Retirement Flashcards

Question

Highly Compensated Employee (HCE)

Answer 1

- 5%+ owner OR - $150,000+ salary last year - related to a HCE

Answer 2

- 5%+ owner OR - 1%+ owner AND $150,000 salary - $215,000+ salary and officer

Answer 3

Fast: DB Top-heavy Plans / All DC Plans - 3-year cliff - 2-6 year graded - 100% vested after 2 years Slow: Non-top-heavy DB Plans only - 5-year cliff - 3-7 year graded - 100% vested after 2 years

Answer 4

Base % + Permitted Disparity = Excess % Defined Benefit Permitted Disparity: lessor of base % or 26.25% Defined Contribution Permitted Disparity: lessor of base % or 5.7%

Answer 5

Elective Deferrals to multiple plans are always aggregated (2023) 401k/403(b)/SIMPLE/SARSEP -$22,500 plus catch up $7,500 SIMPLE and other SIMPLE -$15,500 plus catch up $3,500 457 Plans are NOT part of aggregated amounts.

Answer 6

Insurance premiums and/or benefits must be incidental to the expected benefits of the qualified plan. Premiums - needs to be less than the following percentages of the plan cost for that participant - Ordinary life insurance 50% - Term Insurance 25% - Universal Life 25% Benefits: defined benefit vs. life insurance benefit - The participant’s insured death benefit must be no more than 100 times the expected monthly benefit. Defined benefit plans typically use the “100 times” limit.

Answer 7

Distributions from retirement plans that are excluded from rollovers into a new plan: - non-governmental 457 plan to anything else (needs to roll over into another non-govt 457) - Hardship distributions - Required minimum distributions

Answer 8

These avoid 10% penalty if withdraw before age 59 1/2 - Death - Disability - Substantially equal periodic payments following separation from service - Distribution following separation from service at age 55 - QDRO - Medical expenses > 7.5% of AGI - health insurance costs while unemployed - insurance premiums after separation from employment (must file for unemployment) - birth/adoption ($5,000) - Federal declared disaster (limited)

Answer 9

Retirement Plans (IRAs / SEPs / SARSEPs / SIMPLEs) - Required Beginning Date (RBD): 73 Qualified Plans/403(b)/457 - Required Beginning Date (RBD): 73 (if retired) - RMDs not required until retired (can still work past 73 without RMD) - 5% owners need to take at 73 even if still working

Answer 10

Active Participant: any employee deferrals, employer contributions, forfeitures in a work plan - neither spouse active participant in work plan: both IRAs fully deductible - one spouse active participant: one spouse deductible subject to joint AGI - both spouses active participants: single/married AGI limits

Answer 11

- Death - Disability - Substantially equal periodic payments - FIRST home purchase - Qualified EDUCATION - Medical expenses > 7.5% of AGI - insurance premiums after separation from employment (must file for unemployment) - birth/adoption ($5,000) - Federal declared disaster (limited)

Answer 12

1) Contributions 2) Conversions 3) Earnings Distributed within 5 years of owner’s death, or Distributed over 10 years Where sole beneficiary is owner’s surviving spouse, the spouse may delay distributions until the Roth owner would have reached age 73, or may treat the Roth as his or her own (roll it to her/her Roth)

Answer 13

These plans can be structured for anyone and anything, above qualified plans limits, can discriminate, etc. Salary Reduction Plan: Uses some portion of the employee’s current compensation to fund the ultimate compensation benefit (also called Pure Deferred Compensation) Salary Continuation Plan: Uses employer contributions to fund ultimate benefit Insurance: Employer Owned - considered informally funded - employer owns the policy and is the beneficiary - any benefits paid to employee or employee beneficiary from the employer, that gets reimbursed from the policy - taxed to the employee as deferred compensation and taxed as income if benefits distributed to them - if the company owns and is the beneficiary of the insurance plan, it's an unfunded non-qualified deferred compensation plan Insurance: Employee Owned (Section 162 bonus structure) - employee "pays" premium through bonus structure, with comp deducted to cover the cost of the insurance premiums - employer actually pays the insurance directly to the insurance company - employee gets the benefits - thia is NOT a deferred compensation plan

Answer 14

Key Words: Merger, Acquisition, or Change of Ownership RABBI TRUST Assets in Rabbi Trust available for company’s creditors Fear that ownership / management may change before deferred compensation is paid SECULAR TRUST - a FUNDED non-qualified deferred compensation plan - an irrevocable trust for the exclusive benefit of the employee - out of reach of creditors and management - employee pays the tax on the contributions.into the trust but grows tax deferred Informal Funding: company pays tax until distributed to the employee Formal Funding: employee pax tax on the contributions to a secular trust

Answer 15

Holding Period: 1 year from Exercise Date and 2 years from Grant before selling ISOs Violating either rule results in a Disqualifying Disposition

Answer 16

- a deferred compensation plan - Non-Qualified Deferred Compensation Plans of governmental agencies and non-church controlled tax exempt organizations - Deferral limited to $22,500 or 100% of compensation (2023) - Catch-up of $7,500 allowed for those 50 and over ONLY for governmental plans (2023) - Salary deferrals NOT aggregated with other plans (401k, etc.) - Non-governmental plans can ONLY be rolled into another 457 plan

Answer 17

- No Loans - No Life Insurance - Immediate Vesting - May not be creditor protected (state specific) - 59½ for no 10% penalty - Must take RMDs at 73 (even if not owner)

Answer 18

Defined Benefit Plans: tested against contributions Defined Contribution Plans: tested against benefits Allows to separate HCE and NHCE but rules need to be obeyed, allowing for maximum benefits for HCE but still providing minimums for NHCE "Gateway" Requirement: NHCE needs lessor of 1/3 of highest HCE contribution % or 5%.

Answer 19

- guaranteed contribution as % of salary - guaranteed minimum rate of return - less expensive and simpler than defined benefit plan - less attractive for older workers vs DB plan

Answer 20

% NHCE >= % HCE x 70% For total average benefits provided (average benefit test) and # of people (ratio percentage test) covered E.g. 80% HCE Covered, then 80% x 70% = 56% of NHCE needs to be covered

Answer 21

Top Heavy if Total Key Employee Benefits / Total Benefits > 60% If Top Heavy, minimum contributions are... DB: 2% of compensation x # of years plan was top Heavy for max 10 years DC: no less than 3% of each non-key employee compensation

Answer 22

Need to be secured Lessor of 50% of vested balance Max $50,000 Term max 5 yrs, unless to purchase first home Repaid quarterly, if not,.it's a taxable distribution with penalty Interest can be deducted if non-key employee and secured by primary residence

Answer 23

SPOUSE Dead under Required Begin Date age (73) - rollover into spouses IRA: use spouses RBD - keep in decedent's account: take distributions based on decedent's RBD and spouses life expectancy Dead Over RBD - rollover into spouse's account: use spouses RBD - keep in decedent's account: use espouse's life expectancy NON- SPOUSE - distribute within 10 years - unless under 18, disabled, chronically ill, less than 10 years younger than the decedent NO BENEFICIARY - distribute in 5 years

Answer 24

ISO - vesting: 1 year, max $100,000/yr otherwise NSO - At Exercise: No tax. AMT Bargain Element EP - GP - At Sale: Cap gains tax on EP - GP - Cap gains tax: LTCG if meet holding period - Holding Period: EGG - one year from exercise, 2 yrs from grant date, otherwise NSO NSO - no vesting - At Exercise: ordinary income tax on EP - GP - At Sale: cap gains tax on SP - EP - Cap Gains Tax: STCG/LTCG depending on holding period from exercise date

Answer 25

Restricted Stock Units (RSU) given at a discounted price Income tax as compensation when received Cap gains tax when sold