Retirement Flashcards
How much can profit sharing plans invest in employer stock?
Up to 10% of plan assets
What is the rule of 72
Tells how long to double money.
Divide 72 by interest received.
Ex:7% return =72/7=10.28 = 10 years to double money
What is a 412i?
Defined benefit plan funded entirely with insurance and/or annuities
What is the ratio percentage test?
The retirement plan must cover a percentage of all NCHE that is 70% of the percentage of HCE
**body count test
What is the average benefit test?
Benefits for all NHCE must be at least 70% of those for HCE
**dollar count test
When are employees considered highly compensated?
Greater than 5% owner or
Earns more than 135k in the preceding year
When is an employee considered a key employee?
Greater than 5% owner
Officer and compensation greater than 200k
Greater than 1% owner and compensation greater than 150k
When is a plan considered top heavy?
More than 60% of its aggregate accrued benefits or account balances are allocated to key employees
What is the most stringent SERVICE requirement with ERISA?
2 year/100 percent schedule
This is answer for service requirement, NOT vesting
This is because this has 2 years of service requirements, where as vesting has 1 year
Who is also deemed a greater than 5% owner?
Spouse, parent, child, grandparent
ACP/ADP Testing
0-2% is times 2
3-8% is plus 2
Parent-subsidiary
One entity
The parent company owns at least 80% of one (or more) of the other
Brother-sister
Five (or fewer) owners of two or more entities own 80% or more of each entity
Affiliated service group
HALE
What is the integration level for a defined benefit plan
Level of compensation above which the excess contribution is made
May not exceed social security taxable wage base
Using the excess method what is the permitted disparity for a defined benefit plan?
Lesser of the base benefit percentage or 26.25%
What is the integration level for a defined contribution plan?
Any dollar amount up to the social security wage base
What is the permitted disparity for a defined contribution plan?
Lesser of base contribution percentage or the 5.7% formula for determining components of integrated DC plan
Are catch up deferrals capped at the 61k limit?
No, they are permitted in addition to the section 415 limit.
They do not affect deferrals, company contributions or max annual additions limit
What kind of retirement plan CANNOT be integrated with social security?
ESOP
SIMPLE
SIMPLE 401k
What does the section 415 limit apply to?
All defined contribution plans
What are the effects on contributions or benefits for top heavy DC and DB plans?
DB: 2% times years of service
DC: 3% of each non-key employees compensation
Can you take a loan from a 403B?
Yes
Must be adequately secured (plan assets or home)
Limits apply-cannot exceed lesser of 50k or 50% of vested plan benefits
What is section 404
Can only receive contribution of 25% of compensation or 6,000
Do loans from a qualified plan have to be secured?
Yes!
With plan assets or other collateral acceptable to plan administration
What are the qualified triggering events for Roth IRA earnings distributions?
59.5
Death
Disability
First home-10k
Do substantially equal payments qualify for an exception if the 10% early withdrawal penalty for IRAs?
Yes
Can you invest in gold coins in an IRA?
Yes
What kind of 457 can be followed into an IRA
Only governmental
Where can nongovernmental 457 be rolled over to?
Only non governmental 457s
Are section 457s subject to QDROs?
Yes
What is the service requirement for SEPs?
3 out of 5 prior years
21 Years old
$650 income
What is the penalty for distributions taken within 2 years of an employees first participation in a SIMPLE
25%
What kind of retirement plan is not subject to FICA and FUTA?
SEP
Do participants have a say in the investments in the profit sharing plan
If there is negligence with the investments, the participants cannot sue bc the plan was funded solely with employer money
When is a distress termination for a defined benefit plan allowed?
Employer is in bankruptcy liquidation proceeding
Employer is in a bankruptcy reorganization proceeding
Employer can prove to the PBGC that plan termination is necessary to pay debts
What is a voluntary termination for a DB plan
Also called standard termination
Occurs when there are sufficient assets to fund accrued benefits
Who can initiate involuntary termination of a DB plan
Only the PBGC
When must qualified plans be adopted?
Safe harbor 401k- before beginning of plan year
401k-before first deferral can be made
Simple 401k-anytime on or after Jan 1st but no later than Oct 1st
What investments are subject to UBTI?
Limited partnership
Dividends from margined account
Real Estate-only if debt is used to purchase the property
What plans cannot provide for death benefits paid from life insurance
IRAs
What kind of retirement plan can hold a second to die policy
Only a profit sharing plan
Definition of financial hardship
Immediate and heavy
Presumes no other resources can be reasonably available to meet need
What is the required begin date for distributions
April 1st
Does legal separation/divorce prevent penalty from plan distributions
No, must state has QDRO
Is partial/temporary disability exempt from early withdrawal penalty?
No, only total permanent disability
Who can you name as beneficiary on a money purchase plan
Spouse
With a QDRO is there penalties or a deduction?
No penalty
20% required withholding when direct distribution has been paid
Rabbi trust keys
Available to general creditors
Unsecured
Informally funded
When would rabbi trust be used
Takeover/acquisition/merger
Hostile new management
Expensive Litigation
Secular trust keys
Irrevocable
Secured-not available to creditors
Is a funded non qualified deferred compensation plan
Assets are taxed year placed in trust
What is the bargain element?
Spread between the exercise price and the market price
Can an ISO be gifted
No, this will turn it into an NSO. Can only be transferred due to death
If transferred-taxed to person who originally received ISO as ordinary income
What is an 83b election?
Employee elects to recognize the tax at the time of the award instead of at time of exercise
Applies to ISO/NSO
If a company goes through a merger/acquisition, will a rabbi trust automatically trigger constructive receipt?
No, it MIGHT trigger constructive receipt
What happens if more than $100,000 of ISOs vest in the same year they are granted
The first 100k is treated as ISO
Excess treated as NSO
What factors affect a target benefit plan participants retirement benefit?
Age of plan participant
Participants compensation each year
Investment performance of plan assets
Actuarial assumptions used to determine the contributions to the plan
When may an employee avoid receipt of taxable income when participating in a funded non qualified deferred compensation plan?
When there is no substantial risk of forfeiture relative to the compensation that was deferred
Maximum age to collect social security dependent benefits (assuming no disability)
18 or 19
Child’s age after which a parent can no longer claim child “in care” benefits under social security
16
Are employee 401k plan elective deferrals subject to FICA or FUTA?
Yes
Are employee contributions to HSA subject to FICA or FUTA?
Yes
Are distributions from non qualified deferred compensation plans subject to FICA or FUTA?
Yes
Are contributions to non qualified deferred compensation subject to FICA or FUTA?
No
What are annual additions?
Lesser of 100% of compensation or 61k
Can a hardship withdrawal come from a profit sharing plan?
No, must have 401k provisions
Can an s corp offer an ESOP?
Yes
How is the NUA gain taxed?
LTCG rates no matter hold time
What do keogh plans cover
Business organizations that are not incorporated
What is a coda-cash or deferred arrangement?
401k
What is the difference between an age weighted plan versus one integrated with social security
Age weighted
- owners age is 50 or older
- owners income is over 200k per year
- rank and file employees are younger than the owner
Integrated with SS
- owners age is 50 or under
- owners income is under 200k per year
- rank and file employees are making 90k or less
Are contributions with 457 and other retirement plans aggregated?
No, bc 457 plans are non qualified deferred comp
Life insurance suitability for retirement plans for DC and DB plans
DC Plan-percentage test Aggregate premiums paid must be less than following percentages of the plans cost contributions Whole life-50% Universal life-25% Term Life-25%
DB Plans-100 times limit
Death benefit may be no more than 100 times of the expected monthly benefit
What are the tests for substantial risk of forfeiture
- the employees relationship to other stockholders and the degree of their potential control
- employees relationship to corporate officers
Do corporations receive a tax deduction when granting ISO?
No
*if it becomes an NSO it would get a deduction
Is an ISO subject to withholding, FICA, FUTA?
No bc no income is recognized
If ISO is defined as compensation, it would be subject to all 3
Do non governmental 457 allow for a catch up contribution?
No-it acts like non qualified deferred comp
For kids under 18 with earned income that is employed by a parent in an unincorporated business, what taxes do they pay?
If their earned income is less than standard deduction the do not pay FICA or self employment tax
What type of retirement plans can offer disability insurance?
All qualified retirement plans
Can a surviving spouse railroad employee get a social security widows benefit and receive railroad retirement benefits?
No!
What is the maximum contribution to a defined benefit plan in 2022?
There is no dollar limit-stuff it like a pig
Under 401k hardship withdrawal rules, an employee can request an amount equal to what?
Amount equal to elective deferrals
Amount equal to vested profit sharing contributions
What is a way to eliminate phantom income for ESOP distributions?
- Roll whole account into IRA
- take 72t distribution rather than full distribution
What are the special purposes for conversions where you can take money out within 5 years and not pay taxes or a penalty?
Death Disability First home-10k Medical expenses Health insurance premiums Birth/adoption Equal periodic payments Higher education costs 59.5
What kind of structure can a NQDC plan have?
Defined benefit or defined contribution
Are attorneys fees allowed as a deduction from your gross estate to arrive at your AGE?
No
For use unrelated property what is the deduction received when given to charity
The lesser of the basis or FMV on the date of the donation
How to calculate tax liability to avoid underpayment penalty for someone who makes over 150k
Use LESSER of
110% last years payment
90% this years payment
Can you receive widow benefits after you remarry?
Only if you remarried after age 60
Do you include an ILIT to calculate your net estate?
No
When if ever can a corporation that issues ISOs receive a tax deduction for the ISO?
If the ISO is disqualified
Can a safe harbor plan have a vesting schedule?
No, it vests immediately
If a defined benefit plan is voluntarily terminated is it fully funded?
Fully funded at normal retirement age but not necessarily at premature termination
What does VEBA (voluntary employee benefits association) cover?
Death benefits
Medical benefits
Unemployment benefits
NOT: Retirement benefits or Deferred compensation benefits
Is an ISO considered compensation?
No
Are contributions to a deferred compensation plan considered compensation?
No
UNLESS it is constructively received
Can a 401k plan with no match or company contribution be integrated with social security
No
Can s corps offer non qualified deferred compensation plans?
No
If someone passes and never elected their NUA treatment, would their beneficiaries be able to use it?
Yes, the beneficiaries could elect NUA treatment and then would have 20% withheld from the basis
