Retirement Plan Overview Part 2

Question 1

Net Unrealized Appreciation

What is it?

Answer 1

Lump sum distributions that consist entirely or in part of employer securities that receive special tax treatment

Question 2

Net Unrealized Appreciation

What is the special tax treatment

Answer 2

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

Question 3

Net Unrealized Appreciation

Does this only include stock?

Answer 3

No, it may also include bonds or debentures of the employer. securities of a parent or subsidiary may also qualify as employer securities

Question 4

Net Unrealized Appreciation

What are the requirements to qualify for NUA treatment?

Answer 4

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

Question 5

Protection from creditors

What does ERISA provide and what plans are covered?

Answer 5

Provides unlimited protection from creditors

Covers all qualified plans with multiple participants

Question 6

Protection from creditors

Which plans have unlimited protection from creditors?

Answer 6

All qualified plans

Rollover IRAs

SEP IRAs

Simple IRAs

Question 7

Protections from predators

How much are traditional IRAs and Roth IRAs protected from creditors in bankruptcy proceedings

Answer 7

The first $1,512,350 (2024)

Question 8

At what age must RMD’s start?

Answer 8

73

Question 9

What is the RMD excise tax penalty for failure to take out your RMD?

Answer 9

Is reduced from 50% to 25% and then further reduce to 10% if the shortfall is withdrawn promptly

Question 10

May a Simple IRA accept Roth elective deferrals?

Answer 10

Yes

Question 11

Can SEPs allow a worker to treat an employer contribution to a SEP as a Roth contribution?

Answer 11

Yes

Question 12

Does a SAR-SEP allow a worker to elect Roth treatment for contributions?

Answer 12

No

Question 13

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?

Answer 13

Yes, if the plan document is amended to allow it

Must be nonforfeitable

Question 14

Small businesses with 1-50 employees get an increased tax credit qualified start up cost on starting a new plan. What are they?

Answer 14

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

Question 15

Small Business with 51 - 100 employees get an increase tax credit for qualified start up cost on starting a new plan. What are they?

Answer 15

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

Question 16

Can an employer offer de minimis financial incentives like small dollar gift cards to encourage workers to participate in employers retirement plans?

Answer 16

Yes, must not come from the retirement plan itself

Question 17

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?

Answer 17

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

Question 18

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?

Answer 18

84 months (7 years) can be repaid within three years

Question 19

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?

Answer 19

$22,000

Can be income tax over three years and may be paid back to the retirement account for up to three years

Question 20

Are withdrawals of earnings from excess IRA contributions, Exempt from the 10% penalty?

Answer 20

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

Question 21

What are the exceptions to the 10% penalty for retirement plan distributions to Public safety officers?

Answer 21

50 years old, if less than 25 years

Any age with at least 25 years of service

Private sector firefighters also get this exemption

Question 22

Qualified longevity annuity contracts (QLACs)

What is the contribution cap?

Answer 22

$200,000 (indexed for inflation)

Question 23

Qualified charitable distributions (QCD)

At what age is the option available and how much?

Answer 23

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

Question 24

What will not be deemed a violation of the required minimum distribution rules of an annuity product?

Answer 24

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