Retirement Flashcards
Highly compensated employee HSE
5% owner
Or
$110,000 compensation 2011, $115,000 compensation 2012
Key employee
3 letters 3 rules
5% owner Or $150,000 comp & >1% owner Or $165,000 comp & officer
Top heavy DB or DC plan
60% of the sum of account balances are for key employees
Then
Accelerated vesting &
1) DC provide 3% match to non-key employees
2) DB provide minimum 2% benefit accrual
Characteristics of group life
Cost of coverage in excess of $50,000 is taxable to the employee
&
Employer gets a deduction for premiums paid
Qualifications for social security disability benefits
40 quarters & worked at least 20 of the last 40 quarters
Qualification for social security survivor benefits
40 quarters OR 6 of the last 13 quarters
Cash balance vesting schedule
NO grading maximum 3 year cliff
Defined contribution (401k) EMPLOYER contribution limit
25% of payroll
Maximum $250,000
Includes matching, non-elective, and profit sharing
50/40 test
ERISA testing requirement
At least 50 employees
OR
40% of eligible employes ** minimum 2 employees covered
10% penalty withdrawal prior to 59 1/2 ALL retirement plans exceptions
Death
Fully disabled
Medical expenses above 7.5% AGI
10% penalty withdrawal exceptions prior to 59 1/2 qualified plans
Death Fully disabled Medical expenses above 7.5% AGI Separation from service after age 55 QTRO
403b characteristics
Not qualified
Multiple agreement with 1 employer
Deferral limit $17,000 + $5,500 catchup (age 50+)
+ $3,000 long service rule 15 years+ must be HER org
457 plan
Deferred comp plan
2 types government or non- government
Non-government NO rollovers & NO loans
Deferral $17,000, NOT reduced by other retirement plans
Final 3 year catch up up to 2x annual limit ($34,000), does not include catchup
ISO incentive stock options
May not exercise more than $100,000 in one year
Qualifying disposition= exercise 2 years from grant + sale 1 year from exercise, qualifying create long term cap gain + AMT income
No qualifying disposition ORDINARY income, NO AMT
Can only be transferred at death, NO step up
NSO non qualified stock option
No rules Can be given to anyone, employee or non employee Taxed as ordinary income W2 NO time limitation Never subject to AMT
Ten year forward averaging
Born before 1935 Lump sum 10 yr average on ordinary income Per 1974 portion taxed as LT cap gain Only one per lifetime
Net unrealized appreciation NUA
- Basis taxed as ordinary income
- NUA taxed as long term cap gain ALWAYS
- additional appreciation/depreciation taxed at sht term or long term depending on holding period
10% penalty exceptions for IRA
Death
Fully disabled
Med expenses above 7.5% AGI
1st time home buyer, up to $10,000
Qualified higher education (not room and board)
72t
Payment of medical ins premium while receiving unemployment
Employer qualified plan loan provisions
- $50,000 limit, reduced by previous loan balance
- 50% of present value of vested balance or up to $10,000, if available
- if balance is less than $10,000 can borrow 100%
- quarterly payments required
- must be repaid within 5 yrs, unless used for primary residence
FICA tax rates
Social security taxable wage base $110,100
- SS 10.4%
- Medicare 2.9%
The use of Life insurance in a qualified plan
- DB , life insurance is not more than 100x expected monthly benefit
- DC, cost/ premium must be less than 25% of all plan benefits
RMD NO beneficiary
Death before RMD, 5 yr rule
Death after RMD, deceased life expectancy
Stock bonus plan
- Employer advantage, cashless contribution, helps cash flow
- NUA advantage to employee
- CAN integrate with SS
- employee contribution diversify immediately
- employer contribution, after 3 years of service, must be offered 3 alternative investments and the immediate right to diversify
ESOP, employee stock ownership
- can NOT integrate with SS
- ESOPs must invest in company stock, NUA advantage
- diversification requirement: at age 55 or over at least 10 years of service, transfer up to 25% of account to any of 3 alternative investments….offered over 6 years, in last year 6, 25% increased to 50%
Simple IRA
not qualified, NO loans
25% penalty for early withdrawal in first 2 years of the plan
Employer may have no more than 100 employees who earn at least $5,000
No other plan can be provided
$11,500 deferral + $2,500 catchup (over 50)
Employer required to match 3% of contribution, no salary cap
Or
Employer required non elective 2% of salary, $250,000 cap
Simple 401k
Qualified plan, loans can be made available
Employer has no more than 100 employes making over $5,000
No other plan may be provided
Employee deferral $11,500 + $2,500 catchup
Employer required to match 3% employee contribution, up to $250,000 cap
Or
2% non elective, based on salary, $250,000 cap
Cross-tested profit sharing plan
Eligible employees are put into different groups
The business can allocate a larger portion of the contribution to select groups
Allowable disproportionate allocations if:
Non- discriminatory test is passed
Min contribution of 5% non highly compensated
Or
Highest allocation to high compensation no more than 3x
Brother sister test
5 or fewer people own at least 80% of voting power
The same 5 people or fewer own more than 50% of the control
Owner Keogh plan contribution
1) Net business profit less 7.65%= self employment income subject to tax
2) self employment tax
SS $110,100 x 10.4% = a x 59.6%= A
Med total x 2.9%= b x 50%. = B
3) A + B= C
4) net business profit - C = net earnings
5) net earnings x (%/1.%) = contribution
Controlled group retirement benefit coverage
Parent -subsidiary (80%ownership) or brother sister relationship
-all employees who meet ERISA eligibility requirements in a controlled group MUST be included when testing for coverage
Non qualified deferred comp
Pure deferred comp funded by employee
Supplemental plans funded by employer:
Excess benefit plan makes you whole (matching for salary above $250,000)
IRA deduction limit
Single
Married filing jointly
Spousal IRA
Single. $58,000 - $$68,000
Married filling jointly. $92,000 - $112,000
Spousal IRA. $173,000 - $183,000
Roth IRA phase out
Single
Married filling jointly
Single. $110,000 - $$125,000
Married filing jointly. $173,000 - $183,000
SEP
Inclusion rules 1) employed 3 out of past 5 years 2) income of at least $550 3) at least age 21 Employer contribution only, up to 25% of income, not to exceed $45,000
Ratio percentage test
The % of non highly compensated employees benefiting from the retirement plan MUST be at least 70% of the HCE benefiting from the plan
IRA contribution deadline
Contributions must be made by April 15 of year following the tax year to which they relate, NO extensions
Incidental life insurance benefits of dc plan
- Current term benefit cost must be less than 25% of the cost of all plan benefits
- Current ordinary life benefit cost must be less than 50% of the total benefit cost
Unit benefit formula
Benefit is expressed as a % of compensation per year of service
- favorable to employees with many years of service
Attained age level method
Actuarial method of DB plan cost:
Does NOT credit prior years of service, prior to plan installation
Entry age normal
Actuarial method of DB cost:
DOES credit prior years service, prior to plan installatio
Social security integration DC plan
- For the amount over $110,100
- Permitted disparity is the lesser of 5.7% or base % contribution
- The excess benefit percentage would be the disparity+base%
Social security integration DB plan
- for the amount over $110,100
- The permitted disparity is the lesser of 26.25% or base contribution
- the excess benefit percentage would be 26.25% + base
All,defined Benefit plans must meet 50/40 test and 1 of 2 others
1) ratio % test: (HEAD count) % of non highly compensated employes benefiting from the plan must be 70% of the highly compensated employees benefiting from the pan
Or
2) average benefits test:( DOLLARS) the plan must provide an average benefit % for non highly comp employees that is at least 70% of the avenge benefit % for highly comp employees
