Retirement Flashcards
When to factor in inflation in retirement planning calculation?
When its mentioned “today’s dollar”
Tax treatment for a gift at death of the remaining retirement assets to a charitable organization.
Income and estate tax-free
Factor that least affects DC plan participant’s account balance.
Life expectancy
Which type of business is prohibited from establishing ESOP?
Partnerships (keogh) because they cannot issue stocks.
Difference between ESOP and stock bonus plans and traditional profit-sharing plans?
Stock bonus plan and ESOP are to finance company operations while profit-sharing plans aren’t.
Effect of lower than expected inflation on a DB plan.
Decrease company contributions because investments increase.
Effect of new employees rarely staying one year on a DB plan.
No effect
Maximum permissible contribution amount to a defined benefit plan?
Actuarially determined. The maximum annual benefit is $265K but the contribution could exceed $300K to $400K per year
Impact on a money purchase plan if a key employee retires and is replaced by a clerical employee.
Company contributions would decrease.
If forfeitures aren’t relocated to remaining money purchase plan participant, what effect would that have on ER contribution?
ER contributions would decrease.
Excess method of a defined benefit’s social security integration.
The lesser of the base benefit or 26.25%
Most stringent service requirement for ERISA pension plan. Which schedule?
2-year/100% schedule
Vesting schedule that helps with “employee retention”
Graded schedule instead of a cliff schedule
True/false: profit - sharing contributions are definite and predetermined.
False. Its flexible and not determined until year-end.
Under which circumstances would a 401(k) loan interest to purchase a home be deductible?
- The loan is secured by the residence for which the loan is made.
- The participant is not a key employee.
Short-cut method for sole-proprietors contributions.
Take the net schedule C income:
1. Multiply by 12.12% for 15% contribution for non-owner employees
2. Multiply by 18.59 % for 25% contribution
Can a retired person make contributions to a Roth IRA?
No-needs to have earned income.
Does 457 plan count as active participation for IRA deduction?
No
Are there income restrictions associated with eligibility to participate in a Roth 401(k)?
No.
Maximum profit-sharing contribution.
Limit to 25% of the compensation (max $330,000)
Can a Board of Director establish a qualified retirement plan?
Yes on the basis of director fees ( qualify as compensation).
Requirements for plan loans that are made available to plan participants?
- Loans must be audible to all ppts on a reasonably equivalent basis.
- Must not be available to HCE in an amount greater than the amount made available to other employees.
RMD requirement for IRA to Roth IRA conversion.
Roth conversion doesn’t satisfy the RMD for anyone who are required to take RMD (after age 73). Otherwise, no need to take RMD for Roth if conversion happens before age 73.
How many ABLE accounts can a disabled individual be the beneficiary of?
Only one account
Can SEP be integrated with social security?
No
Deferral limit of a simple 401(k)
$15,500 with catch-up contribution of $3,500.
Choose plan: Sep vs. Simple
Sep is easy to install and there are no mandatory contributions. Simple requires employer contributions of 3% of compensation.
The prudent person rule.
As long as the company (fiduciam) contracts for the investment management advisory services, it may be liable.
Incidental rules for death benefits. A 25% test and a 50% test:
25% test: term & universal life
50% test: ordinary life/whole life
Which plans can hold second-to-die insurance?
Only profit-sharing plans can. Pension plans cannot.
Which types of qualified plans can offer disability insurance?
Qualified plans (I.e. Db, ESOP, 401(k)) can hold disability insurance.
True/false: New employees, as they join, can be added to the sarsep plan as long as the employer has no more than 25 workers.
True
Which of the plan contributions is not subject to FICA and FUTA?
SEP because it’s funded entirely by employer contributions. In the defenal-type plans, the employees contribution is subject to FICA and FUTA.
Uni-401(k)
Uncomplicated retirement plan with the maximum allowable amount per year. Sole proprietor with no employees.
What entity/regulation imposes extensive reporting and disclosure requirements on a defined benefits plan?
ERISA
The right to name another beneficiary for pension plans only?
Spouses only
Can QDRO be applicable to IRAs?
No to qualified plans, 403(b) and governmental 457s only.
Does the 20% federal withholding apply to a QDRO’s direct distribution?
Yes
20% withholding applicability to certain plans.
A direct distribution from a qualified plan and a 403(b) distributions that are not directly rolled over
In-service withdrawal of A 457 plan.
Cannot withdraw until 70.5 age unless you separate from service and is at least 50.
What happens to an NUA from a deceased participant?
The NBA constitutes IRS even when it involves a beneficiary receiving a distribution from ESOP.
Section 162 insurance plan:
Direct cash bonus to insurance company to pay the premium on a policy that is owned by the employee.
Is there substantial risk of forfeiture when your family members own the company?
No.
Taxation if a gift of ISO options is made before exercise.
A disqualifying disposition and the gifter will have to pay ordinary tax on the income when the other person sells it.
What happens when over $look of ISO options are exercised in the same year?
The first $100K will be ISO and the rest will be NSOs.
Does Sep contribution count as an active participation for Ira deduction?
Yes
Will the employees have constructive receipt if the company owns the defined compensation assets?
No
Can the employer fund the rabbi trust from the general assets of the company?
Yes
After contributing to a DB plan, can you contribute to a SEP and if so, how much?
Yes if it’s two separate employers. The limit is 25% of net income less social security offset or 18.59%
What makes sense to pledge as collateral for a margin (account) loan?
Common stock. Municipal bonds will make loan interest deduction disallowed. An IRA will be disqualified if IRA is used.
Deductibility of a secular trust
Contributions are deductible in the contribution year by the employer.
Tax deductibility of travel-related business expenses.
Deductible if its the employee of the taxpayer and is for business purpose (expenses).
How much can you deduct your spouses capital losses for married filing separately?
50% ($1,500 of $3,000)
The most stringent eligibility requirement if there’s a graded vesting schedule.
21 and 1
Are qualified profit-sharing plan loans subject to penalty or ordinary income tax?
No.
Top-heavy threshold defined by the IRC.
At least 60% of the plans overall contribution.
Top-heavy requirements:
- Corrective distributions represents the greater of 3% of all eligible employees’ compensation or the percentage contributed for any key employee receiving a contribution of more than 3%.
- 2 years to do correction
- Resting requirements of 3-years or 2-6 graded.
Group term Life Insurance policy’s taxation.
Employee is subject to the income tax on the cost of insurance over $50,000.
Taxation of disability benefits.
If premiums are paid by the employee with after- tax dollars ( contributory) then benefits are tax free.
What is the maximum contribution to a defined benefit plan in 2023 ?
No limit in contributions. There’s a maximum benefit.
What are participants allowed to do (one-time election) with the substantially equal periodic payments?
Change the annuity or amortization method to the RMD method.
Working after retirement: effects on SS benefits.
Government deducts $1 from your benefits for each $12 earn above $21,240 before the year. $1 for each $3 above $ 56,520 in the year until the month you reach the full retirement age.
Phantom income: insurance
I. Any type of lapse with a loan
II. Section 162 life and disability
Phantom income: investments
I. Zero /strip income
II. Tips
III. Declared but not paid dividends and CGs
Phantom income: tax
I. K-1 income from LP/FLP
II. Recaptures
Phantom income: retirement
I. ESOP distribution (basis only)
II. Secular trust
