Retirement Flashcards
If someone returns to work after 70 years old and is receiving Social Security benefits are Social Security payments taxable?
When working and receiving SS benefits, if modified AGI exceeds $34,000 (single) then 85% of SS benefits must be included (in gross income) OR if modified AGI exceeds $25,000 (single) then 50% of SS benefits must be included
When can a surviving spouse be entitled to a benefit before 60 years old?
When caring for a child under 16 (or child “in care”)
What is an option for a company with a defined benefit plan that can no longer afford any type of pension plan?
Freeze the defined benefit plan
What are the types of pension plans?
- Money purchase
- Target benefit
- Cash balance
Which qualified retirement plans may forfeitures be allocated to increase balances of remaining plan participants?
- Defined benefit plan
- Money purchase plan
What is a flexible component of a profit sharing 401(k) plan?
The employer can contribute nothing or 415 limit
What kind of plan is great for retaining young, successful employees?
Money purchase plan
What factors affect a target benefit plan participant’s retirement benefit?
- Age of plan participant
- Participant’s compensation each plan year
- Investment performance of the plan assets
- Actuarial assumptions used to determine contributions to the plan
Can the employer that maintains a profit-sharing plan contribute more than 25% to the employee?
Yes, because the limit is the lesser of 100% or $66,000
As long as the total company contributions do not exceed 25% of total plan compensation, the employer can contribute more than 25%
Which retirement plan has flexible employer contributions, no employee contributions, and loan provisions?
A profit-sharing or ESOP satisfy the objectives (unless it indicates they want to contribute company stock, an ESOP is not appropriate)
Are SIMPLE salary deferrals subject to FICA and FUTA?
Yes
What are the SEP contributions for self-employed individuals?
Max contribution is 18.59% of earned income with a 25% plan
What are benefits of rolling a deceased spouse’s qualified plan directly into an employer qualified plan?
- Not subject to IRA rules
- Fully creditor protected
- Can either take a distribution at separation of service at age 55 (no 10% penalty) or wait until after retirement to take RMDs
Which distribution option is best when a spouse is much younger and client wants to take RMDs as slow as possible?
Use joint and last survivor table
Are Roth IRA distributions for education purposes tax free?
Not always
What are characteristics of a secular trust?
- Contributions are deductible in contribution year by company
- Irrevocable
- Not subject to company’s bankruptcy or insolvency creditors
- Can be funded with various investments including (but not limited to) variable annuities
When may an employee avoid receipt of taxable income when participating in a funded non-qualified deferred compensation plan?
When there is a substantial risk of forfeiture relative to the compensation that was deferred
Can IRA type plans offer loans?
No
What are the requirements for housing to be a “non taxable” fringe-benefit?
Occasional usage probably would not be taxable, but has to be during the work week
Use of a company apartment or lodge for weekends is taxable
What is the most stringent eligibility requirement for a money purchase plan?
21-and-one
What is the effect on contributions for non-key employees in a profit sharing plan that’s “top heavy”?
- It must make corrective distributions representing the greater of 3% for all eligible employees’ compensation or the percentage contributed for any key employee receiving a contribution more than 3%
- It must comply with top-heavy vesting requirements
What is included in provisional income?
AGI plus tax exempt interest and 1/2 SS income (muni bond interest is considered income)
Do stock bonus and ESOP plans require participants to take distributions in the form of employer stock?
No - under a “put option” participants may request cash distributions
What is the salary cap in a defined benefit plan when using the final average method?
$330,000 (2023)
The annual benefit cap is $265,000
What is considered in the unit-benefit formula?
Service and salary (plus past service)
What is guaranteed in a cash balance pension plan?
Employer guarantees contribution level and minimum rate of return
PBGC guarantees pension obligation
What is the maximum contribution amount to a defined benefit plan (2023)?
Actuarial formula
What is the maximum employee elective pre-tax contribution in a SIMPLE plan?
$15,500 (2023) or $10,000 as indexed
Can collectibles and U.S. government minted gold coins be used to fund a SIMPLE plan?
Collectibles cannot be used as a funding vehicle, but U.S. government minted gold coins are acceptable
What is the catch-up provision in a SIMPLE?
A participant can make a catch-up deferral providing they will attain age 50 by 12/31 of the current plan year
What is considered Unrelated Business Tax Income? (UBTI)
Income from a limited partnership or dividends from a margined account.
What retirement plans can purchase life insurance?
Only qualified plans can purchase life insurance. IRAs cannot provide life insurance.
What type of qualified plans can hold second-to-die insurance?
Only profit sharing plans (not pensions)
What is the deferral limit and catch-up contribution for a SIMPLE 401(k)?
A SIMPLE 401(k) has a deferral limit of $15,500 (2023) plus an applicable catch-up contribution $3,500 for age 50.
Which plans are employer contributions always 100% vested?
SIMPLE, SIMPLE 401(k), SEP, and SARSEP employer contributions are always 100% vested. Employee deferrals in any type of plan also are always 100% vested (It is the employee’s own money).
Which of the following is not a controlled group?
-Parent Child control group
-Brother Sister control group
-Combined group under common control
-Parent - Sub control group
Parent Child control group. There is no such thing
A 40 year old employee has been a SIMPLE plan participant for less than two years and decides to leave and take the money as a distribution. How will the distribution be treated?
It will be taxable as ordinary income plus a 25% early withdrawal penalty. This penalty applies for distributions taken within two years of the employee’s first participation.
If a company maintains a SIMPLE plan and would like to provide more retirement benefits to employees, what plan can they adopt in addition to the SIMPLE plan?
None. A SIMPLE does not allow for additional plan adoption.
What is the maximum employer contribution in a SIMPLE plan?
3%
Which plan permits a maximum allowable contribution but requires a mandatory annual contribution?
A money purchase plan can allow for a $66,000 contribution and as a pension is subject to the minimum funding standard (mandatory contribution).
A SEP or a profit-sharing plan can allow for a $66,000 contribution, but the annual contribution isn’t mandatory.
What are characteristics of a SARSEP?
SARSEPs are subject to the contribution limit (the lesser of 25% of compensation or $66,000). New employees can be enrolled in the plan. A new plan cannot be started, but currently operating plans may continue.
Which investment vehicle may not be used to fund a TSA?
A TSA cannot be funded with common stock.
Any type of annuity is an acceptable investment for a TSA plan. Incidental life insurance within the annuity is also acceptable.
Can an eligible employee contribute to both a 403(b)/TSA and a Section 457 plan?
Yes. Governmental 457 programs are not aggregated with other types of elective deferral programs, so the lesser of the $22,500 or 100% of comp can be deferred.
Would an S Corp that holds an apartment complex using 80% debt financing in its ESOP be subject to UBTI?
No
Income from a limited partnership interests (except real estate) are considered UBTI income.
Can a SEP hold life insurance?
No. SEPs (and SIMPLEs) cannot have life insurance. They are IRAs.
Which type of plan can hold second-to-die insurance?
Only profit-sharing plans can hold second-to-die insurance. Pension plans cannot.
Can a qualified plan hold disability insurance?
Yes. Qualified plans are eligible to hold disability insurance.
Ellen’s husband recently died. He was 53. He was still working at his death. After reviewing the retirement plan you realize, as his CFP, that this was an ESOP. Neither husband or Ellen have taken a distribution. What is your best advice?
- Take the security as part of lump sump distribution and all NUA will be non taxable
- The NUA will constitute Income with Respect of a Descendent (IRD)
- Once the stock is sold, the NUA will be LTCG.
Dan turned 73 this year. Business produces net income of $500K and his salary is $120K - his business operates as an S-Corp. Which of the following is true?
A. If he starts a profit sharing plan the business can contribute up to $66K if he has other employees
B. If he installs a SEP he can contribute 18.59% of his salary
C. If he adopt a retirement plan he will need to take RMD at year end
D. He should take more salary to maximize company contribution
E. He cannot do anything - he will be 73.
A and D
In a target benefit plan, which provisions are shared with defined contribution plans?
- Maximum contribution is the lesser of 100% of compensation or $66,000 (2023)
- Retirement benefit is determined by account balance
- Employee assumes investment risk
- No annual actuarial determination is required
- Forfeitures may be reallocated to remaining participants or used to reduce employer contribution
In a target benefit plan, which provisions are shared with defined benefit plans?
- Plan generally benefits older employees
- Fixed mandatory contributions
- Actuary determines initial contribution level
Using the ratio percentage test (70%), if the plan covers only 50% of the HCEs, then up to ____ of the NHCEs could be excluded.
65% can be excluded. 35% have to be covered.
.5 * .7 = .35 –> must be covered
1- -.35 = .65–> can be excluded
Using the ADP/ACP testing if the ADP for the NHCEs employees for last year was 5%, then the ADP for HCEs can be as high as?
7% (5% + 2%)
What is the permitted disparity with an integrated money purchase plan if the based contribution is 5%?
5%
B(base) + PD(permitted disparity) = Excess
PD = lesser of base (5%) or 5.7% so 5%
Excess = 10%
With a Roth 401(k) contributions are held in two separate accounts: employee contributions and employer contributions. Are minimum distributions required when the account holder reaches the required beginning date?
Yes, from both accounts
Who cannot sponsor a 403(b) program?
A governmental employer. The company has to be a tax-exempt 501(c)(3) organization
Who cannot sponsor a 457 program?
A church. The company must be government or certain non-church controlled tax-exempt organizations.
What is UBTI?
Unrelated Business Taxable Income
What is the penalty for not taking out your RMD with Secure 2.0?
RMD penalties have been lowered from 50% to 25% or 10% if the RMD is taken by the end of the second year following the year it was due
A QDRO (Qualified Domestic Relations Order) applies to what type of retirement plans?
Qualified plans like defined benefit. IRA type plans are not subject to QDRO.
In a Rabbi Trust (Nonqualified Deferred Compensation), the participant has the same rights as?
An unsecured creditor
