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Retirment Planning > Other Tax-Advantaged Plans > Flashcards

Other Tax-Advantaged Plans Flashcards

1
Q

What is the contribution limit for a traditional IRA?

What is the 50+ catch-up feature?

A

The contribution limit for 2021 is the lesser of $6,000 or earned income.

The 50+ catch-up feature is $1,000.

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2
Q

Does alimony count as earned income?

A

Yes, if you’re divorce was complete before 2019.

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3
Q

What is a spousal IRA?

A

A spouse without earned income can contribute to a trad IRA, assuming the other spouse has sufficient income.

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4
Q

What counts as earned income?

A

W-2 income
K-1 income from an LLC
K-1 income from a partnership where the taxpayer was a material participant
Alimony before 2019.

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5
Q

What is the penalty for excess IRA contributions?

When do you have to take the contribution out to avoid the penalty?

A

6% for every year the contribution remains in the IRA.

Must remove by April 15 the following year.

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6
Q

When must IRA contributions be made?

A

April 15 following the tax year end. NO EXTENSIONS.

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7
Q

What determines tax deductibility of an IRA contribution for active participants in of other retirement plans (2)?

A
  • AGI (there are phase-outs)

- Marital/filing status

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8
Q

What are the AGI phase-outs for deductibility of IRA contributions single, MFJ, and MFS taxpayers who are active participants in other plans ?

A

Single - 66k-76k
MFJ - 105k-125k
MFS - 0-10k

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9
Q

What is the phaseout for tax deductibility of IRA contributions when one spouse is an active participant and the other is not?

A

198k - 208k

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10
Q

How do you calculate the deductible contribution to an IRA that an active participant in another plan can make if their income is in the phaseout range?

A

Contribution limit x (AGI over bottom of range ÷ $10k).

This gives you the reduction in your deductible contribution amount.

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11
Q

Who is an active participant in a retirement plan?

What if they just get a forfeiture benefit?

A

Anyone who makes a contribution or accrues a benefit.

Receiving a forfeiture counts as accruing a benefit.

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12
Q

Can you make non-deductible contributions to an IRA?

A

Yes, they become basis.

Withdrawals are then pro-rata.

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13
Q

What are the conditions from which you can withdraw penalty free from an IRA or QP?

A
  • Age 59.5
  • Death or disability
  • Periodic equal payments 72(t)
  • Health expenses (in excess of 7.5% AGI).
  • Birth or adoption of child ($5,000 per taxpayer)
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14
Q

For what reasons can you take a penalty free withdrawal from a QP, but not an IRA?

A
  • 55 and separated from service.
  • 50 and safety worker and separated from service
  • QDRO
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15
Q

For what reasons can you take a withdrawal from an IRA, but not a QP?

A
  • First time home purchase (10K)
  • Education
  • Health ins. If unemployed
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16
Q

What is an IRA annuity?

A

It’s an endowment contract with an insurance company. It works like an IRA.

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17
Q

Do inherited Roth IRA’s require RMD’s?

A

Yes.

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18
Q

Do Roth IRA’s have AGI phaseouts?

Does it matter if you’re an active participant?

A

Yes. No.

Single: 125k - 140k
MFJ: 198K - 208K
MFS: 0 - 10k

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19
Q

Can you convert a trad to a Roth without regard for AGI?

A

Yes.

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20
Q

Can you recharacterize your IRA contribution?

A

You can recharacterize a trad to a Roth, but not Roth to trad.

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21
Q

How long must your Roth be open before you can take a qualified distribution, regardless of age?

A

5 years.

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22
Q

What is the accounting method for Roth non-qualified withdrawals?

A

Regular contributions

Conversions (FIFO)

Earnings

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23
Q

If you make a conversion to an existing Roth account, when is a withdrawal of that money subject to penalty, even if you’re 59.5?

A

When the conversion hasn’t been in the account for 5 years.

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24
Q

Can you hold collectibles in an IRA?

What’s the exception?

A

You cannot hold collectibles in an IRA.

However, you can hold certain US minted coins (gold & silver eagles) and gold, silver, platinum, and palladium bullion.

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25
Q

What are prohibited IRA transactions?

A
  • You cannot sell, exchange or lease property to it.
  • You cannot charge excessive fees for managing it.
  • You cannot lend to it, borrow from it, or use it as collateral in a loan.
  • You cannot buy property with IRA funds.
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26
Q

What is a SEP IRA?

A

SEP = Simplified Employee Pension.

Small businesses and sole proprietors use them instead of pensions. They basically give each employee an IRA, without having to be a qualified plan.

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27
Q

What is the SEP contribution limit?

What is a self-employed person’s contribution limit?

Can an employer contribute to a SEP? Under what conditions?

A

$58,000 or 25% of covered comp.

Same formula as for Keogh plan.

Contributions must go to all qualified employees, cannot favor HC’s, but can use SS integration.

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28
Q

Who’s eligible for a SEP?

A

21+
Earned at least $600
Worked 3 out of the last 5, including part-time.

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29
Q

Is there vesting with SEP’s?

A

No—they’re just straight IRA’s.

30
Q

Is a partner considered self-employed?

A

Yes—they’re retirement contributions are subject to the SE calculation.

31
Q

Do SEPs have an over-50 catch-up provision?

A

No

32
Q

What are SARSEP accounts?

When were they ended, and what were they replaced with?

A

They are SEP’s with a deferral feature.

They were ended in 1996, and replaced with SIMPLEs.

33
Q

What is the SARSEP elective deferral limit?

What is the total contribution limit?

A

Both are the same as 401(k):
- 19,500 + 6k for 50+

  • 58,000 or 25% of covered comp.
34
Q

What are SIMPLE plans?

What organizations qualify to set them up?

A

Savings Incentive Match Plan for Employees

100 or fewer employees.

35
Q

What are the SIMPLE contribution and catch-up limits?

A

$13,000 and $3000

36
Q

Why are SIMPLEs attractive to employers?

A

No non-discrimination testing.

No annual filing like with 401K’s.

37
Q

What are other names for 403(b)’s?

A

Tax sheltered annuity (TSA)

Tax deferred annuity (TDA)

38
Q

What type of org can establish a SIMPLE?

What else is required?

A

Any type of org. Can establish a SIMPLE. The only other requirement is if they have 100 or fewer employees.

If they have 100 or fewer in any given year, they have a 2-year grace period before they have to do so again.

39
Q

Who is eligible to participate in a SIMPLE?

A

Anyone who earns $5000 in the previous 2 years, and seems like the will do so again.

40
Q

What’s the vesting schedule with SIMPLEs?

A

100%

41
Q

Can an employer establish a SIMPLE if they contribute to any other type of plan?

A

No!

42
Q

What is the employee deferral limit for a SIMPLE in 2021?

What is the catch-up provision?

A

$13,500

$3000

43
Q

What contributions must employers make to SIMPLE plans?

What is the exception?

A

Employers must contribute 3% match or 2% non-elective to all eligible employees. The 3% is not subject to the covered comp limit, but the 2% is.

SIMPLE IRAs can make a lesser under some circumstances:

  • they still match ≥ 1%
  • the contribution is not reduced for more than 2 out of 5 years (ending with, and including the year of the reduction.
  • employee’s are notified within 60-days of time to change salary reduction agreement.
44
Q

What are three differences between SIMPLE IRAs and SIMPLE 401k’s?

A

SIMPLE IRA’s may reduce the mandatory 3% match under certain conditions.

SIMPLE 401k’s allow loans, same rules as normal 401k’s.

SIMPLE 401k contributions must adhere to covered comp. limit in 3% match.

45
Q

Must SIMPLE plans adhere to ADP testing and top heavy rules?

A

No; SIMPLEs are safe-harbor plans.

46
Q

For employers, which is more flexible: SIMPLE IRA or SIMPLE 401k?

A

SIMPLE IRAs are more flexible because the mandatory contribution can be reduced under certain circumstances.

47
Q

Are in-service withdrawals permitted with SIMPLE’s?

What penalties may apply?

A

If under 59.5, 10% penalty, plus taxes.

If under 59.5 and not in plan for 2 years, 25% penalty.

48
Q

What entities can set up 403b’s?

A

501c3’s (ie, non-profits, ie, tax exempt organizations)

Public schools or public education orgs.

49
Q

When are 403b’s subject to ERISA requirements?

A

When they’re part of an overall pension plan, often called a “supplemental retirement plan”.

50
Q

What are 403b eligibility requirements?

A
  • Educational institutions with immediate vesting my require age 21 and 1 year of service, or age 26 and 2 years of service. If they DON’T offer immediate vesting they must use 21 and 1.
  • All others, 21 and 1.
51
Q

What is the max. Deferral for a 403b?

A

19,500.

52
Q

What are the 2 rules for 403b catch-up provisions?

A
  1. $6,500.
  2. If you’ve worked there for 15 non-consecutive years you can add the lessor of:
    • $3,000
    • $15,000 less increases to the general limit in previous years due to the 15 year rule.
    • $5,000 x yrs of service subtracted from total elective deferrals.

Must be health, education, or religious organization.

53
Q

Given the two provisions, what is the maximum total contribution to a 403b?

A

29,000–19,500 + 6,500 + 3,000

54
Q

What is the total limit for contributions to 403b accounts?

A

58,000 or 100% of covered compensation.

55
Q

What are 403b investment choices restricted to?

Why is this significant?

A

Insurance annuities or mutual funds.

It points out a major flaw in 403b’s.

56
Q

Can you take loans from a 403b?

A

Yes, same loan rules as 401k

  • 50% of balance, reduced by previous loan amounts.
  • If balance under 20k, larger of 10k or 50% of balance.
57
Q

When can you take a withdrawal from a 403b?

A
  • 59.5
  • Death or disability.
  • Birth or adoption
  • Separated from service
  • Hardship (salary reduction only).
58
Q

403b rollovers?

A

Into any other qualified plan, IRA, or Roth.

Indirect rollovers subjects 20% withholding, and must be re-deposited within 60 days.

59
Q

Are 403b’s subject to RMD’s?

How are they taxed?

A

Yes, and taxed as ordinary income.

60
Q

When must 403b’s be established?

A

By the end of the year.

61
Q

Who are 457 plans for?

A

State and local goats. AND tax exempt entities.

62
Q

Do 457 contributions count against 401k or 403b contributions?

A

NO!

63
Q

What are 457b and 457f plans?

Who are tax exempt orgs. Under 457 b? Do churches count?

A

457b’s have 2 parts:

  • Govt. orgs that cover all employees.
  • Tax exempt orgs such as private schools or hospitals, co’ops, labor unions, charities. Religious orgs count, but churches don’t. These plans are usually for HCE’s or management.

457f are “ineligible” plans for bonuses to executives

64
Q

What are 457b public and private plans?

A

Public plans are for all employees, with assets held in a separate trust, and protected from creditors.

Private plans are for HCE or top management of private orgs. Funds are vulnerable to creditors.

65
Q

What are the deferral limits of 457bs? What are the 2 catch-up provisions?

A
  • Standard deferral limit is the lesser of $19,500 or 100% of covered comp.
  • For govt. employees of public plans there is a 50+ catch up of $6,500.
  • Both public and private plans may use a final 3-year catch-up: Up to $19,500 in additional contribution can be used within 3 years of retirement age if employee has prior unused deferral. This is an optional 457 feature. You cannot use this with the $6,500.
66
Q

What is the maximum contribution limit for 457’s? How does this effect employer contributions? Do they count with other retirement plans?

A

The max. Contribution is $19,500 in total. For this reason, employers typically don’t contribute.

457’s don’t aggregate with other plans, so one can contribute $19,500 to both a 457 and a 401k, or 403b.

67
Q

Does age 59.5 matter with 457 plans?

A

No—you can withdrawal with taxes but without penalty once you separate from service.

68
Q

Do 457’s have standard RMD withdrawals? Are they taxed as OI?

A

Yes and Yes.

69
Q

Are rollovers different between public and private 457s?

A

Yes. Public plans can be rolled over to any other 457 plan that accepts them (401k, 403b) or into an IRA.

Private plans can only be rolled into other 457 private plans.

70
Q

Ineligible plans, 457f plans, “top-hat” plans and taxation and forfeiture?

A

Plan is taxed when there’s no longer risk of forfeiture, or when plan vests to employee (almost like phantom income).

If employee leaves before plan vests, she may lose all assets.

Retirment Planning (5 decks)

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