Retirement Flashcards

Question

Top heavy contributions or benefits

Answer 1

Top heavy plans provide minimum before for non key employees DB: minimum benefit for non key employees is 2% * number of years of employment - max 10 years DC: 3% of each non key employees compensation

Answer 2

Requires repayment Total loans don’t exceed lesser of 50% vested plan benefit or $50k Small accounts can borrow $10k without regard to percentage Loan has to be repaid in 5 years unless money is used to buy primary house Repayment = level installments at least quarterly If person doesn’t make payments then entire balance is taxable distributions ordinary income plus 10% penalty if under 59 1/2 Interest is never deductible for key employees Non key employees can deduct id Loan is for primary house Loan is secured by house No loans allowed for: IRAS, SEPS, SIMPLE, ROTH

Answer 3

Before age 59 1/2 there is a 10% penalty UNLESS one of the following: 1. Death 2. Permanent disability 3. Qualified education expenses 4. Substantial but equal payments 5. First home expense up to $10k 6. Medical expenses greater than 10% of AGI 5. Birth or adoption up to $5k

Answer 4

Contributions then converted assets then earnings Conversion assets that meet 5 year holding period - No income tax or penalty Fail to meet 5 year holding period but distribution for special purpose then no income tax or penalty Fail to meet 5 year but no special purpose no income tax but 10% early withdrawal penalty

Answer 5

Meets 5 year holding and qualifying event (59 or older, death, disability and first time home purchase) no income tax or early withdrawal Meets 5 year and special purpose (medical expenses, medical insurance, substantial but equal, higher education, birth or adoption) then income tax but no penalty Meets 5 year but no triggering event then income tax and penalty Fails to meet 5 year holding but special purpose (all 9 items) then income tax but no penalty Fails to meet 5 year holding without a special purpose then both income tax and penalty

Answer 6

Employer contributions only, no fica or futa Easy to adopt Contributions lessor of 25% of comp (max $305k) or $61k Self employment KEOGH rules (12.12 18.59) Contributions can be flexible but substantial and recurring 100% vested Must cover all employees 21 and older that worked 3 out of 5 years includes part in time that earn $650 or above Don’t need to make contributions if person makes less then $650 a year SELECT IF: numerous short term employees and unstable CF, simple to establish

Answer 7

25% penalty for a distribution in first 2 years Employees make pre tax contributions of $14k with a $3k catch up No more than 100 employees Must match 3% of employees comp (no deferral no match) or not less then 1% in no more than 2 out of the 5 years or 2% non elective to all employees Max is $466k salary Can’t maintain another qualified plan Plan must cover people who earned 5k in any 2 previous years Employer must notify of 60 day election period 100% vested

Answer 8

Body of legislation that regulates qualified plans Protects interest of participants

Answer 9

Enforces ERISA issues interpretive guidelines on regulations Issues advisory options

Answer 10

Control operation of qualified plans Dispenses favorable tax treatment to those plans that qualify

Answer 11

Interprets and admins tax laws Dispenses requirements through procedures through revenue rulings and private letters

Answer 12

Exceeds $1k income from a LP or dividends from a margined account

Answer 13

Merely incidental to primary purpose of plan Dc plans: premiums paid are less than 50% for whole and 25% for term/universal Db plans: death benefit no more than 100 times the expected monthly benefit All qualified plans can hold disability insurance ONLY profit sharing can hold 2nd to die

Answer 14

In service distributions from qualified plan when still working allowed if: 1. Attained 59 1/2 for 401k deferrals or NRA for money purchase pension plans 2. Hardship withdrawal from any profit sharing plan if under financial need only for vested amounts subject to ordinary income and penalty if under 59 1/2 and not disabled 3. Pension protection act distributions as early as 62 for DB plans

Answer 15

For ppl under 59 1/2 Death Disability Substantial but equal payments following separation of service 55 and older following separation of service Medical expense greater than 10% AGI $5k adoption and birth

Answer 16

Must meet: Not less frequent than annually Paid without changing amount for 5 years or until 59 1/2 Based on life expectancy Reasonable interest rate If any modifications are made all payments made before 59 1/2 are subject to 10% penalty Can change from RMD to annuity without a penalty

Answer 17

produces phantom income Basis of stock is taxed at ordinary income rates when distributed to an employee at retirement If sold within a year: long term gain is calculated by taking the FMV day received - basis Short term gain: price sold - long term gain If sold after a year ALL long term gains If under 59 1/2 and not part of separation of service then 10% penalty applies Beneficiaries are eligible to elect NUA without penalty tax treatment on deceased employees securities provided they take a lump sum distribution of deceased employees account. It is lost if the shares are rolled over to an IRA.

Answer 18

May discriminate Exempt from ERISA Non deductions for employer until employee is taxed Distributions taxable at ordinary income

Answer 19

Uses employees current compensation to fund ultimate benefit

Answer 20

Uses employer contributions to fund ultimate benefit

Answer 21

Naked promise Or informally funded with life insurance, annuities and mutual funds Subject to employers creditors

Answer 22

Informally funding when Owner and beneficiary = employer Premiums not deductible Tax free DB to employer Benefit to employee or benes = taxed PV of payments includable in estate

Answer 23

Informally funded Assets available to all creditors For ownership management change or merger

Answer 24

Funded non qualified irrevocable trust Funds beyond reach of creditors Taxed year compensation is transferred to trust

Answer 25

Income taxed in the year is paid or made available to employee unless substantial risk exists

Answer 26

Employees rights to property are conditioned upon performance or services for period of time Relationship to other stock holders and control Relationship or corporate officers

Answer 27

Tax favored option plan only on first $100k that vest in one year Must hold shares 1 year from exercise date Make hold shares 2 years from grant date before sold At exercise: Bargin element = amount exercise price - cost basis Sale: excess above basis is cap gain If sold within same year of exercise then bargain element taxable compensation FICA FUTA If sold within 12 mod of exercise but next calendar year then bargain element is taxed as ordinary Income not subject to FICA FUTA Sold next calendar year from exercise date but less than 2 years from grant then bargain element is taxed as ordinary income not subject to FICA FUTA. If both rules broken then disqualifying event bargain element is taxable as compensation and FICA and FUTA

Answer 28

At exercise Ordinary income is exercise price - cost basis At sale excess above basis = cap gain

Answer 29

Fully insured if you have 40 social security credits Currently secured if you have at least 6 quarters during the full 13 quarter period

Answer 30

Children, grandchildren and parents are subject to ownership attraction rules but not siblings Christmas

Answer 31

Must provide minimum contributions for non key employees

Answer 32

DB: benefit must be 2% of compensation multipled by number of service years max 10 DC: employer contribution must be no less than 3% of each non key employees compensation

Answer 33

ALL PENSION PLANS DB CASH BALANCE MONEY PURCHASE TARGET BENEFIT

Answer 34

For dc Step one: calculate the amount before SS threshold $147k times base Step two: calculate contribution for amount above threshold max $305k - $147k Step three: add both one and two together

Answer 35

Simple Ira provisions Match of 3% has a different salary cap of $305k

Answer 36

For NSOs and restricted stock Ordinary income at grant date on basis Then all cap gains at sale

Answer 37

includes Alimony Child support Martial property Qualified plans NOT IRAs

Answer 38

401ks that don’t match can’t be integrated with SS

Answer 39

Protects qualified plans from creditors in the accumulation period NOT after payout begins

Answer 40

Valid when the plan administrator has approved the QDRO that has entered with the court and singed by Judge

Answer 41

There are no self employment rules for contributions to a DB plan

Answer 42

Qualified plans can be directly rolled over to a ROTH

Answer 43

CANT OFFER! Can’t select 162 double bonus arrangement - the first bonus goes to annuity life insurance second one pays phantom tax

Answer 44

Don’t assume self employed individual will be a sole proprietorship - any retirement plan is available rather than just KEOGH plans

Answer 45

Still means you’re an active participant

Answer 46

Sep: by due date of business tax return including extensions Qualified plan: within the tax year for which the employer wishes to take the tax deduction SIMPLE: on or before the first date by which a contribution is required IRAS: by April 15th of the year following the year for which a tax deduction is to be attributed

Answer 47

Change can be made even if community property