Retirement – 46 Flashcards
(46.2) QUALIFIED retirement plans must meet statutory (___) requirements regarding eligibility, coverage, vesting, funding, communication with employees, etc.
ERISA
(46.2) Retirement plans that are not, strictly speaking, qualified plans, but these plans obtain most of the same tax advantages as qualified plans, while being subject to less stringent regulation.
simplified employee pension (SEP)
savings incentive match plan for employees (SIMPLE)
(46.2) Tax-deferred annuities, also called ___, are similar to qualified plans. Because the employer is a ___ organization, the plan sponsor does not receive income tax advantages.
- TDAs, TSAs, or Sec. 403(b) plans
- tax-exempt
(46.4) If the employer adopts a __ plan, the employer commits to making contributions to the plan every year, without fail, because contributions are mandatory.
pension
(46.4) If the employer establishes a __ plan, the commitment is only to make contributions at the discretion of the employer.
profit-sharing
(46.4) Profit-sharing plan: While the employer is required to make ___ contributions to the profit-sharing plan, contributions can vary and may even be eliminated in some years.
substantial and recurring
(46.4) In-service withdrawals are permitted after __ years with profit-sharing plans, but are not permitted until __ with pension plans.
- two
- normal retirement age
(46.4) Profit-sharing plans have __ limits on investment in employer stock.
no
(46.4) Pension plans limit employer stock to __% of the plan assets.
10%
(46.5) Type of retirement plan: The plan specifies that the employer will contribute a percentage of each employee’s compensation.
Defined-contribution plan
(46.5) Type of retirement plan: The plan specifies the amount of benefits that must be paid at retirement and an actuary must determine the annual contributions needed to provide the benefit.
Defined-benefit plan
(46.5) Defined-Contribution Plans - Sec. 414: Maximum of an employee’s compensation considered
$260,000
(46.6) Money-Purchase Plan: Employer is required to make a contribution on behalf of each eligible employee, in an amount determined by __ stipulated in the plan, which is usually a specified percentage of the participant’s compensation.
the contribution formula
(46.6) Money-Purchase Plan: An employer may deduct contributions up to __% of participant payroll. No more than the lesser of __% of compensation or $___ may be allocated to the account of any one participant during the plan year.
- 25%
- 100%
- $52,000
(46.6) Money-Purchase Plans are allowed to make distributions to employees who are age __ or older, even if they have not yet separated from service.
62
(46.6) Described as an “age weighted” money-purchase plan.
Target Benefit Plans
(46.7) Target Benefit Plans: Contributions is allocated in such a way as to allow __ participants to accumulate funds faster.
older
(46.7) ___ plan does not guarantee the retirement benefit.
Target Benefit Plans
(46.7) How often are actuarial services required for a Target Benefit Plan?
only once
(46.7) How often are actuarial services required for a defined-benefit plan?
annually
(46.7) Target Benefit Plans: Employer contributions made in accordance with the minimum funding standards are tax deductible up to __% of participant payroll. The limit on annual deductions to a participant’s account is the lesser of __% of compensation or $___.
- 25%
- 100%
- $52,000
(46.7) The major difference between the money-purchase and the target benefit plans is that the employer contributions for each employee in a ___ plan are determined using actuarial calculations and assumptions.
target benefit
(46.8) Acceptable allocation formulas in profit-sharing plans are?
- compensation formulas
- service formulas (units per year of service)
- age-weight formulas
(46.8) Employer contributions to a profit-sharing plan are tax-deductible up to a maximum of __% of participant payroll. Additions to a participant’s account is limited to the lesser of __% of compensation or $__.
- 25%
- 100%
- $52,000
(46.8) Profit-Sharing Plans: If an employer has many participants, allocations to some employee accounts may exceed __% of their compensation.
25%
(46.9) The __ plan can be a salary reduction plan or a “cash or deferred arrangement.”
401(k)
(46.9) What does CODA stand for?
cash or deferred arrangement
(46.9) 401(k) Plans: Under a __, employees can defer salary to be contributed to their individual retirement accounts
salary reduction plan
(46.9) 401(k) Plans: Under the __, employees can elect either to receive a contribution or bonus in cash or take the retirement contribution under the plan.
cash or deferred arrangement (CODA)
(46.9) Employee contributions to a 401(k) plan are __% vested at all times. Employer contributions are not __.
- 100%
- mandatory
(46.9) 401(k) Plans: All employer contributions (matching and nonmatching) must vest according to a ___.
2- to 6-year graded vesting schedule
OR
3-year cliff schedule
(46.9) 401(k) Plans: Employees are limited to salary reduction contributions of $___. For employees aged 50 and older, catch-up contributions of an additional $___.
- $17,500
- $5,500
(46.9/10) Employer contributions to a 401(k) profit-sharing plan are tax-deductible up to a maximum of __% of participant payroll. No more than __% of compensation or $__ (whichever is less) may be allocated to the account of any one participant.
- 25%
- 100%
- $52,000
(46.10) 401(k) Plans: An employer can contribute __% of participant payroll, in addition to __, because __ do not count toward the amount of the employer contribution.
- 25%
- salary deferrals
- salary deferrals
(46.10) Defined-Contribution Plans: Maximum employer deductible contribution
25% of participant payroll (only the first $260,000 of each employee’s compensation is considered)
(46.10) Defined-Contribution Plans: Maximum addition to each employee’s account
Lesser of 100% of compensation or $52,000
(46.10) Salary deferrals to a 401(k) plan reduces employee’s __ income. Amounts deferred are still subject to __ taxes.
- taxable
- payroll
(46.10) 401(k) plans (with the exception of __ plans) may include provisions for profit-sharing allocations which may be integrated with Social Security.
SIMPLE 401(k)
(46.11) __ can establish a solo 401(k) plan provided they have no employees other than their spouses.
Sole proprietors and partnerships
(46.11) Solo 401(k): The business can contribute up to __% participating payroll (__% for the self-employed individual) with no more than $__ or __% of compensation to one individual.
- 25%
- 20%
- $52,000
- 100%
(46.11) The Solo 401(k) plan will allow the sole proprietor to contribute more than compared to a ___ plan.
SEP or SIMPLE plan
(46.11) Roth 401(k) contribution: Unlike Roth IRAs, there are no __ limitations on the ability to designate a contribution as a Roth contribution.
AGI
(46.11) Roth 401(k) contribution: The election to treat salary deferrals as Roth contributions applies only to __ contributions.
employee
(46.11) Roth 401(k) contribution: Not subject to income taxes, assuming the plan has been in place for at least __ years and the distribution is after __.
- five
- age 59 1/2, death, or disability
(46.11) Any Roth 401(k) distributions used to purchase a ___ will trip the 10% early withdrawal penalty.
first home
(46.12) Roth 401(k) contribution: Plans can be amended to allow in-plan conversions or in-plan rollovers of ___ amounts.
nondistributable
(46.12) Roth 401(k) contribution: Income tax on the conversion amount will be due __.
in the year of conversion
(46.12) Roth 401(k) contribution: Clients who make in-plan Roth conversions should ___ in order to avoid underpayment penalty.
either increase withholding for the year or make estimated tax payments
(46.12) ___ accounts are subject to required minimum distribution rules. These required minimum distributions can be avoided by rolling the ___ account to a Roth IRA.
- Roth 401(k)
- Roth 401(k)
(46.12) The primary requirement of the SIMPLE design is that the employer either: (a) make ___ matching contributions on the first __% of deferred salary, or (b) make a ___ contribution for all eligible employees (regardless of whether the employee makes any salary deferral contributions).
- dollar-for-dollar
- 3%
- 2% nonelective
(46.12) SIMPLE 401(k) Plans: Employees are __% vested in any contributions (___).
- 100%
- employer and employee
(46.13) SIMPLE 401(k) Plans are exempted from the __ rules.
nondiscrimination testing (ADP) test and top-heavy rules
(46.13) SIMPLE 401(k) Plans: The maximum salary deferral contribution is limited to $___. An employee age 50 or older can contribute an additional $___.
- $12,000
- $2,500
(46.13) SIMPLE 401(k) Plans: Any employer who has more than ___ employees on any day during the calendar year may not sponsor a SIMPLE 401(k) plan.
100
(46.13) SIMPLE 401(k) Plans: Only employees who earn at least $___ from the employer for the year are eligible.
$5,000
(46.13) Safe Harbor 401(k) Plans: Employer adopts a specified contribution design and provides __% vesting.
100%
(46.13) Safe Harbor 401(k) Plans are exempted from __ rules.
nondiscrimination testing (ADP) test and top-heavy rules
(46.13) Safe Harbor 401(k) Plan rules require either: (a) __% matching contributions on the first __% of deferred salary and __% matching on the next __% of deferred salary, or (b) a nonelective contribution of __% of compensation for all eligible employees.
- 100%
- 3%
- 50%
- 2%
- 3%
(46.13) Safe Harbor 401(k) Plans: Employees can defer up to $___. Employer contributions are ___.
- $17,500
- not limited
(46.13) Safe Harbor 401(k) Plans: Employers can make the decision to __ the safe harbor each year.
elect
(46.13) The ___ election can be particularly useful when a 401(k) plan will fail the ADP test because highly-compensated employees want to make deferrals, but many non-highly compensated employees do not.
safe harbor
(46.14) Limits on Pretax Salary Employee Deferral-Contributions to Retirement Plans: 401(k)
$17,500
Catch-up: $5,500
(46.14) Limits on Pretax Salary Employee Deferral-Contributions to Retirement Plans: 403(b)
$17,500
Catch-up: $5,500
(46.14) Limits on Pretax Salary Employee Deferral-Contributions to Retirement Plans: 457 plan
$17,500
Catch-up: $5,500
(46.14) Limits on Pretax Salary Employee Deferral-Contributions to Retirement Plans: SIMPLEs
$12,000
Catch-up: $2,500
(46.14) When the test is for a defined-contribution plan, testing for benefits is called?
cross-testing
(46.14) Cross-Testing: Profit-sharing plans can be designed using actuarial calculations based on the contributions needed to provide a benefit at retirement of a life annuity equal to __% of compensation.
1% (or other selected percentage)
(46.14) Cross-Testing: To provide a life annuity that equals 1% of compensation, an employer must make substantially larger contributions for __ employees.
older, more highly-paid
(46.14) Cross-Testing: The extent to which a design can skew contributions is limited by the requirement that participants will generally need to receive an allocation of __% of compensation to satisfy regulations.
5%
(46.15) Age-Based Plans: maximum contribution
$52,000
(46.15) Age-Based Plans: minimum contribution
5% of compensation
(46.15) An Age-Based Plan is best suited for?
older business owner
older key employees
(46.15) New comparability plans look at __, __, and __.
age
compensation
employee groups
(46.15) A type of profit-sharing plan in which employer discretionary contributions are made in the form of the company’s stock, or cash contributions are used to buy shares of the company’s stock.
Stock Bonus Plan
(46.15) An S corporation may adopt a ___, but partnerships and self-employed individuals may not , simply because they do not issue stock.
stock bonus plan or an ESOP
(46.15) In any profit-sharing plan, contribution allocation formulas may not be ___ and are usually based upon ___.
- discriminatory
- employee compensation
(46.15) Stock Bonus Plan: If paid in cash, dividends are __ to the employer and __ to the employee.
- tax-deductible
- taxable income
(46.15) Stock Bonus Plan: The __% penalty tax on distributions from qualified plans before age 59 1/2 does not apply to these dividend contributions.
10%
(46.16) The difference between the market value at the time of distribution and the plan’s cost basis.
net unrealized appreciation
(46.16) If share of employer stock are distributed to employees from a qualified plan, the ___ is deferred until shares are sold.
net unrealized appreciation
(46.16) A stock bonus plan that can borrow money to take advantage of leverage.
ESOP
(46.16) The loan payments of principal and interest will be deductible by the employer is one of the primary advantages of the ___.
leveraged ESOP
(46.16) ___ contributions to a stock bonus plan or an ESOP are tax-deductible up to a maximum of __% of participants payroll.
- Employer
- 25%
(46.16) As with all qualified plans, only the first $___ of an employee’s compensation can be used in calculating contributions and allocations.
$260,000
(46.16) A stock bonus plan may be integrated with Social Security; an __ may not.
ESOP
(46.16) ESOPs: No more than __% of compensation or $__ (whichever) is less may be allocated to the account of any one participant.
- 100%
- $52,000
(46.17) Participants in an ESOP who have attained age __ and who have a least __ years of participation must be given the right (between ages __) to diversify their investment by moving up to __% each year ( and up to __% during the final year ) of the account balance to other investments.
- 55
- 10
- 55 and 60
- 25%
- 50%
(46.17) ESOP: If more than __% of the plan’s assets consist of closely held shares, the plan participants must be given the right to vote upon certain corporate issues. Employees must be given the right to require the employer to repurchase shares, based upon a __ formula.
- 10%
- valuation
(46.17) If an ESOP purchases __% or more of a C corporation, the original owner can avoid recognition of gain by ___ the shares to the ESOP and using the proceeds to buy ___ as replacement property within __.
- 10%
- selling
- qualified securities
(46.18) New Comparability Plans (a Cross-Tested Profit-Sharing Plan): Every employee group is able to have a different __ formula, based on age and compensation of the employees within the group.
allocation
(46.18) A new comparability plan is best suited for?
older business owner
older key employees
groups of key employees
(46.18) Thrift or Savings Plans: Contributions by employees are __.
NOT taxed-deferred
(46.18) Thrift or Savings Plans: To be nondiscriminatory, the plan must meet the __ test for both employee contributions and matching contributions.
ACP
(46.18) Thrift or Savings Plans: To avoid annual testing, a __ test may be used to satisfy the nondiscrimination test.
safe harbor
(46.18) Safe harbor plan: __% match on the first __% deferred, a __% match on the next __%, or at least a __% nonelective contribution for all employees.
- 100%
- 3%
- 50%
- 2%
- 3%
(46.18) Thrift or Savings Plans: Employer-matching contributions are subject to the vesting requirements of ___.
2- to 6- year vesting schedule
3-year cliff
(46.18) Thrift or Savings Plans: The limit on additions to a participant’s account is the lesser of __% of compensation or $__ for the plan year.
- 100%
- $52,000
(46.18) A combination of a money-purchase pension plan and a profit-sharing plan
Tandem Plans
(46.19) A defined-benefit plan promises to pay the participating employees __ at retirement. Benefit formulas based on employee’s earnings up to $__.
- a specified benefit
- $260,000
(46.19) Defined-Benefit Plans: The maximum benefit cannot exceed the lesser of $___ or ___% of the participant’s average compensation for the three highest consecutive years.
- $210,000
- 100%
(46.19) The three types of defined-benefit plan formulas
Flat amount
Flat percentage
Unit benefit
(46.19) Defined-Benefit Plans: The benefit formula is a flat dollar amount payable for life, beginning at the normal retirement age specified in the plan.
Flat amount
(46.19) Defined-Benefit Plans: The benefit formula promises to pay the participant a monthly retirement benefit at normal retirement that is a specified percentage of the participant’s average compensation prior to retirement.
Flat percentage
(46.19) Defined-Benefit Plans: The benefit formula are based upon the employee’s service with the employer sponsoring the plan.
Unit benefit
(46.20) Defined-Benefit Plans: Actuarially-determined contributions are ___.
fully deductible
(46.20) A hybrid form of defined-contribution plan
target benefit plan
(46.20) A hybrid form of defined-benefit plan
cash-balance plan
(46.20) The employer makes a contribution of a specified percentage of compensation, much like a money-purchase plan.
Cash-Balance Plans
(46.20) Cash-Balance Plans: The employer assumes the __ risk and guarantees ___ on plan assets.
- investment
- a rate of return
(46.20) A defined-benefit plan funded solely with life insurance and annuities.
412(i) Plan
(46.21) As a result of higher contributions, 412(i) plans are suitable for?
small businesses (usually 5 or fewer employees) when the owner is within 10 years of retirement.
(46.23) In both the defined-contribution and defined-benefit plans, the assets are held in trust and are unavailable to ___ of the employer or employee.
creditors
