Retirement

Question 1

DB/DC Salary Cap = _________

Simple IRA Salary Cap = ______

DC Max Contribution = ____

DB Max Contribution = ______

Tandem = _________

Answer 1

$330,000

$516,667

$66,000 ($73,500 if 50+)

Stuff it like a pig

Wrong answer

Question 2

IRA Keys (SIMPLE, SEP, SARSEP)

_____ loans
____ life insurance
_____ vesting
_____ creditor protected (state specific)
_____ for no 10% penalty
Must take RMDs at ____ (even if not owner)

Answer 2

No loans
No life insurance
Immediate vesting
May not be creditor protected
59.5 for no 10% penalty
Must take RMDs at 73 (even if not an owner)

Question 3

Single taxpayer’s income plus half of the SS benefits is more than _______, up to 50% of the benefits will be included in taxable income.

Single taxpayer’s income plus half of the SS benefits is more than _______, up to 85% of the benefits will be included in taxable income.

Answer 3

$25,000 / 34,000

Question 4

MFJ taxpayers’ income plus half of the SS benefits is more than _______, up to 50% of the benefits will be included in taxable income.

MFJ taxpayers’ income plus half of the SS benefits is more than _______, up to 85% of the benefits will be included in taxable income.

Answer 4

$32,000 / 44,000

Question 5

What type of income is added to AGI when determining taxation of SS benefits?

Answer 5

Municipal bond interest

Tax-exempt interest is added to AGI to get MAGI.

Question 6

Defined Contribution

1. up to 25% employer deduction
2. fixed contributions
3. stable cash flow needed

Answer 6

Money-Purchase Pension

Question 7

Defined Contribution

1. up to 25% employer distribution
2. fixed contributions
3. stable cash flow needed
4. favors older employees

Answer 7

Target Benefit Pension

Question 8

Defined Contribution

1. up to 25% employer deduction
2. flexible contributions (must be recurring and substantial)
3. 401(k) provisions $22,500 (FICA) (hardship withdrawals)
4. SIMPLE 401(k) exempt from creditors

Answer 8

Profit Sharing Plan

Question 9

Defined Contribution

1. up to 25% employer deduction
2. flexible contributions
3. 100% of the contribution can be invested in company stock.
4. Cannot be integrated with SS or cross-tested

Answer 9

Stock Bonus Plan

Question 10

Other retirement plans

1. for small employers (100 or fewer employees)
2. requires employer match (immediate vesting) (no forfeiture)
3. Salary reduction limit up to $15,500 (FICA)
4. Company cannot have another plan

Answer 10

SIMPLE IRA

Question 11

Other retirement plans

1. No salary deferrals
2. up to 25% contribution for owner (w-2) / up to 18.59% contribution for self-employed
3. account immediately vested. No forfeiture.
4. can be integrated with SS
5. special eligibility: 21+ years old, paid at least $750, and worked 3 of the 5 prior years

Answer 11

SEP IRA

Question 12

Other retirement plans

1. May have up to 25 employees and 50% of the eligible employees must defer
2. must have been in existence before 12/31/1996 (grandfathered)
3. Salary deduction limit $22,500 (FICA)
4. New employees may participate if established before 12/31/1996

Answer 12

SARSEP

Question 13

Other retirement plans

1. For 501(c)(3) organizations and public schools
2. subject to ERISA only if employer contributes
3. salary reduction limit up to $22,500 (FICA)
4. ER contributions may be subject to vesting schedule

Answer 13

403(b)/TSA/TDA

Question 14

Which benefit plans are insured by the PBGC?

Answer 14

Defined benefit plans and cash balance plans

Question 15

__________ who do not follow certain standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made thru improper use of plan assets.

Answer 15

Fiduciaries

(e.g. trustee)

Question 16

What are the 3 types of plans that cannot be integrated with SS?

Answer 16

ESOP, SIMPLE, SIMPLE 401k

Question 17

A 60-day distribution from a qualified plan ______ disqualify an IRA from another 60-day distribution within one year.

Answer 17

does not

Question 18

Regarding RMDs, when a spouse is more than 10 years younger, the joint life tables can be used, and this allows for _______ mandatory distributions.

Answer 18

lower

Question 19

With regard to IRA contributions, if neither spouse is an active participant in an employer plan, the AGI limits _______ apply.

Answer 19

DO NOT.

Question 20

A _____________________ is the right to purchase a specified number of shares of the employer’s stock at a given time and a given price. No taxation occurs as long as a substantial risk of forfeiture exists.

Answer 20

Nonqualified stock option (NSO)

Question 21

An incentive stock option (ISO) tax-favored plan for compensating executives by granting options to buy company stock. Only the first __________ worth of ISOs granted to any employee that vest in one calendar year is entitled to favorable ISO treatment. Excess is treated as a ________________. The corporation granting the ISO does not ordinarily receive a tax deduction for it at any time. ISOs are NOT deferred compensation.

Answer 21

$100,000

nonqualified stock option

Question 22

ISOs ______ subject to regular tax when exercised but NSOs ______.

Answer 22

are not / are

When exercising ISOs, attention should be paid to AMT.

Question 23

The ISO holding-period rules must be satisfied to prevent a disqualifying disposition.

Hold the exercised ISO shares more than _____ from the date of exercise before selling them.

Hold the exercised shares more than ______ from the grant date before selling them.

Violating either part of the rule results in a disqualifying disposition. For tax purposes, the ISO becomes an NSO.

Answer 23

one year

two years

Question 24

If the ISOs are sold in the same calendar year as the ISOs were exercised, the bargain element is ________ compensation, subject to _________.

If the ISOs are sold within 12 months of exercise but in the following calendar year, the bargain element is ________ income and not subject to _________.

Answer 24

taxable / FICA and FUTA

ordinary / FICA and FUTA.

Question 25

Is a 457 plan eligible for a rollover to an IRA?

Answer 25

Only if the 457 is a governmental plan.

Nongovernmental plans can only be rolled into another 457 plan.

Question 26

Are 457 plans subject to qualified plan minimum distribution rules?

Answer 26

Yes

Question 27

Under a 401(k) hardship withdrawal rules, an employee can request an amount equal to ______________.

Answer 27

an amount equal to elective deferrals plus an amount equal to vested profit sharing contributions

Question 28

In an ESOP funded with both company stock and mutual funds, what should you do to reduce phantom income exposure upon retirement and beginning distrubtions?

Answer 28

Take only a 72t distribution rather than a full distribution in the first year of retirement AND roll the whole account into an IRA.

The IRA rollover of the entire account, which includes the employer stock and 72t distribution, eliminates phantom income. However, the NUA tax break is lost.

Question 29

A SIMPLE 401(k) is an ERISA plan and ________ be exempt from creditors.

Answer 29

Will

Question 30

True or False: If a top-heavy plan fails to correct its top-heavy status for 3 years in a row, the DOL can terminate the plan.

Answer 30

FALSE. The plan will continue to be qualified but subject to top-heavy rules.

Question 31

T or F: If a defined benefit plan is top-heavy for a given year, it must provide a more rapid vesting schedule than generally required.

Answer 31

TRUE

Question 32

Life insurance benefits must be merely incidental to the primary purpose of a defined contribution plan. Therefore the aggregate premiums paid for a participant’s insured death benefit for universal life must be at all times less than ____% of the plan cost for that participant.

Answer 32

25

Term insurance is 25%, but ordinary life is 50%. DB uses the 100 times rule.

Question 33

Under 72(t), the one-time election allows participants to switch from the _______________ method to the ____________ method.

Answer 33

annuity or amortization method / RMD method

Question 34

If a person is 73 or older, can the whole IRA be converted to a Roth?

Answer 34

Not without taking an RMD. Once the RMD is withdrawn, then the remaining balance can be converted.

Question 35

A company cannot grant more than $_______ of ISOs (based on the exercise price) that vest in the same year to any one employee if favorable ISO treatment is desired.

Answer 35

100,000

Any excess, once exercised are treated as NSOs for tax purposes.