Retirement Plan Overview Part 2 Flashcards
Net Unrealized Appreciation
What is it?
Lump sum distributions that consist entirely or in part of employer securities that receive special tax treatment
Net Unrealized Appreciation
What is the special tax treatment
At distribution
1st: The amount is stock was valued at when purchased for a qualified plan - treated as ordinary income (taxed at distribution)
2nd: at distribution the value of the stock is taxed at long-term capital gains (Apply if the stock is sold regardless of holding period. So no matter how long they hold it after distribution that part is treated as Long-term capital gain)
3rd: After distribution, if the stock is held for any period of time, the remaining amount of gain or loss above the distribution price will be treated as either long-term or short term capital gains, or loss
Net Unrealized Appreciation
Does this only include stock?
No, it may also include bonds or debentures of the employer. securities of a parent or subsidiary may also qualify as employer securities
Net Unrealized Appreciation
What are the requirements to qualify for NUA treatment?
Does not require a minimum number of years in the plan
Does require to have a triggering event: death, disability, separation from service or be at least 59 1/2 and to have received a lump sum distribution
Protection from creditors
What does ERISA provide and what plans are covered?
Provides unlimited protection from creditors
Covers all qualified plans with multiple participants
Protection from creditors
Which plans have unlimited protection from creditors?
All qualified plans
Rollover IRAs
SEP IRAs
Simple IRAs
Protections from predators
How much are traditional IRAs and Roth IRAs protected from creditors in bankruptcy proceedings
The first $1,512,350 (2024)
At what age must RMD’s start?
73
What is the RMD excise tax penalty for failure to take out your RMD?
Is reduced from 50% to 25% and then further reduce to 10% if the shortfall is withdrawn promptly
May a Simple IRA accept Roth elective deferrals?
Yes
Can SEPs allow a worker to treat an employer contribution to a SEP as a Roth contribution?
Yes
Does a SAR-SEP allow a worker to elect Roth treatment for contributions?
No
May a worker elect to have some or all employer matching or nonelective contributions to a 401(k), 403B, and 457 plans treated as Roth contributions?
Yes, if the plan document is amended to allow it
Must be nonforfeitable
Small businesses with 1-50 employees get an increased tax credit qualified start up cost on starting a new plan. What are they?
100% per year for the first three years with a maximum of $5000 / year for employers with 50 or fewer employees
A credit up to $1000 per employee per year for employer matching during the first five years. The credit is 100% for the first and second plan years. Then 75% for year three, 50% for plan year four, 25% for plan five.
Credit is not available for workers making more than $100,000 a year hundred thousand dollars limit will be indexed in $5000 increments for 2024 and following
Note plan years are from the start of the plan not when an employee starts the plan
Small Business with 51 - 100 employees get an increase tax credit for qualified start up cost on starting a new plan. What are they?
50% to $5,000 / year
Similar credit as a company with 1-50 employees except credit is reduced 2% for each employee over 50, Credit is not available for workers making more than $100,000 a year hundred thousand dollars limit will be indexed in $5000 increments for 2024 and following
Can an employer offer de minimis financial incentives like small dollar gift cards to encourage workers to participate in employers retirement plans?
Yes, must not come from the retirement plan itself
New solo 401(k) plans for solo proprietors, and single member LLC’s are permitted to receive salary deferrals until the due date of when?
Permitted to receive salary deferrals until the due date of the employees tax return for the first year of the plan
Must be made by April 15 of the following year like an IRA
To avoid the 10% early withdrawal penalty from employer plans in IRAs for someone that is terminally ill. What must the life expectancy of the individual be?
84 months (7 years) can be repaid within three years
To disaster distributions for any federally declared disaster or exempt from the 10% penalty after January 26 of 2021 what is the limit of withdrawal?
$22,000
Can be income tax over three years and may be paid back to the retirement account for up to three years
Are withdrawals of earnings from excess IRA contributions, Exempt from the 10% penalty?
Yes, if they are withdrawn by the due date of the clients tax return for that year as long as the client did not claim a deduction for the access contribution
What are the exceptions to the 10% penalty for retirement plan distributions to Public safety officers?
50 years old, if less than 25 years
Any age with at least 25 years of service
Private sector firefighters also get this exemption
Qualified longevity annuity contracts (QLACs)
What is the contribution cap?
$200,000 (indexed for inflation)
Qualified charitable distributions (QCD)
At what age is the option available and how much?
Option is only available for those age 70 1/2 or older must come from an IRA
$105,000
Can also be a one time QCD from an IRA to a charitable gift annuity or a charitable remainder trust for up to $50,000
What will not be deemed a violation of the required minimum distribution rules of an annuity product?
Guaranteed increases of income payments of a flat annual percentage of 5% or less
Lump sum payments such as a payment of the actuarial fair market value
Return of premium, death benefits
