Other Tax-Advantaged Retirement Plans

Question 1

Traditional IRA Contributions

Answer 1

• anyone who has earned income and has not attained age 70 1/2 may make contributions
• spousal IRA contributions may not exceed the lesser of $5,500 or 100% of the non-working spouses earned income plus 100% of the working spouses earned income, less the contribution made by the working spouse.

Question 2

Calculation of partial IRA Deduction

Answer 2

• subtract the amount of AGI from the maximum phaseout and divide by $10,000 ($20,000 MFJ).
• use this ratio to multiply the maximum annual contribution amount.

Question 3

Roth IRA

Answer 3

• after tax dollars are used, there is no deduction
• qualified distributions are not taxable
• for distributions to be qualified , they cannot be made until 5 years after the Roth was set up
• no RMD applies

Question 4

Factors to consider when converting traditional to roth IRA

Answer 4

• current tax rate
• tax rate in retirement
• how many years until retirement
• where the funds to pay the tax for conversion will come from
• whether the money will be spent in retirement or pass to heirs in the estate
• if converting a large amount be careful of medicare tax if it increases your income substantially.

Question 5

SEP IRA

Answer 5

• annual contributions are limited to 25% of compensation on a maximum of $270,000 of compensation
• additions limited to 100% of compensation or $54,000
• must cover all employees who are 21 and have worked for the employer during any 3 years out of the proceeding 5 and earned at least $600 during the year.
• funded exclusively through employer contributions
• integration with Social Security is permitted
• there are no mandatory contributions, allowing more flexibility than qualified plans

Question 6

SIMPLE IRA

Answer 6

• employees who earn $5,000 or more from the employer in any two proceeding years and are reasonably expected to earn $5,000 in the current year must be permitted to make salary deferral contributions.
• maximum salary deferral is $12,500, $3,000 catch up allowed
• employer is required to match 100% of employees deferral up to a maximum of 3% of compensation or make a contribution of 2% of compensation for each employee regardless of whether or not the employee made a deferral.
• loans are not permitted
• immediate 100% vesting

Question 7

403 (b) Plans

Answer 7

• retirement plans for tax-exempt organizations
• a special catch-up provision allows some employees with 15 years of service to exceed the limit on salary deferral by up to $3,000 per year during the final 5 years of employment
• additions to the account are limited to 100% of compensation or $54,000
• loans are permitted

Question 8

Keogh Plans

Question 9

Incentive Stock Option (ISO)

Answer 9

• the bargain element is a preference item for AMT
• if shares are held at least one year after the option is exercised and for at least two years after the grant of the option, the sale will result in long-term capital gain on the appreciation.
• the ordinary income taxation from a disqualified ISO is not subject to FICA or FUTA taxes.

Question 10

Section 83 (b) Election for Options

Answer 10

• an election that is filed that grants the NSO to be taxed in the year of exercise even though the options will not be vested for several years.
• future appreciation will be taxed at capital gains rates

Question 11

Phantom Stock Plans

Answer 11

• no actual shares of stock are owned
• it is a bookkeeping entry, which assigns units to employees as if they had purchased the stock
• taxed as ordinary income and is subject to FICA and FUTA tax