Retirement Planning Flashcards
Does a CBP have an employer minimum rate of return
yes
Dr. Hill (a dentist) has given you a list of employee benefits he is considering. Which of the following can he provide tax-free to his employees?
$220 per month for parking (office is in a downtown building).
Occasional theater tickets.
50% off on dental work.
$100,000 group life insurance.
Group disability insurance premiums for benefits of up to 50% of salary.
$220 per month for parking (office is in a downtown building).
Occasional theater tickets.
Group disability insurance premiums for benefits of up to 50% of salary.
The IRS says the excludable amount with respect to services is limited to 20% of the price at which the employer offers services to nonemployee customers. The group disability benefits would be taxable.
Higher education costs are exempt from penalty under what kind of rules only
IRA
Which statement is true regarding profit-sharing plans?
A company must show a profit in order to make a contribution for a given year.
Profit-sharing plans should make contributions that are “substantial and recurring” according to the IRS.
Forfeitures in profit-sharing plans must be credited against future years’ contributions.
Employer deductions for plan contributions are limited to 15% of the participant’s total compensation.
Profit-sharing plans should make contributions that are “substantial and recurring” according to the IRS.
The company doesn’t have to show a profit to make a contribution. Forfeitures are normally reallocated to the plan participants. Employers can contribute for each participant up to the lesser of 100% of compensation or $54,000 (compensation maximum $270,000). However, the employer is still bound by the overall deduction limit of 25% of total plan compensation.
Which of the following IRA distributions is exempt from the 10% early withdrawal penalty?
Hardship withdrawal First home acquisition cost of $10,000 Qualified loan of $10,000 for first home Qualified education cost for participant's child Separation from service at age 55
II, IV
First home purchase and qualified educational cost are exempt. Hardship withdrawals are in 401(k)s; loans and separation from service apply to qualified plans. IRA loans are not allowed.
Which of the following statements describe(s) the provisions of constructive receipt as it is applied to nonqualified deferred compensation plans?
Constructive receipt occurs when the funds are available to the employee.
Constructive receipt by employee results in taxation to the employee of the applicable benefits.
If a company goes through a merger or acquisition, the rabbi trust provisions will automatically trigger constructive receipt to the employee.
If a company owns the assets, its employee will not have constructive receipt.
I, II, IV
A rabbi trust might trigger constructive receipt due to a merger or acquisition.
What happens if a participant uses an FSA debit card to pay for drugs? (which are true)
Pharmacies and grocery stores can choose to accept the card but must disallow transactions at the point of sale for over-the-counter drugs.
The employer must require employees to provide itemized receipts for all expenses charged to the debit card.
both are true
The IRS allows employers to waive answer II when an individual uses the debit card at a pharmacy or grocery store than complies with the procedure outlined in answer I.
What is the most noteworthy difference between HSAs and MSAs?
Deductibles
Eligibility to start the plan
Catch-up provisions
“Use it” or “lose it” provisions
Eligibility to start the plan
Eligibility is different. Both plans use high deductibles. A HSA has a catch-up, but MSA’s don’t. I don’t consider that noteworthy. Funds are rolled over from year to year (both HSAs and MSAs). “Use it” or “lose it” provisions doesn’t apply.
Are FSA reductions subject to FICA and FUTA
no
Which of the following qualified plan distributions is exempt from the 10% early withdrawal penalty?
Hardship withdrawal
Distribution due to a husband and wife legal separation
Distribution for purchase of principal residence
Distribution due to separation from service at age 55
Distribution due to separation from service at age 55
Legal separation, even a divorce, does not prevent the penalty. A QDRO is necessary to avoid the 10% early withdrawal penalty. Principal residence distributions are not exempt from the penalty. For IRAs, it is first home not primary residence.
Larry Jones, widower, has two children. He elected $5,000 dependent care under his FSA. He deposited $5,000 out of his January paycheck into the account and used $420 the first month. On February 1st he marries Jennifer Young. She is a stay-at-home mom and will take care of two young children. What happens to his dependent care fund?
The remainder is refunded to him.
He loses the remainder.
He will have to take the remainder as compensation.
He should not have gotten married.
He loses the remainder.
If a single person elects to withhold $5,000 for child care expenses and gets married to a non- working spouse, the $5,000 would become taxable. If this person did not submit claims by the required date, the $5,000 would be forfeited but taxes would still be owed on the amount.
A rabbi trust would be used as a planning tool for which of the following situations?
Hostile takeover
Mergers
Acquisitions
Bankruptcy
Hostile takeover
Mergers
Acquisitions
The rabbi trust provides no benefit security for an executive should the employer file bankruptcy. The executive must stand in line with the other creditors.
Matt Williams owns MT, Inc., which has had a SEP for himself and his employees for years. Matt is turning 72 early next year. A financial advisor told him he should stop the SEP. The financial advisor said he should start a profit sharing plan. Then he would not have to take required minimum distributions on any of the money until he retires. Matt is seriously considering. Which of the following is true?
He will have to take required minimum distributions next year, but can delay them until April 1st of the following year.
The financial advisor is correct.
He can wait until he actually retires to begin required minimum distributions.
He cannot move the SEP money to the profit sharing plan.
He will have to take required minimum distributions next year, but can delay them until April 1st of the following year.
Matt is a greater than 5% owner and the option to delay RMDs until he actually retires is not available for a greater than 5% owner. He cannot move the SEP money to the profit sharing plan is false. The funds could have been moved.
Which one of the following is a false statement about a cross-tested plan?
Cross-testing measures plan’s ultimate benefits for nondiscrimination although the plan is a defined contribution plan.
The regulations have a “gateway” requirement (the lesser of at least 1/3rd of the allocation rate of the HCE with the highest allocation rate or 5% of the NHCE’s compensation).
Self-employed persons can adopt a money purchase cross-tested Keogh plan.
All defined contribution plans can use cross-testing.
All defined contribution plans can use cross-testing.
The word All makes the answer wrong. ESOPs cannot be cross-tested. Self-employed persons who adopt qualified plans (Keogh type plans) can use a cross- tested design. Keogh plans are qualified plans.
Which of the following retirement plans can be integrated with Social Security?
Stock bonus ESOP SEP Defined benefit Target benefit I, II, IV, V I, III, IV, V I, IV, V I, IV II, III
everything but the ESOP
A SEP and a stock-bonus plan can be integrated with Social Security. An ESOP cannot be integrated.
Cash balance plan- must Forfeitures must be used to reduce employer contributions?
yes
Which of the following qualified plan distributions is exempt from the 10% early withdrawal penalty?
First home acquisition cost
Qualified education cost for participant’s child
Substantially equal periodic payments
Death
Death
The first two answers are for IRA distributions, not qualified plan distributions. Substantially equal periodic payments from qualified plans must be due to
separation from service.
With IRA distributions, all answers would be true.
Under which of the following employer provided plans will the employee receive benefits tax-free?
Dependent care under a FSA.
Prepaid legal plan paid for by the employer.
Individual disability plan paid for by the employer.
Group disability plan paid for by the employer.
Dependent care under a FSA.
Under all answers other than dependent care under a FSA the benefits are taxable to the employee because the employer deducted the premium.
TF (from a question)
Neither the life nor disability insurance premiums are deductible if they do an entity purchase or a crosspurchase agreement.
T
Stop-loss coverage is most likely to be used by what type of company to partially self-insure its employee medical Insurance program?
Only large companies
Medium-to-large companies
Companies with as little as 100 employees
A small company could self-insure employee claims to $250,000. Claims above $250,000 in aggregate would be paid by an insurance company. Claims under $250,000 in aggregate would be financed by the employee, employer contributions, and potentially reduced health insurance premium costs. The dollar amount ($250,000) is just used to justify the answer. It could be $100,000 to $1,000,000.
who assumes the risk of pre-retirement inflation in a DB plan.
employer
Betty elects a salary reduction of $5,000 for dependent child care. Which of the following is false?
The FSA is typically funded entirely through employee salary reductions.
The salary reduction is not subject to FICA and FUTA.
If Betty fails to use all the salary reduction ($5,000) by year end, the remaining dollars can be used in the 2 1/2 month grace period.
The salary reduction is not subject to withholding.
The new rule allows workers an extra 2 1/2 months to spend the money (until March 15th) for the medical expense portion only. This question is referring to dependent care FSA only.
Which of the following investment vehicles may not be used to fund a TSA?
Open-end investment management companies
Mutual funds
Annuities with incidental life insurance
U.S. operating company stock (cannot be passive)
U.S. operating company stock (cannot be passive)
“Open-end investment management companies” is a different name for Mutual funds. Any type of annuity is an acceptable investment. Incidental life insurance within the annuity is also acceptable. A TSA cannot be funded with common stock.
TF
. Informal funded deferred compensation is not constructively received. It is not income until it is constructively received.
true
Which of the following types of funding vehicles is not approved for 403(b) plans?
Mutual fund
Variable annuity contract
Cash value life insurance
Unit investment trust
Unit investment trust
Cash value life insurance must be an incidental benefit. Only open-end mutual funds are allowed, not UITs, closed-end funds, or individual securities.
