Other Tax Advantaged Plans

Question 1

SEP

What is the description of a simplified employee pension plan?

Answer 1

Tax advantage plan

Alternative to qualified plan

Employer-sponsored IRAs

Must cover all employees who are 21 or older, have worked with the employer for at least three of the last five years, and make at least $750

Question 2

SEP

What are the contribution limits to a simplified employee pension plan?

Answer 2

Totally discretionary tax deductible, employer contributions

Lesser of 25% of employee compensation or $69,000 (2024)

Question 3

SEP

When are employer contributions to a simplified Employee Pension fully vested?

Answer 3

Immediately 100% vested and nonforfeitable

Question 4

SEP

When is a simplified employee pension plan appropriate?

Answer 4

Alternative to a qualified profit sharing plan: if the employer does not want to bear cost or burden of plan administration

Employer wants to establish plan for previous year

Employer wants to provide as much or more flexibility in the amount and timing of contributions as a qualified profit sharing plan

Question 5

IRA

Who is eligible for an IRA?

Answer 5

Individuals at any age with earned income, may make contributions to an IRA

Question 6

IRA

What are the contribution limits?

Answer 6

Lessor of

$7000 (2024)
Plus $1,000 if 50 or older

Or

100% of compensation

Question 7

IRA

If an individual has earned income and a spouse with no earned income, then what kind of IRA can be established for the other spouse?

Answer 7

A spouse IRA

Question 8

IRA

What kind of compensation is included as earned income for IRAs?

Answer 8

Wages and salary

Tips, bonuses, and fees

Alimony received from agreements prior to 2019

Separate maintenance income

Question 9

IRA

What sort of income is excluded from IRAs when getting at earned income?

Answer 9

Earnings and profits from property

Pensions, annuity income, or unemployment benefits

Any deferred compensation received

Foreign earned income and / or housing cost amounts that are excluded from income

Any other amounts that are excluded from income

Question 10

IRA

Our deductions for IRA contributions phased out if an employee or spouse is an active participant in a qualified plan?

Answer 10

Yes, but does not include participation in a section 457 plan

Non active participant - No limit on MAGI

Single: $77,000 - $87,000
MFJ: $123,000 - $143,000

Non-active participant spouse married to active participant

$230,000 - $240,000

Question 11

IRA

What are the disadvantages?

Answer 11

Deductible contributions and earnings are taxable as ordinary income distribution

Contributions subject to 6% exercise tax

10% penalty on premature withdrawals

Question 12

IRA

What are the exceptions to the 10% premature withdrawals?

Answer 12

Death or disability

Equal periodic payments 72t

IRS Leys

Medical expenses in excess of 7.5% of AGI

Health insurance premiums, if unemployed (file for unemployment)

Higher education expenses

Payments made to an alternative pay pursuant to a divorce decree

Expenses for first home purchase ($10,000), this includes not owning a home for 2 years, could of owned more than one home as long as it been 2 years since owning last home

Qualified disaster withdrawals up to $100,000

Up to $5000 per event per parent for the birth of a child or adoption of a healthy child under 18. If the adopted child is disabled, there’s no age restriction.

Question 13

IRA

What are prohibited transactions for IRAs?

Answer 13

Receiving unreasonable compensation for managing the plan

Using the plan as security for a loan, amount pledged as security for a loan is considered a distribution

Borrowing money from the plan

Buying property for personal use with IRA funds

Selling property to the plan

Question 14

IRA

What are prohibited investments in an IRA?

Answer 14

Investment and collectibles

Life insurance

S corporation stock

Foreign coins (domestic coins are fine)

Question 15

Roth IRA

Who is eligible?

Answer 15

Based on modified adjusted gross income MAGI

No age restrictions

Must be earned income

Phase out our imposed

Single: $146,000 - $161,000
MFJ: $230,000 - $240,000
MFS: 0 - $10,000

Can participate in an employer sponsor plan and still contribute to a Roth

Question 16

ROTH IRA

What are the contribution limits?

Answer 16

Lesser of $7000 plus $1,000 for age 50+ catch up

Or 100% of compensation

Question 17

Roth IRA

Can you contribute to both an IRA and a Roth IRA?

Answer 17

Yes, but they are aggregated cannot be above the contribution limits in total

Question 18

ROTH IRA

I contributions deductible and are they tax upon distribution?

Answer 18

No, and no

Question 19

Roth IRA

An amount in a traditional IRA may be converted to an amount in a Roth IRA without regard to a taxpayers MAGI or filing status what are the rules?

Answer 19

1. Amount converted must satisfy the definition of a qualified rollover contribution.
2. Any converted amount is treated as a distribution from a traditional IRA and is included in gross income for the year in which the distribution occursAmount converted that is a return of basis is not included in income10% early withdrawal penalty does not apply to the taxable conversion

Question 20

Roth IRA

A qualified distribution must satisfy both of the following tests

Answer 20

Must be made after a five year taxable period

Must also satisfy one of the following requirements: 59 1/2,
Death, disabled, first time home purchase $10,000

Question 21

Roth IRA

If the distribution is a nonqualified distribution, what is the distribution order from the Roth IRA?

Answer 21

Contributions (tax free, penalty free)

Conversions (tax-free, May have to pay 10% penalty if conversion has not aged five years)

Earnings (taxed as ordinary income, 10% Penalty)

Question 22

Choosing the best strategy when do use a Roth IRA or a traditional IRA?

Answer 22

Lower the marginal tax bracket, the more it makes sense to contribute to a Roth account or convert a traditional account to a Roth account

Higher the marginal tax bracket , the more it makes sense to contribute if possible to a retirement income on a pretax basis to defer the tax and pay tax at the time of distribution

Question 23

403B

What is a 403B plan?

Answer 23

Text deferred employee retirement plan adopted only by tax exempt organizations, public schools, and colleges

Have individual counts to which employers contribute

Question 24

403B

Can a qualifying organization, such as tax exempt organizations, public schools, and colleges adopt either a section 401(k) or a section 403B plant

Answer 24

Yes

Question 25

403B

What reporting an auditing requirements must a 403B plan comply with?

Answer 25

Same as 401(k) plans

Must have a written document

All employees meeting eligibility requirements must have the opportunity to participate in the plan

Employer with 100 or more participants must provide financial statements

Fewer than 100 plan participants may qualify for simplified reporting procedures

Question 26

403B

Organization must be one of the following

Answer 26

Organized and operated exclusively for religious charitable scientific testing for public safety literally or educational purposes or to foster national or international amateur sport competition or for the prevention of cruelty to children or animals

Must benefit the public

Must refrain from political campaign, or propaganda, intended to influence legislation

Question 27

403B

When is this good for an educational organization?

Answer 27

Employees want a choice as to the amount or rate of savings

Younger workforce often prefers this type of plan

Employees except the investment risk

Qualifying employer wants a savings type supplement to its existing retirement plans

Question 28

403B

What is the maximum elective deferral contribution in 2024?

Answer 28

$23,000

Age 50 up additional $7500 catch-up contributions

Has a special catch-up provision as well

Question 29

403B

What is the special catch-up provision?

Answer 29

When an employee has completed 15 years of service for the employer

Employee may increase their contribution limit buying amount equal to the lesser of :

$3000

$15,000 (aggregate lifetime maximum) reduced by amount previously excluded under this catch-up provision

$5000 multiplied by the employees years of service with the employer minus the sum of all prior salary deferrals

Catch up deferrals will first be considered special catchup deferrals until the lifetime maximum is exhausted before applying a catch-up deferral as an age 50+ catch up deferral

Question 30

403B

Plan investments are limited to what

Answer 30

Annuity contracts

Mutual funds

Collective investment trust (CITs)

Question 31

Simple IRAs

Who is eligible to use a simple IRA?

Answer 31

Employers 100 or fewer employees earning at least $5000 a year

No retirement plan except section 457

Covers all employees with at least $5000 in compensation

Question 32

Simple IRA

Contribution limits for the employees?

Answer 32

$16,000 (2024)

Age 50+ catch-up $3500

Question 33

Simple IRA

What contributions must the employer make?

Answer 33

Must be one of the following options

Match dollar dollar up to 3% of employees compensation

Employer can match as little as 1% percent of compensation and no more than two out of five years

Make a 2% of compensation non-elective contribution for each eligible employee

Question 34

Simple IRA

Are all contributions fully vested to the employee?

Answer 34

Yes

Question 35

Simple IRA

What is the compensation limit that must be taken into account for each employee?

Answer 35

$345,000