Other Tax Advantaged Retirement Plans

Question 1

Simplified Employee Pension (SEP)

Answer 1

• ER sponsored plan under which contributions are made to each participating employee’s IRA
• ER contributions only
• easy to adopt (form 5305-sep)

Question 2

SEP - employer contributions

Answer 2

• lesser of 25% of compensation (330k max) or 66k
• self employed limit is Keogh rules
• contributions are flexible (no requirement)
• 100% immediately vested

Question 3

Use of SEP plans

Answer 3

• employer wants alternative to PSP that is easy and inexpensive

Question 4

SEP requirements

Answer 4

• subject to different participation requirements than qualified retirement plans
• contributions for employee must be same percentage as owner
• recurring and substantial requirement doesnt apply
• must cover all employees over 21 and who worked 3/5 years for employer (part time counts)
• dont need to contribute to employees making less than $750

Question 5

Salary reduction SEP (SARSEP)

Answer 5

• can no longer establish
• grandfathered if created before 1997
• no more than 25 employees allowed
• at least 50% of employees must participate
• $22,500 limit + 7500 catch up
• newly hired can join grandfathered status

Question 6

SIMPLE IRA

Answer 6

• employees can make pretax deferrals up to $15,500
• no nondiscrimination testing
• deferrals subject to FICA and FUTA

Question 7

SIMPLE IRA - employer contributions

Answer 7

• mandatory employer contributions: 100% match up to 3%
• employer can select lower match, not less than 1 in no more than 2 out of 5 years
• match depends on elective deferral or nonelective 2% contribution for all employees

Question 8

Selecting a SIMPLE IRA plan

Answer 8

• easy to administer
• funded through salary deferral and employer match
• can not have more than 100 employees
• form 5304 or 5305simple not filed with IRS, just employees
• cant terminate mid year

Question 9

SIMPLE IRA - limitation

Answer 9

• employer cannot maintain any other qualified plan, 403b, or SEP

Question 10

SIMPLE IRA - eligibility requirements

Answer 10

• must cover any employee who earned more than 5k in any two previous years and expected to receive 5k in current year
• 60 day election period prior to year to make deferral or modify
• employers can make contributions on behalf domestic employees, nondeductible

Question 11

SIMPLE IRA - vesting and distributions

Answer 11

• fully vested at all times
• traditional IRA restrictions and taxation apply (10% penalty increased to 25% during first 2 years of participation)

Question 12

SIMPLE 401k

Answer 12

• traditional 401k adopts SIMPLE provisions
• exempt from ADP/ACP testing
• exempt from top heavy requirements
• rigid plan design (more likely to choose SIMPLE IRA)
• 3,500 catch up provision (SIMPLE 401k and IRA)

Question 13

403b plans

Answer 13

• AKA, TDA or TSA
• tax deferred plan adopted by tax-exempt orgs and public school system
• salary deferral and match allowed
• salary reductions subject to FICA and FUTA

Question 14

403b - employer qualifications

Answer 14

• must be 501c3 org
• churches, hospitals, schools, college, charity
• qualified public school: needs regular facility and curriculum, and regularly enrolled student body

Question 15

403b - contribution limits

Answer 15

• tax relief act of 2001: salary reduction $22,500 max
• lesser of $66k or 100% comp

Question 16

403b - catch up contributions

Answer 16

• $7,500 (50+)
• 15 years of service with same employer can defer additional $3k
• can qualify for both

Question 17

403b - funding

Answer 17

• annuity contracts or MF only
• LI under annuity contracts allowed
• individual securities not permitted

Question 18

Section 457 plans

Answer 18

• nonqualified deferred compensation plans of governmental units, agencies, nonchurch controlled tax exempt organizations

Question 19

457 - deferral limits

Answer 19

• lesser of $22,500 or 100% of compensation

Question 20

457 - special catch up contribution

Answer 20

• applies during final 3 years of participation before FRA (65)
• cannot be used in final year
• deferral is increased to lesser of 2 times normal limit $45k or sum of $22,500 and amount limit in year before exceeded actual deferral

Question 21

457 - age 50 catch up

Answer 21

• $7,500 for governmental (not nonprofit) employer
• only greater of 50 catch up and special catch up can be used, not both

Question 22

457 - no coordination with elective deferrals

Answer 22

• contribution limits are not coordinated with contributions limits of 401k, 403b, or SARSEP

Question 23

457 - inclusion of income

Answer 23

• must include deferred comp in gross income
• distributions from nongovernmental plan are required to include deferred comp in year paid or year available

Question 24

457 - RMD and rollover

Answer 24

• RMD rules
• only governmental 457 can be rolled into IRA or qualified plan
• rollover to IRA or qualified plan not allowed for nongovernmental plan - only into another nongovernmental plan

Question 25

457 - QDRO

Answer 25

• subject to QDRO

Question 26

457 - withholding SSA and FICA

Answer 26

• deferred amount not subject to tax until year of constructive receipt or no longer has substantial risk of forfeiture
• subject to withholding and SSA then

Question 27

Keogh (HR-10) plan

Answer 27

• can operate like DB, MPP, PSP