Retirement Live Review Flashcards
Social Security Coverage Exceptions
Railroad WOrkers (but they do have medicare)
child, under 18, working for parents in an unincorporate dbusiness
taxation of social security benefits
All use MAGI
50%
25,000
32,000 (MFJ)
85%
$34,000
44,000
Section 415
Max limit on the projected annual benefit a DB can provide
$275k OR 100% of comp averaged over his/her three highest earning consecutive years
(Still only takes the first $345k into consideration)
Unit benefit formula
most frequently used
service and salary to determine benefit
example: 1.5% x 30 years of service x 100k (average annual comp)
cash balance pension plan
ER guarantees contribution level AND minimum rate of return on each participants’ account
what plans does the PBGC insure
DB and cash balance plans
money purcahse pension plan
actually a DC plan
max annual addition for a money purchase pension plan
$69k or 100% of salary (the lesser of)
target benefit pension plan
EE assumes the investment risk
no annual actuarial determination for contributions
However, an actuary determines the initial contribution level with fixed mandatory contributions
Limit for contributions is the lesser of 100% of comp or $69k even if the actuary says they need to contribute more
is a profit sharing plan a qualified plan?
yes
Profit sharing plan keys
individual accounts
contributions are flexible (but must be recurring and substantial)
ER contributions for profit sharing plans
deduct a max of 25% of all participants comp
only first $345k of each employee’s comp can be taken into account
hardship withdrawals
only allowed for 401k plans
taxed as ordinary income with a 10% penalty, unless an exception applies
net unrealized appreciation
the difference between the er’s cost basis and market value at lump sum distribution to the employee
NUA
not subject to taxation until the employee sells the stock
always taxed at long term capital gains rates, regardless of the holding period
SIMPLE
matching contribs are mandatroy
no $345k salary cap
<100 employees
NO other plans allowed
premature penalty distribution is 25% for the first two years of participations
SEP
ER contribs only
no requirement for contributions
100% vesting immediately
SEP participation rules
Must cover all EEs who are >21 working for the last 3/5 years (including PT)
Contribs don’t need to be made if EE comp was <$750
HCE
> 5% owner or
$155k salary
who can be a fiduciary under ERISA
Corporate officers and directors
plan admins
trustees
members of the investment committee
investment advisors
Key Employee
> 5% owner
officer AND comp >$220k
1% owner AND comp >$155k
Min benefits and contributions for non-key EEs if top heavy
DB - at least 2% of comp
DC min contribution not less than 3%
plans that can be integrated with social security
DB
cash balance
money purcahse
target beenfit
profit sharing
stock bonus
sep
(essentially, not ESOP SIMPLE and 401k SIMPLE)
control groups/related employers
parent subsidiary
brother sister
affiliated service group
-one entity owns at least 80% of one (or more) of the other entities
-five (or fewer) owners of two or more entities own 80% or more of each entity
-a service organization and a professional organization
Non permissible rollovers
Almost all can be transferred except:
-transfers to another 457 plan remain the only option for nongovernmental 457
-hardship distributions
-RMDs
Penalty and exceptions that apply to qualified plans and TSA distributions
death/disability
72t
separation from service >55
QDRO
medical >7.5% of AGE
$5k for birth/adoption
federally declared disaster
72t basic rule
LATER of
-end of 5 year period
attainment of age 59 1/2
Qualified Charitable Deduciton (QCD)
> 70 1/2
up to $105k annually
excluded from taxable income
qualified plan loans
can’t exceed the lesser of 50% of vested plan balance OR 50%
OOORRRRR 10k
QDROs generally don’t apply to what?
nonqualified retirement plans
IRAs
Exceptions to the 59 1/2 10% penalty for IRAs
death
72t
disability
first time home ($10k)
Qualified education
medical >7.5%
medical insurance premium after separation from employment
$5k birth/adoption
federally declared disaster
ordering rules for Roth IRA distributions
- Contributions first (no tax because they were never deducted)
- conversions (no tax, but there can be a 10% penalty)
- Earnings (can be exposed to tax and penalty)
NSO - basic definition
RIGHT to purchase a specific number of shares of the ERs stock at a given time and and given price
NO taxation occurs
ISO - basic definition
AKA qualified stock option
tax-favored plan for compensating executives
Primary difference between ISO and NSOs
taxation at the date of exercise
ISOs are not subject to regular tax when exercised, but NSOs are
what is the maximum contribution limit to a db plan in 2024?
there is not a max limit, just a max benefit
72t one time election switch
the annuity or amortization method to the RMD method
