Other Tax Advantaged Plans Flashcards
Characteristics / differences of a Roth IRA & Roth 401k
*IRA=5500/yr w 1K catch up vs 401 = 18k/yr + 6k catchup
*Income limit (none for 401k), IRA 183-193 MFJ; 116-131 S
*Conversions from Trad IRA - IRA YES, 401k NO
*Loans? 401k YES, IRA no
*Qual Dists - same - 5 yr hold period; distns for disability, death, or 59.5 yrs… ALSO 401k can also dist for 1st time home purchase
* NON-Qualified Dists - 401k S72 split basis & earnings;
IRA - in order - Contribs, conversions and then earnings
* Req’d Dists - 401k 4/1 in yr after attain 70.5; IRA none
Safe Harbor Match rules
if match vs non-elective contribution, match 100% of first 3% and 50% of next 2%
Allowable CODA distributions
reach 55 & separation of service or retirement, death termination of plan w/o a new plan acquisition of company / company assets reach 59.5 yrs old certain hardships
NOTE - dist’s > adjusted basis are taxable as ord inc
characteristics of stock bonus plans
est’d on 12/31
can contribute till due date of taxes PLUS extensions
must contribute 25% of covered comp
must be valuated annually
must be 21 & 1yr of service to qualify (or 2 yrs w/ 100% vesting)
allocation = % of comp, OR age/ service based formula
Vest via 3 yr cliff or 2-6 yr scale
may w/d after 2 yrs
may have loans, but not usually
Dist’s qualify for NUA treatment; other dists = ord inc
Req’s to qualify for non recognition of gain treatment when an owner sells part or all of an ESOP
ESOP must own >30% of stock after sale
seller must reinvest proceeds w/in 12 mo and hold 3 yrs w/ qualified domestic securities (
Characteristics of Net Unrealized Appreciation
used for lump sums of employer securities:
get more favorable cap gains vs ord inc tax treatment
ALSO defer recognition of gain until sold
NUA = excess of FMV of security at date of dist’n over the cost of the security at the date when security was contributed to the plan.
NUA = FMV @ Distn MINUS Value at date of contribution
Beneficiary Dist’n options after owner dies and has started minimum distributions
Spouse can EITHER (1) rcv distn’s over surviving spouse’s remaining life expectancy using single life table, or (2) rollover to IRA for surviving spouse and delay distn till 70.5.
NON-Spouse - either (1) longer of single life expectancy of beneficiary or remaining life expectancy of participant (reduced by 1 yr); or (2) rollover to IRA and distribute similarly to the longer lifespan
NO Beneficiary - Distns continue on deceased’s schedule w/ remaining life dist’n period reduced by one each yr.
ALWAYS can take more than the minimum dist’n
Beneficiary Dist’n options after owner dies and BEFORE starting minimum distributions
Spouse can EITHER (1) rcv distn’s over decedant’s remaining life expectancy using single life table beginning when they would have turned 70.5; or (2) distribute a/c within 5 yrs; or (3) rollover to IRA for surviving spouse and delay distn till 70.5.
NON-Spouse - either (1) distribute a/c within 5 yrs; (2) use remaining life expectancy of beneficiary (reduced by 1 yr); or (3) rollover to IRA and distribute w/in 5yrs or over remaining lifespan of the beneficiary
NO Beneficiary - Distribute within 5 years.
ALWAYS can take more than the minimum dist’n
Keogh Calcuations
self employed contribution rate =
Contribution rate to other participants DIVIDED BY
1+ Contribution rate to other participants
calc the self employment tax: Net Self Employment income X .9235 = net earnings subject to SE Tax take NEsubject to SE Tax X .153 (and + 2.9% X $>$118.5k) to arrive at the Self Employment tax
Calc individual contribution:
Net SE Inc MINUS 50% of SE Tax = Adj Net SE Inc
Adj Net SE inc TIMES SE Contrib Rate = Contribution
IRA Deductability Phasouts
ACTIVE - Single - 61k - 71k; MFJ - 98k - 118k
MFJ w/ Spouse INactive - 183k - 193k
Similarities & Differences btwn Traditional and Roth IRAs
Similarities -
*Earned Income,
*Investment choice (most all, except - life ins & collectibles, but, allow US minted coins and bullion & gold, silver, platinum, palladium),
*Prohibited Transactions -
a) no selling, exchanging, leasing any property to IRAs
b) no buying property for personal use in w IRA funds
c) no unreasonable compensation for managing an IRA
d) no pledging IRAs as security for a loan
e) no lending to or borrowing from an IRA
Differences - Roth IRAs canNOT have deductions
and do NOT require minimum distributions during life
characteristics of SIMPLE IRA, SIMPLE 401(k) vs reg 401
SIMPLES are only for small employers $5k/yr - includes PT)
Should be established by 10/1 of the yr when plan starts
MUST be the only plan,
does NOT require annual Testing
Vests immediately
has smaller deferral ($12,500+ $3k catchup)
IRA requires $4$ match of 3%, or non-elective 2%
S401k requires same, but, can reduce to 1% and opt out 2 / 5 yrs if profits are low
& SIMPLE IRA does not require Annual filing req’s
WHILE general 401(k) plans can be for most employers, do not need to include part time workers, have until 12/31 to get established, can operate with other plans, requires annual funding and testing, allows deferred vesting, and has $18.5k deferral w/ $6k catchup
characteristics of 403(b) plans
for not for profit institutions (eg schools/ universities)
employee contributions ONLY (self reliant saving plan)
est’d by end of entity fiscal year
same as 401k deferral contrib limits - $18k + $6k catch up
100% of up to $53k of comp, INCLUDING deferrals
can contribute after tax $s too
can invest in Life insurance annuities and Mutual funds
10% early W/D penalty, but, CAN have loans
can rollover to IRA, qual plan or other 403bs
457 plans (Public, Private and 457(f)s)
like 401k, 403b - for Government and Tax Exempts
but, NON-qualified deferred comp
(f) plans are NOT eligible for deferred taxes if funded
govt 457b assets are protected by trust, but, private and f plans are NOT protected and available to creditors
457f plans have no limit (others have $18k limit like 401k)
govt 457b has a catchup for over 50, but private do not
govt and private 457B have 3 yr catch up to $18k (na for f)
govt can roll anywhere, private can only roll to another 457b, and 457fs cannot roll anywhere
No Loans, BUT can have W/Ds (10% penalty may apply)
note - employers can contribute, but, rarely do
Characteristics of Secular Trust vs Rabbi Trust vs Unfunded Promise to Pay
Rabbi and Secular trusts are FUNDED w/ assets
but only the secular trust is ERISA protected
Rabbi has no solvency forfeiture risk, but, has insolvency claims below creditors risks like Unfunded
Income taxable for Rabbi and Unfunded ONLY when constructively received, but, secular is immediate upon funding/ vesting; SO, payments are deductible immediately for employer on Secular, but, must wait on Rabbi or unfunded, thus deferring income
