retirement

Question 1

Qualified plans(DB/DC) VS Retirement plans (SIMPLE &SEP)

Question 2

21-and one rule

Answer 2

Max age and service are 21 and one year of service.

Question 3

HEC employee

Answer 3

Greater than 5% owner
Or
Any employee earning in excess of $135,000 in the proceeding year

Question 4

Key employee (affect whether a plan is top-heavy)

Answer 4

A greater than 5% owner
Or
An officer and compensation over 200,000
Or
A greater than 1% owner and compensation over 150,000

Note that attribution rules make spouse, children, grandchildren and parents subject to ownership attribution rules

Question 5

Integrated with social security VS age-weighted plan

Answer 5

Question 6

RMD

Question 7

DB/DC salary cap: $305K
Simple IRA salary cap: $466,667

DC contribution: 61K(+6,500 if 50+)
DB contribution: stuff like a pig

Tandem: wrong answer

Question 8

DB pension (qualified plan/ERISA/PBGC)

Answer 8

Vesting schedule
Administration cost
Exempt from creditors
Integrate with social security

1. Favors older employee/owner (50+)
2. Guarantee retirement benefit amount (can meet a set retirement objective)
3. Requires very stable cash flow
4. Past service credit allowed

Question 9

IRA keys(Simple, Sep, SARSEP)

Answer 9

No loans
No life insurance
Immediate vesting
May not be creditor protected (state specific)
591/2 not 55 for no 10% penalty
Must take D at 72( even not owner)

Question 10

Defined contribution plan(Qualified plan/ERISA)

Answer 10

Vesting schedule
Administration costs
Except from creditors
Integrated with social security

Question 11

Money-purchase pension key

Answer 11

1 up to 25% employer deduction
2. Fixed contributions
3. Stable cash flow needed

Question 12

Target benefit pension keys

Answer 12

1. Up to 25% employer deduction
2. Fixed contribution
   3 stable cash flow needed
   4 favor older employee

Question 13

Profit sharing plan keys

Answer 13

1 up to 25% employer deduction
2 flexible contribution (must be recurring and substantial)
3 401(k) provisions $20,500 -FICA(hardship withdrawal)
4 SIMPLE 401(k) is exempt from creditors - see SIMPLE for additional information

Question 14

Stock bonus plan keys

Answer 14

1. Up to 25% employer deduction
2. Flexible contributions
3. 100% of the contribution can be invested in company stock
   4 ESOP cannot be integrated with social security or cross-tested

Question 15

Simple IRA keys

Answer 15

No vesting: lower administration costs

1. For small employers
   2 requires employer match (immediate vesting)
   3 salary reduction limit up to $14,000(FICA)
   4 company cannot have another plan

Question 16

Sep IRA - no salary deferrals

Answer 16

1 up to 25% contribution for owner (W-2)/ up to 18.59% contribution for self-employed
2 account immediately vested
3 can be intercepted with social security
4 specialize eligibility :

21 years old +, paid at least 650, and worked 3 of 5 prior years

Question 17

SARSEP keys

Answer 17

1. May have up to 25 employees and 50% of the eligible employee must defer
   2 must have been in existences before 12/31/1996
   3 salary deduct up to 20,599（ fica）
   4 new employee May participate in SARSEP if was established before 1/1/1997

Question 18

403(b) keys /TSA/TDA

Answer 18

1 for 591(c)3 origination and public schools
2 subject to ERISA only if employer contributes
3 salary reduction limit up to $20,500 (FICA)
4. Employer contributions may be subject to vesting schedule

Question 19

DB plan benefit limit

Answer 19

Max is lesser of
1) 245,000
Or
2) 100% of participation compensation average over his/her 3 highest earning consecutive years

Only first 305k into consideration on calculation

Question 20

Definition of compensation

Answer 20

Only taxable compensation paid or accrued during the tax year
Also elective deferrals under section 401(k) and section 457
Salary reduction contribution to section 125 cafeteria plans(FSA)

Inclusion or exclusion is determined by the plan document.

Question 21

In 2022, compensation that exceeds $305,000 cannot be considered. It must be excluded.
The rest may be included or excluded by employer providing the definition of compensation is not discriminatory

Question 22

403(b):
If the entire contribution comes from salary reduction , only the salary reduction limit may be excluded from participant’s gross income.
However if the contribution is partially salary reduction and partially employer contribution, salary reduction portion is limited to the salary reduction limit , and the total excludable contribution may not exceed the section 415 limit

Question 23

403b funding

Answer 23

Are limited to annuity contracts or mutual funds. Incidental life insurance protection under annuity contracts is also permitted. Individual securities are not.

Question 24

Section 457 plan

Answer 24

All non-qualified deferred compensation plans of government units, governmental agencies and certain non-controlled tax-exempt organizations.
Catch up: either or, cannot be combined
1; over 50, 6500
2: 3-year proceeding method

Special catch-up contribution:
Cannot be used in the final year of employment. Eligible years, the limit on deferrals is increased to the lesser of 2* normal limit (20,500) = 41,000. Or the sum of the otherwise applicable limit for the year+ amount by which the applicable limit in preceding years exceeded the participant’s actual deferral for those years.

( doubly this will be tested)

Question 25

FICA tax

Answer 25

Non qualified : deferral not subject to FICA until the year in which employees had constructive receipt or no longer has substantial risk of forfeitures.

Deferred compensation is subject to fica

Question 26

Mrs Widown receives a $40k lump sum life insurance benefit from her resealed husband’s pension.
Cash value is 10k
Death benefit is 40k-10k=30k

Cash value is at ordinary income
Death benefit is tax-free

Question 27

Second -to-die insurance

Answer 27

Only profit sharing can hold second-to-due insurance.

Pension plans: no second to die insurance

Question 28

Early withdraw penalty exceptions

Answer 28

(Before 59 1/2) from a qualified plan:
Death
Disability
Substantially equal periodic payments following separation from services
Distribution in accordance with a QDRO
Medical expenses in excess of 10% AGI
$5000 distribution for qualified birth/adoption

Question 29

Pension plans are subject to QPSA and QJSA

Question 30

Salary reduction plans VS salary continuation plans

Answer 30

Salary reduction plans: pure deferred compensation arrangements. Use some portion of employee’s current compensation to fund the ultimate compensation benefit

Salary continuation plans: employer contribution to fund the ultimate compensation benefit