Retirement Flashcards

Question

ESOP: Keys

Answer 1

1. Employers borrow money from own bank 2. Must invest plan assets in company stock -Participants > 55 and 10 years of participation can diversify up to 50% of their account balance 3. Cant be integrated with SS

Answer 2

Regular: Minimal expense, employees increase savings on tax deferred/deductible basis 1. Deferral limits are $22,500 with a $7,500 catch up for >50 Solo(k): 1. Deferral limits are $22,500 with a $7,500 catch up for >50 2. Employer contributions with a $66k cap Safe Harbor 401(k) 1. 1 to 1 match on first 3% 2. .5 to 1 match on the next 2% Distributions can be taken at age 55 without 10% penalty

Answer 3

Unit Benefit: years of service x salary x formula factor = annual benefit Final Average: Final 3 years (up to $330k each year) / 3 = annual benefit ($265k cap annual benefit)

Answer 4

Defined Benefit Plan 1. Guaranteed rate of return and contribution level 2. Less expensive DB plan

Answer 5

Age: >= 21 years old and >=1 year of service Service 1000 hours during initial 12 months or 500 hours for 3 consecutive years Coverage: 70% of all NHCE to HCE or 70% of average benefits to NHCE for HCE (non-highly compensated employees)

Answer 6

Same as QP requirement and Lesser of 50 employees or 40% of all employees or 2 employees (or one if only one)

Answer 7

1. Relates to plan discrimination (i 2nd letter in each) 2. Employee is either >5% owner or earning >$150k in preceding year

Answer 8

1. Relates to plan vesting (e 2nd letter in each) 2. Meets any of the requirements during the current year - 5% owner - Officer and compensation >$215k - >1% owner and compensation >$150k

Answer 9

>60% of aggregated benefits are to key employees Top Earners ($330k cap per) / [others + top earners (330k cap)] DB must have at least 2% compensation x years of service (up to 10) DC must have at least 3% compensation x years of service (up to 10)

Answer 10

1. 3 year cliff 2. 2 - 6 year graded or 100% with 2 year eligibility use graded on exam

Answer 11

1. 5 year cliff 2. 3 - 7 year graded or 100% with 2 year eligibility use graded on exam

Answer 12

Year 1. 0 2. 20% 3. 40% 4. 60% 5. 80% 6. 100% Can be more as long as percentages are better than this each year

Answer 13

NHCE HCE 0% to 2% : multiply by 2 2% to 8% : plus 2

Answer 14

Parent-Subsidiary: One entity owns >80% of other entities Brother-Sister: Five or less own 2 or more entities >80% ASG: Health, Law, Accounting, Engineering Contributions limited to the lesser of 100% of comp or $66,000 across all aggregated accounts unless unrelated employer plans

Answer 15

DB Lesser of base % or 26.25% Base percentage + Permitted disparity = Excess Percentage DC Lesser of base % or 5.7% Excess is multiplied by the salary over the base contribution plan integration level

Answer 16

For defined contribution plans Lesser of 100% of employees comp or $66k 415 contribution limit - Deferrals - Match- Forfeitures= max addition limit

Answer 17

One Plan or Combining Two Plans 401k/403b: $22,500 & $7,500 catchup for deferral, total contribution (employer included match) cant exceed $66,000 or 100% of comp for employee SARSEP: $22,500 & $7,500 catchup for deferral SIMPLE & SIMPLE 401(k): $15,500 & $3,500 catchup (Employee); 3% up to $330k, or 2% for non-elective (employer) Qualified Plan Employer Lesser of 100% of employee comp or $66,000 In aggregate when single or related employers, separately to each account for unrelated Keogh Net Income * Contribution Factor (see below 15% Contribution = 12.12% Contribution Factor 25% Contribution = 18.59% Contribution Factor

Answer 18

1. Doesn't exceed 50% of participants vested benefit or $50k 2. Loan is repaid over a period up to 5 years and level installments at least quarterly 3. Made under enforceable agreement 4. Interest on loan is treated as consumer interest -unless loan is for primary residence & loan is secured by the residence 5. Are permitted for 403b and TSA's Loans are not available for IRA, Roth, SEP and SIMPLE

Answer 19

Contribution Limit: 6,500 & 1,000 catch up for age > 50 Must have earned income (alimony and fees included) to contribute, unless married. Spousal IRA can contribute without working but contribution must be >= to IRA contribution of working spouse If both partners or a single person are non-active participants in a plan, then IRA contributions are deductible (Not subject to AGI). If one spouse is an active participant and other is not then deductible IRA's are phased out between 218k- 228k*. Active participants phase out Phase Out: Single (73k-83k)* Joint (116k-136k)* *They can still contribute but can't deduct RMD at age 73 or following April after 73 Exceptions to early distribution: Death, Total/Permanent Disability, Qualified Education Expense, Medical Insurance Premiums after employment separation, First home up to 10k, substantially equal payments

Answer 20

Either Participation in a: Qualified plan, SIMPLE, SEP, TSA or Union Plan (not 457's or nongovernmental plans or Annual additions to a defined contribution account or benefits accrued for the tax year to a defined benefit plan. - Include employer or employee additions and forfeitures

Answer 21

Contributions not deductible. Must have earned income to contribute Limit is $6,500 combined between IRA and Roth Distributions are tax free Phase Outs: Single (138-153) Married Joint (218-228) Married Sep (0-10) No RMD

Answer 22

Does not satisfy RMD. Non-spouse beneficiaries who inherit a qualified plan can convert to a Roth Distribution Order - Needs to satisfy 5 year holding or 59.5 age 1. Contributions : Tax Free (Subject to early withdraw 10%) 2. Conversions : Tax Free (Subject to early withdraw 10%) 3. Earnings: Taxed at ordinary income

Answer 23

Max contribution is 22,500 & 7,500 catch up, No employer contributions allowed

Answer 24

Contribution limit $17k

Answer 25

Employer contributions limited to lesser of 25% of compensation ($330k max) or $66,000 (self employed use Keogh contribution limits 12.12% or 18.59%) Easy and inexpensive to install Must cover all employees >=21, have worked for employer 3 out of last 5 years including part time and make >$750 a year

Answer 26

Plan must have been adopted before 1997 <= 25 employees during the year >= 50% of all eligible employees must participate Same contribution limits as 401(k)'s and new employees can be grandfathered in

Answer 27

Employers contributions represent $ for $ MATCHING up to 3% of compensation (see below for cap) Employer contribution is 3% up to salary cap of $516,667. = 15,500 / .03 Employee contribution limit is 15,500 + $3,500 for special catch up For employers with <= 100 employees Cannot maintain another qualified plan and cannot terminate plan mid year Fully vested at all times

Answer 28

Employees must contribute to be eligible. Contribution limit 15,500 Employer contribution limit is 3% of salary up to 330k = 9,900 Exempt from ADP/ACP tests and top heavy requirements Exempt from creditors Special $3,500 catch up

Answer 29

For Religious, Charitable, Medical or Educational Purposes Contributions: $22,500. > 50 additional $7,500. >15 years of service additional $3k Contribution + employer contribution cannot exceed lesser of 100% compensation or $66k Limited to mutual funds or annuities Subject to FICA and FUTA

Answer 30

Non Qualified plan. Subject to creditors Government worker and non church controlled plans Contribution limit: $22,500. >50 additional $7,500 Not coordinated with 401k, 403b or SARSEP (can contribute to both) Only government plans can be rolled over

Answer 31

Imposes duties, standards and prohibitions on plan fiduciaries BD not a fiduciary

Answer 32

Control the operation of qualified plans Guarantee DB and cash balance plans DB plans can be terminated voluntarily or by the PBGC under these conditions (only PBGC and initiate involuntary termination) 1. Employer in bankruptcy liquidation proceedings 2. Employer in bankruptcy reorganization proceedings 3. Employer can prove to PBGC plan termination is necessary to pay debts

Answer 33

DB and DC plans: Must be established within the year they wish to take the tax deduction Safe Harbor 401(k): Must be adopted before beginning of the plan year Standard 401(k): Must be adopted before first deferral can be made Simpe 401(k): Established anytime after 1/1 but before 10/1 of year adopted SIMPLE IRA: May be established up to the due date for employers tax return SEP: May be established until the due date of the business tax return including extensions. To establish and make contributions

Answer 34

Trustee has duty to diversify the investments to minimize large losses DC plans must allow participants to diversify employer contributions after 3 years Fiduciary could be sued for failing to diversify investments

Answer 35

Subject to income tax if UBTI > $1k. Income from LP or dividends from margined accounts are considered UBTI income

Answer 36

DB plans: Can be upto 100x the defined benefit for the Death benefit DC plans: Premiums paid are either (25% or 50%) of the plan benefit of the participant Ordinary or whole life = < 50% Term or UL = < 25% Cash value of death benefit is taxed at ordinary income, remaining pure death benefit is tax free

Answer 37

Allowable under 3 circumstances 1. Attainment of age or years of service - Normal retirement age reached (Money purchase pension) - 59.5 for 401(k) 2. Hardship withdrawal (medical expense, tuition, purchase of primary residence or damages to said residence, prevent eviction, funeral expense. Expense cannot exceed need) -Financial needs test (immediate and heavy financial need) -Resources test (participant has no other sources to satisfy need) 3. DB plans allow for in service distributions for age >=62

Answer 38

Makes premature distributions exempt from 10% penalty if.... 1. Paid not less frequently than annually 2. Paid without changing amount for 5 years or to 59.5 if start age to 59.5 is greater than 5 years 3. Based upon life expectancy of recipient 4. Based upon reasonable rate of interest 5.

Answer 39

Life: payments for participants life Joint and Survivor: payments for participants life, and % to beneficiary if they die and bene is still living Life annuity guaranteed: Payments made for participants life or specified period whichever is greater Annuity certain: Specified payment for a specific period, guaranteed QJSA: cannot be < 50% of nor > 100% of the annuity payable during joint lives of participant and spouse (pension plans) QOSA: must be at least 50% of joint and survivor annuity, most plans are 75%. Participant can elect out of this benefit with spouse consent (pension plans) QPSA: Preretirement death benefit for participant who dies before the starting date of QJSA (pension plans)

Answer 40

1. 457 non-governmental tax exempt plans can only be rolled into another 457, not into a qualified plan. 2. Hardship distributions cannot be rolled into any other qualified plan 3. RMD's cannot be rolled into another qualified plan 4. SIMPLE IRA distributions can be rolled into QP if the SIMPLE has been established for at least 2 years

Answer 41

Can withdraw funds and reinvest within 60 days into another IRA once per year (not per IRA)

Answer 42

Required for people 73 or older with a 1. IRA, SEP, SARSEP and Simple by April 1 of the following year which they turned 73. 2. Participants still working and <5% owner of a qualified plan, government 457 or 403(b) can delay required beginning date until they retire, otherwise same rules as line 1. Calculation Normal= previous year ending balance / distribution factor Turned age 73 during year = ending balance of the year before he turned 73 / distribution factor

Answer 43

Direct transfer from an IRA to a qualified charity. Limited to $100k annually, amount is excluded from taxable income

Answer 44

1. Spouse rolls assets from deceased owner into their own IRA and takes distributions based on their RBD (if owner died before or after RBD) 2. Keep assets in deceased IRA - If deceased died before RBD, and take RMD's when deceased would have turned 73 - If deceased died after RBD, take distributions on the longer of spouse's single life expectancy or take payment over 5 years In year of death if RMD hasn't been taken the RMD for that year alone is 0

Answer 45

Must liquidate the inherited IRA within 10 years. Unless that person is a minor or not less than 10 years younger than plan participant. Minor's have to wait until they are 18.

Answer 46

Estate must liquidate the entire IRA by 12/31 5 years after death

Answer 47

Two Rules 1. IRS may attach qualified plans to collect federal taxes owed 2. Divorce decree may make qualified plan pay divorced spouse at age 55, assets from employed spouse need to be segregated at the time of the request

Answer 48

Always taxed at long term cap gain rate for stock held prior to distribution

Answer 49

Non-QP vs QP May discriminate May Not discriminate ERISA Exempt ERISA requirements No employer deductions Immediate employer deductions Earnings may tax employer Earnings are tax deffered Distribution: OI tax rate Distribution: OI tax rate (except ISO)

Answer 50

Salary Reduction: Employee defers current comp Salary continuation: employer contributions Unfunded: can either be a mere promise to pay or be informally funded by life insurance, annuities or other investments because assets are owned by the company - Life insurance: employer is owner and bene. Premiums not deductible, employee taxed on benefits

Answer 51

Used to protect deferred assets for following events but not from bankruptcy (subject to creditors) 1. Ownership may change before deferred comp benefits are paid 2. New management may be hostile to key employee in future 3. Litigation would be too costly in the future

Answer 52

Enable employees to buy shares of employers stock at a specified price Funded plan if 1. If options are free transferable 2. If their a presence of substantial risk of forfeiture at the time of contribution Vesting: most options not exercisable for a period of time

Answer 53

ISO plan is tax favored. ISO' must remain with person they are granted to Only first $100,000 worth of ISOs granted is entitled to favorable treatment, anything more is an NSO Bargain element =Exercise price - Option purchase price (basis) Bargain element is AMT add back item. Sale Price - Basis = LTCG and taxed at LTCG rate Holding period requirement of for sale of option not to turn into NSO: at least 1 year from exercise, at least 2 years from grant (EGG... 1 E 2 G)

Answer 54

Right to purchase an employers stock at a specific time and price No holding period requirement Bargain element is taxed at ordinary income rates Sale must be > 1 year from exercise to receive LTCG rates

Answer 55

Right to a cash bonus based on performance of phantom shares

Answer 56

Qualified retirement plan for sole proprietorship or partnerships. Operate as DB, money purchase or profit sharing plans Non owner-employee contribution is net schedule C income * either 12.12% (for 15%) or 18.59% (for 25%) [also for self-employed SEP contribution]

Answer 57

Funds are beyond reach of creditors. Deductible to employers Funded nonqualified deferred comp