subject to payroll taxes equal to 6.2 percent for Old Age Survivor and Disability Insurance (OASDI) on their compensation up to $160,200 for 2023 and 1.45 percent for Medicare tax on 100 percent of the employee’s compensation.
The employer is required to match any payroll taxes paid by the employee, creating a combined total payroll tax of 12.4 percent for OASDI up to $160,200 and 2.9 percent for Medicare (100 percent of compensation).
However, employers and employees are exempt from payroll taxes on employer contributions to a qualified retirement plan, providing up to a 15.3 percent (12.4 percent OASDI and 2.9 percent Medicare tax) savings on taxes for employer contributions into a qualified plan.
An individual is liable for Additional Medicare Tax of 0.9% if the individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed thethreshold amount (which is not indexed) for the individual’s filing status:
- Married filing jointly $250,000
- Married filing separate $125,000
- Single $200,000
- Head of household (with qualifying person) $200,000
- Qualifying widower) with dependent child $200,000
This payroll tax exclusion does not apply to employee elective deferrals to retirement plans such as 401(k), 403(b), SIMPLEs, SARSEPs, and 457 plans.
Tax deferred funds will be taxable when distributed from the qualified retirement plan; at that point the recipient of the distribution will have taxable income. But, the distributions will not be subjected to any payroll taxes.
Example of Payroll Taxes
If Wine Seller paid its two employees $50,000 each in wages and did not contribute to a qualified profit sharing plan for the year, Wine Seller would incur payroll taxes relating to the wages of $7,650 (S100.000 x 7.65%). Wine Seller’s employees would have also incurred payroll taxes of $7,650 for total pavroll taxes of $15,300.
In comparison,
- If Wine Seller would have paid its 2 employees $45,000 each in wages and contributed $5,000 to a qualified profit sharing plan for each employee, Wine Seller would incur total payroll taxes relating to the wages and profit sharing plan contribution of $6.885 ($90 000 x 7.65%).
- In this case, Wine Seller’s employees would also only incur $6,885 of pavroll taxes for a total of $13,770 of payroll taxes. The combined payroll tax savings would be $1,530 ($15,300-$13,770); however, Wine Seller’s employees received total payments for services rendered equal to $50,000, $45,000 as cash compensation and $5,000 in contributions to a qualified profit sharing plan.
- Note that even at the time distributions are taken from the qualified profit sharing plan, the distributions will not be subjected to payroll taxes. The $1,530 of payroll tax is permanently avoided.
ERISA Protection
Because of various abuses by plan sponsors, Congress enacted the Employee Retirement Income and Security Act (ERISA) in 1974 to provide protection for an employees retirement assets, both from creditors and from plan sponsors.
Anti-Alienation Protection:
- Because a qualified plan is designed to provide individuals with income at their retirement, ERISA provides an anti-alienation protection over all assets in the plan.
- Once funds are distributed from a qualified retirement plan, the distributed assets are no longer protected by ERISA.
- However, qualified retirement plan assets are not protected from alienation due to a Qualified Domestic Relations Order (QDRO - a court order related to divorce, property settlement, or child support), a federal tax levy, or from a judgment or settlement rendered upon an individual for a criminal act involving the same qualitied plan.
- Individual Retirement Accounts (Traditional, Roth, SEP, or SIMPLE) are not afforded the same anti-alienation protection under ERISA. Recent legislation, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA2005), provided IRAs similar creditor protection. The Act clarifies that retirement accounts that are exempt from tax under the Internal Revenue Code are also exempt from the debtor’s estate (up to $1 million).
Example of ERISA
Arthur has $4,000,000 in qualified retirement plan assets. Arthur’s business failed and Arthur personally filed for federal bankruptcy (Chapter7). At the time of the bankruptcy filing, Arthur had assets totaling $250,000 and debts totaling $650,000. The court awarded Arthur’s creditors $0.38 on the dollar and relieved Arthur of any remaining creditor claims.
This left Arthur with nothing except his qualified retirement plan assets. Because of the ERISA afforded anti-alienation protection, the court could not award any of Arthur’s $4,000,000 of qualified retirement plan assets to his creditors. Arthur will continue to have full rights over the assets of his qualified retirement plan
Advantages of Qualified Plans
Advantages to the Employer:
- Employer contributions are currently tax deductible.
- Employer contributions to the plan are not subject to payroll taxes.
Advantages to the Employee:
- Availability of pretax contributions for employees.
- Tax deferral of earnings on contributions.
- ERISA protection
- Lump-sum distribution options (ten-year averaging (a), NUA, Pre-1974 capital gain treatment)
(a). ten year forwarding average only applies to those born prior to 1936.
Exam Tip: Make a flashcard for this chart.
Chart of Disadvantages of Qualified Plans
Qualification Requirements
The IRC imposes requirements regarding eligibility, coverage, vesting, and plan funding limits for employers sponsoring qualified retirement plans.
Eligibility
Standard eligibility requirements state an employee is considered eligible to participate in the plan after completing a period of service that extends beyond the later of either the attainment of age 21 or the completion of one year of service (defined as a 12-month period in which the emplovee works at least 1,000 hours).
Standard eligibility is the most stringent standard. Employers can be more generous, such as having an age requirement of 19 or 20, in lieu of age 21 or having a service requirement that is less than one year. More general eligibility rules are often found in 401(k) plans.
Beginning for tax years after 12/31/2020, long-term part-time employees can make elective deferrals if:
- Employee worked at least 500 hours per year for three consecutive years and is age 21 by the end of the three consecutive years.
- The twelve month periods prior to 1/1/2021 will not count towards the three consecutive years. The long-term part-time employees who meet the requirements will be able to make their first contribution in 2024.
Plan Entrance Date:
- The employer may require employees to wait until the next plan entrance date after the employee has become eligible to join the plan as long as the next available entrance date is not more than six months after the date of eligibility as determined above.
- Because of this rule, most qualified retirement plans establish two plan entrance dates per year.
Example
Party Place operates a money purchase pension plan on behalf of its employees. The plan has
entrance dates of January 1 and July 1 of each year. On April 12, 20x1, Sam turned 21 years old
and celebrated three years of service. On November 15, 20x1, Martha, age 25, celebrated her one-year anniversary of employment. Party Place considered Sam a participant in the plan at
July 1, 20x1, and Martha, a participant in the plan at January 1, 20x2.
Exam Tip: Study the example carefully.
Both employees were required to wait for entrance into the qualified retirement plan past their exact eligibility date, but neither was required to wait for more than six months past their exact eligibility date. Thus, the plan meets IRC entrance requirements.
Special Eligibility Rules (An Exception)
As an exception to the eligibility rule, a qualified retirement plan may require that an employee complete two years of service to be eligible for participation in the qualified retirement plan.
- This is the employer choosing the 2 year instead of the 1 year.
If the employer elects this special exception for its qualified retirement plan, then plan participants are immediately vested in their accrued benefit or account balance upon completion of two years of service.
- This exception is not available to 401(k) plans.
Company decides 2 years instead of 1.
Example of Special Eligibility Rules
Doc in a Box sponsors a stock bonus plan (a qualified plan) that requires that its employees be
21 years old and complete two years of service before being considered eligible to participate in
the stock bonus plan. To retain qualified status for the stock bonus plan, Doc in a Box’s stock
bonus plan must provide its plan participants with a 100 percent immediate vested account balance after completing two years of service.
Therefore, any employer contributions to the plan will be automatically fully vested for the employee as of age 21 and 2 years of service.
Exam Question
The following statements concerning retirement plan service requirements for qualified plans
are correct EXCEPT:
a) The term “year of service” refers to an employee who has worked at least 1,000 hours
during the initial 12-month period after being employed.
b) If an employee hired on October 5, 20x1 has worked at least 1,000 hours or more by
October 4, 20x2, he has acquired a year of service the day after he worked his 1,000th
hour.
c) An employer has the option of increasing the one-year of service requirement to 2 years
of service.
d) Once an employee attains the service requirement of the plan, the employer cannot
make the employee wait more than an additional six months to be considered eligible to participate in the plan.
Answer: B
Option B is false because the employee would NOT acquire a year of service the day after he
worked his 1,000th hour, but after twelve months AND 1,000 hours. While option C is correct,
the exception does not apply to 401 (k) plans.
Exam Question
Which of the following statements are reasons to delay eligibility of employees to participate in
a retirement plan?
- Employees don’t start earning benefits until they become plan participants (except in
defined benefit plans which may count prior service. (Look at defined benefit v.s. defined contribution chart). - Since turnover is generally highest for employees in their first few years of employment and for younger employees, It makes sense from an administrative standpoint to delay their eligibility.
a) 1 only.
b) 2 only.
c) Both 1 and 2.
d) Neither nor 2
Answer
Both 1 and 2 are correct
Exam Question
MAD Incorporated sponsors a qualified plan
that requires employees to meet one year of service and to be 21 years old before being considered eligible to enter the plan. Which of the following employees are not eligible?
1) Jim, age 18, who has worked full-time
with the company for 3 years.
2) Rachel, age 22, who has worked full-time with the company for 6 months.
3) Brian, age 62, who has worked 500 hours per year for the past 6 years. (a)
4) Patrick, age 35 who has worked full-time with the company for 10 years
a) 4 only.
b) 1 and 2.
c) 3 and 4
d) 2, and 3
MAD can exclude anyone who has not attained age 21 and has not completed one year of service with the company with 1,000 hours during that year.
- Jim is not yet 21.
- Rachel has not completed a full 12 months of service.
- Brian does not work at least 1,000 hours each year.
- Under the new rules, Brian will be eligible after he obtains 3 years of long-term part-time employment.
- Years prior to 2021 will not count towards his 3 years. He will be eligible in 2024.
(a) SECURE Act changed this rule for plan years beginning after December 31, 2020.
Long-term part-time employees need three consecutive years beginning 1/1/2021
Coverage
Qualified plans are required to provide benefits under the plan to a minimum number of nonhighly compensated employees. As part of this determination, employees who do NOT meet the eligibility rules (age and service) can be excluded from coverage requirements. Employees who are part of a collective bargaining agreement (i.e., union employees) can also be
excluded
An employee is covered under a qualified retirement plan when he receives a benefit from the plan. The word benefit means an employer contribution, an accrued benefit, or simply the right to participate in the case of a 401(k) plan.
Coverage Subsections
Nondiscriminatory Classisifcation
Coverage Tests
Highly Compensated Employees
Nondiscriminatory Classification
While all “eligible” employees must be considered, not all must be covered by the plan for it to maintain its qualified status.
However the selection of nonexcludable employees who will benefit under a qualified retirement plan must be reasonable and established based on the facts and circumstances of the business under objective business criteria.
Coverage Tests
The general rule for coverage is that the plan must cover at least 70% of nonhighly compensated employees (defined below). However, there are exceptions (ratio percentage test an average benefits percentage test).
Therefore, to be qualified, the retirement plan must meet at least one of the three following tests:
- (1) the general safe harbor test,
- (2) the ratio percentage test, or
- (3) the average benefits test.
In addition, Defined Benefit plans must ALSO pass an additional coverage test, know as the 50/40 test (discussed below).
Highly Compensated Employees
(Very Important Defintion)
For purposes of several retirement plan test calculations, all of the “eligible” employees are further segregated into two classifications:
- Highly Compensated (HC) and
- Non-Highly Compensated NHC).
Highly Compensated
The definition of a highly compensated employee provided by the IRC is an employee who
is either:
- A more than 5 percent owner (defined below) at any time during the plan year or preceding
plan year, or - An employee with compensation in excess of $150,000 (2023) for the current plan year, or
- An employee with compensation in excess of $135,000 (2022) for the prior plan year.
5 Percent Owner Definition?
The IRC defines a “5-percent owner” as anyone who owns more than five percent of a company stock or capital.
Therefore, if an employee owned five percent of his employer’s stock, that employee would not be considered highly compensated.
- Don’t forget - In addition to direct ownership, the family attribution rules consider shares of stock owned by certain relatives, including stock owned by an individual’s spouse, children, grandchildren, or parents as if owned by one owner.
- Employers can elect (in the qualified plan document) to limit highly compensated employees to those with compensation in excess of the annual limit AND who are in the top 20% of paid employees, as ranked by compensation. The top 20% is simply the number of employees multiplied by 20% to identify the number of employees to satisfy the limit. This election may shift or reclassify some employees as NHC who have income above the annual limit. This reclassification may help the employer pass the coverage test or the ADP test (discussed later).
- A greater than five percent owner is ALWAYS highly compensated.
2 Examples
Hank, his wife Willa, and his son Sammy, each own one-third of the stock of the Best Corporation. For purposes of determining the amount of stock owned by Hank, Willa, or Sammy, the amount of stock held by the other members of the family is added together. Thus, for coverage testing, each of them is deemed to own 100 percent of the stock of the Best Corporation.
John, his wife Laura, his son Jeff, and his grandson (Jeff’s son) Dash, own the 100 outstanding shares of JLJD, Inc. stock, each owning 25 shares, John, Laura, and Jeff are each considered as owning 100 shares of JLJD, Inc. Dash is considered as owning only 50 shares (his own and his father’s).
Exam Question
Answer: C
All three individuals are considered highly compensated for the current year. Even though Elizabeth does not own more than 5% in the current year, she is considered highly compensated because she owned greater than 5% in the proceeding plan year. Carol is highly compensated because she is a greater than 5% owner in the current year. David is highly compensated because his income exceeds the compensation limit ($150,000) for the current year
Exam Tip
The S% owner ship for HE is not a provided number, while the dollar figures are provided on the CFP Board exam handout
Chart Summarizing Characterisitics of Highly Compensated Employees
Exam Question
Which of the following people would be considered highly compensated for 2023 assume the company made the election to reduce)?
a) Renee, a one percent owner who earns $80,000 per year.
b) Hannah, who earned $130,000 last year and is the 40th highest paid employee of 100
employees.
c) Conrad, a 20 percent owner who earns $40,000 per year.
d) Daniel, a 5 percent owner who earns $45,000 per year.
Answer: C
Only Conrad would be considered highly compensated because he is greater than a 5 percent owner. An individual is deemed highly compensated if he is either a greater than 5 percent owner, or has earnings in excess of $150,000 (2023) and is in the top 20 percent, as ranked by salary of all employees.
The Coverage Tests
General Safe Harbor Coverage Test
Ratio Percentage Test
Average Benefits Test (Both Test)
50/40 Test: Only for Defined Benefit Plan
General Safe Harbor Test Explanation
The general safe harbor coverage test is a straightforward test. A qualified retirement plan satisfies the general sate harbor coverage test if the plan benefits 70 percent or more of the nonexcludable (eligible), nonhighly compensated (NHC) employees. If you pass this - move on!
How to Determine if Passes or Fails for General Safe Harbor Coverage Test
% of NHC covered ≥ 70%
NHC is nonhighly compensated
Exam Question
ABC Co. has 125 employees. One hundred of these employees are nonexcludable and 25 of
those are highly compensated (75 are nonhighly compensated). The company’s qualified profit
sharing plan benefits 21 of the highly compensated employees and 55 of the nonhighly compensated employees. Does the plan meet the sate harbor coverage test?
a) No, percent covered is 50%
b) Yes, percent covered is 73.3%
c) No, percent covered is 73.3%
d) Yes, percent covered is 50%
Answer: B
The profit sharing plan meets the general sate harbor coverage test because it benefits 73.33
percent (55 ÷ 75) of the nonhighly compensated eligible employees.
See picture for more.
Ratio Percentage Test (People Test) Explanation
The ratio percentage test compares the percentage of covered nonhighly compensated employees to the percentage of covered highly compensated employees. A plan satisfies the ratio percentage test if at least 70 percent of nonexcludable (eligible), nonhighly compensated employees are covered under this calculation. (Again if you pass this - the coverage requirement is met!)
Example 1
A qualified profit sharing plan covers 60 ot the 100 (60%) nonexcludable NHC employees and
40 of the 50 (80%) nonexcludable HC employees.
This profit sharing plans ratio percentage is
75 percent (60% ÷ 80%), and, thus, satisties the ratio percentage test.
The plan would not pass the general sate harbor coverage test because the plan only covered of the nonhighly compensated employees. Remember, the plan only has to pass one test and this one passed the ratio percentage test.
Example 2
A qualified profit sharing plan covers 40 percent of the nonexcludable (80 out of 200) NHC
employees and 60 percent of the nonexcludable HC employees (30 out of 50).
The plan’s ratio percentage is 66.67 percent
(40% ÷ 60%), failing the ratio percentage test. The plan also fails the safe harbor test because the plan does not cover ≥ 70 percent of the NHC.
How to Determine if Passes or Fails for Average Benefits Percentage Test
Example 1
Example 2
Zara’s Market emplovs 400 people and sponsors a money purchase pension plan for its employees. Of the 350 nonexcludable employees, 50 are HC employees and 300 are NHC employees. The HC have a calculated average benefit percentage of 10 percent, and the NHC have a calculated average benefit percentage of eight percent.
This money purchase pension plans satisfies the
average benefit percentage test of the average benetits test because the ratio of the average benefit of the nonhighly compensated (8%) to the average benefit of the highly compensated (10%) is 80 percent (8% ÷ 10%). Which is greater than the requirement of 70 percent
Must meet Both Requirements to Pass Nondiscrimination Classification Test
- Classification must be reasonable and established based on the facts and circumstances of the business
under objective business criteria, and - Must Pass either the Safe Harbor Test or Facts and Circumstances Test
Safe Harbor Test
Facts and Circumstances Test
Commissioner finds the classification nondiscriminatory and it meets the following test.
Chart Summarizes the Coverage Tests for Qualified Retirement Plans
Example of Nondiscrimatory Classification Test
Need to calculate Ratio Percentage Test to calculate Safe Harbor and Unsafe Harbor Test.
Required Coverage Levels for Various Number of Employees
Example
Hollinger Shipyards sponsors a defined benefit plan for its employees. Hollinger Shipyards has 200 employees, 20 of whom are excludable because they do not meet the age and service requirements set forth in the plan document. Fifteen of the nonexcludable employees are HC and the remaining I65 are NHC employees. Ten of the HC employees are covered under the defined benefit plan, and 150 of the NHC employees are covered under the defined benefit plan. The average benefit percentage for the HC is 15 percent, and the average benefit percentage for the NHC is six percent. The selection of the covered class is determined to be nondiscriminatory. To be considered as passing the coverage test, Hollinger Shipyards defined benefit plan must pass either the general safe harbor test, the ratio percentage test, or the average benefits test and must also pass the 50/40 coverage test
Note: Since the plan passed the safe harbor test, it does not have to pass the ratio percentage test or the average benefits test. Because it is a defined benefit plan, however, it must also pass the 50/40 test.
Exam Tip: Be able to work the tests in this chart.
Defined Contribution Plan Vesting Schedule
Look at 2-6 Year and 3 Year Cliff.
- Note: The two-year vesting schedule also applies to employer contributions under a 401 (k) plan that makes use of an Automatic Enrollment Feature, as outlined in PPA 2006 (effective for years after 2007). Deferred eligibility is
not available for 401(k) plans.
Defined Benefit Plan Vesting Schedule
Example of Not Permitted Schedule(s)
Needs to beat out Permitted 2-to-6 Graduated OR Permitted 3 year cliff in all years.
Example 2
Example
EXAM TIP: Make sure you know how to do this calculation! Most likely on the CFP Exam
Do they give me the $32,000?
Top heavy Plans Characterisitcs and Requirements Chart
Defined benefit v Defined Contribution
Maximum Plan Limitations of Defined Benefit and Defined Contribution Chart
Maximum Defined Contribution Limit is Coordinated as Follows:
Example 1
In this example there is a controlling interest because there are 3 owners that together own 80% or more of each corporation (they own together 100%). However, there is not effective control because the identical ownership in each corporation does not total 50%. (A 10% + B 5% + C 5% = 20%). Therefore, there is not a brother-sister controlled group.
Example 2
In this example there is a controlling interest because there are 3 owners that together own 80% or more of each corporation (they own together 100%). There is also effective control because the identical ownership in each corporation is more than 50%. (A 30% + B 25% + C 25% = 80%). Therefore, there is a brother-sister controlled group.
