retirement Flashcards
Qualified plans(DB/DC) VS Retirement plans (SIMPLE &SEP)
21-and one rule
Max age and service are 21 and one year of service.
HEC employee
Greater than 5% owner
Or
Any employee earning in excess of $135,000 in the proceeding year
Key employee (affect whether a plan is top-heavy)
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
Integrated with social security VS age-weighted plan
RMD
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
DB pension (qualified plan/ERISA/PBGC)
Vesting schedule
Administration cost
Exempt from creditors
Integrate with social security
- Favors older employee/owner (50+)
- Guarantee retirement benefit amount (can meet a set retirement objective)
- Requires very stable cash flow
- Past service credit allowed
IRA keys(Simple, Sep, SARSEP)
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)
Defined contribution plan(Qualified plan/ERISA)
Vesting schedule
Administration costs
Except from creditors
Integrated with social security
Money-purchase pension key
1 up to 25% employer deduction
2. Fixed contributions
3. Stable cash flow needed
Target benefit pension keys
- Up to 25% employer deduction
- Fixed contribution
3 stable cash flow needed
4 favor older employee
Profit sharing plan keys
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
Stock bonus plan keys
- Up to 25% employer deduction
- Flexible contributions
- 100% of the contribution can be invested in company stock
4 ESOP cannot be integrated with social security or cross-tested
Simple IRA keys
No vesting: lower administration costs
- For small employers
2 requires employer match (immediate vesting)
3 salary reduction limit up to $14,000(FICA)
4 company cannot have another plan
Sep IRA - no salary deferrals
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
SARSEP keys
- 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
403(b) keys /TSA/TDA
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
DB plan benefit limit
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
Definition of compensation
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.
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
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
403b funding
Are limited to annuity contracts or mutual funds. Incidental life insurance protection under annuity contracts is also permitted. Individual securities are not.
Section 457 plan
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)
FICA tax
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
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
Second -to-die insurance
Only profit sharing can hold second-to-due insurance.
Pension plans: no second to die insurance
Early withdraw penalty exceptions
(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
Pension plans are subject to QPSA and QJSA
Salary reduction plans VS salary continuation plans
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
