Retirement Planning

Question 1

What is key advantage of SEP vs SIMPLE IRA

Answer 1

SEP: Easy to set up and maintain

Simple IRA: Salary reduction plan with min admin paperwork

Question 2

What are employers eligibility requirements for SEP vs SIMPLE IRA

Answer 2

SEP: Any employer with 1 or more employees

Simple IRA: Any employer with 100 or fewer employees that don’t currently maintain another retirement plan

Question 3

What is employers role in managing SEP vs SIMPLE IRA

Answer 3

SEP: No annual filing requirement; Can set up and fund as late as final day of tax filing date (due date) for tax year, including extensions

Simple IRA: No annual filing requirement; Usually set up and maintained by a bank

Question 4

Who are contributors to the SEP vs SIMPLE IRA

Answer 4

SEP: Employer contributions only

Simple IRA: Employee salary reduction contributions plus employer (typically match)

Question 5

What is maximum annual contribution per participant in SEP vs SIMPLE IRA

Answer 5

SEP: Up to 25% of covered compensation with max of $61,000

Simple IRA: Employees - Max of $14,000, plus $3000 catch (50+) per year; Employers - Either match contribution at 100% up to 3% of salary (can be as low as 1% in any 2 of 5 years) or 2% contribution for each eligible employee

Question 6

What are contributor options with SEP vs SIMPLE IRA

Answer 6

SEP: Employer can decide year to year whether to make contributions

Simple IRA: Employer must make matching contribution or contribute 2% for each eligible employee

Question 7

What are the minimum employee coverage requirements for SEP vs SIMPLE IRA

Answer 7

SEP: Must be offered to all employees at least 21 years old and have been employed by employer 3 of last 5 years with $650 in compensation

Simple IRA: Must be offered to all employees with compensation of at least $5,000 in any prior 2 years and expected to earn $5000 in current year

Question 8

What is withdrawal, loan and payment policy rules for SEP vs SIMPLE IRA

Answer 8

SEP: Withdrawals permitted anytime subject to federal income taxes and early withdrawal penalties; No loans can be taken out

Simple IRA: Withdrawals permitted anytime subject to federal income taxes and 10% early withdrawal penalties; If funds withdrawn within 2 years of enrollment, penalty will be 25%

Question 9

What is vesting period for SEP vs SIMPLE IRA

Answer 9

SEP: Contributions immediately, 100% vested

Simple IRA: Contributions immediately, 100% vested

Question 10

Charlie died unexpectantly at age 45. He had four traditional IRAs, each with a different beneficiary as listed below. Collectively, over how many years may distributions from the inherited IRAs be spread? (total number of years, combined)

• Charlie’s spouse, age 45, with a life expectancy of 40 years
• Charlie’s estate
• Charlie’s sister, age 50, with a life expectancy of 35 years
• Charlie’s son, age 13, with a life expectancy of 80 years

Answer 10

Charlie’s spouse, age 45, with a life expectancy of 40 years: eligible designated beneficiary may spread distributions over her life expectancy, 40 years.

Charlie’s estate: non-designated beneficiary; must distribute account within 5 years.

Charlie’s sister, age 50, with a life expectancy of 35 years: non-eligible designated beneficiary; must distribute account within 10 years.

Charlie’s son, age 13, with a life expectancy of 80 years: eligible designated beneficiary but only until age of majority, age 18. Thereafter, the account must be distributed within 10 years. Total of 15 years.

40 + 5 + 10 + 15 = 70 years combined total.

Question 11

Each of the following is an exception to the early withdrawal penalty for distribution from a qualified plan EXCEPT:

• Disability
• Eligible education expenses
• Age 55 and separation from service from the employer
• Medical expenses in excess of 7.5% of adjusted gross income

Answer 11

A penalty exception for early withdrawal to pay eligible education expenses is available only for distributions from an IRA. The exception is NOT available for early withdrawals from a qualified plan.

Question 12

Khan, age 55, is leaving his current employer of 10 years after accepting a new position with a different company. He is relocating to an area with a much lower cost of living and Khan is excited to be purchasing his first home after leasing homes in the city. To make the down payment, Khan is liquidating an IRA with an account balance of $50,000, of which $10,000 is basis. He is also executing a traditional rollover of his Section 401(k) account from his former employer, which has an account balance of $100,000. Khan is keeping $20,000 of the Section 401(k) funds to add to the home down payment.

How much in early withdrawal penalties will Khan pay?

Answer 12

Khan is age 55 and separating from service with his employer, therefore, the $20,000 distribution from the Section 401(k) is not subject to penalty. Of the $50,000 IRA distribution, $40,000 is taxable. The first-time home purchase penalty exception applies but is subject to a lifetime $10,000 limit, leaving $30,000 subject to a 10% early withdrawal penalty = Total $3,000 in penalties

Question 13

Jamal, age 50, takes a $65,000 non-qualified distribution Roth IRA in 2022. His account balance prior to the distribution was $175,000 and was comprised of the following:

• $52,000 Regular Roth Contributions
• $13,000 Roth Conversions from 3 Years ago
• $110,000 Account Earnings
  Assuming that Jamal is in the 22% marginal tax bracket, calculate the regular income tax on the distribution.

Answer 13

Because the Non-Qualified Distribution is comprised only of regular Roth contributions and Roth conversion contributions, there will be $0 of regular income tax applied. Because the distribution of the conversion portion is within 5 years of conversion, that amount will be subject to a 10% penalty, (10% $13,000) but not subject to regular income tax

Question 14

Trust used to:
minimize their total estate tax liability for their combined estates by allowing business owners ability to fairly divide estate amongst multiple heirs:

Answer 14

Estate equalization. Estate equalization is a strategy that allows business owners to fairly divide their estate amongst multiple heirs.

Question 15

Trust used for:
Surviving spouse to receive all income annually:

Answer 15

A or Q-TIP

Question 16

Trust used for:
Surviving spouse to receive income if needed:

Answer 16

B or Estate Trust.

Question 17

Trust used for:
Decedent spouse to receive a marital deduction:

Answer 17

A, Q-TIP, Estate Trust, an outright gift to the spouse.

Question 18

Trust used for:
Surviving spouse to choose trust beneficiaries:

Answer 18

A or Estate Trust

Question 19

Trust used for:
Surviving spouse to determine what portion of the decedent’s estate to transfer into a trust to use the decedent’s unified credit:

Answer 19

Disclaimer trust.

Question 20

Provision within trust used for:
Surviving spouse to access trust income for health, education, maintenance, and support (i.e., HEMS) without including the assets in their estate:

Answer 20

Ascertainable standard.

Question 21

How do you determine vested amounts on a graded vesting schedule for defined contribution plans

Answer 21

All DC plans have minimum of 2-6 yr graded to 3 yr vesting (can have 2yr deferred eligibility-not available for 401K plans)

Employee contributions = 100%
+
Employer match = Vesting schedule
+
Appreciation =
(1) % Employee/Total Contribution X Appreciation = 100% vested
(2) % Employer/Total Contribution X Appreciation = % vesting schedule

Dalton- Retirement, pg 18-25

Question 22

What is safe harbor requirements and vesting amount

Answer 22

70% of eligible (non highly compensated ee) can benefit from plan

Question 23

What is difference between qualified and non-qualified annuities

Answer 23

All annuities can grow tax free;

Qualified annuities are purchased with pre-taxed income. It only becomes taxable once you begin receiving the funds from your annuity.

Owners of qualified annuities are required by law to begin taking distributions at the age of 72.

Non-qualified annuities are purchased with after-tax dollars so only the earnings on your investment are taxable. There is no legal age requirement for withdrawing from a non-qualified annuity.

Any money taken out before you turn 59 ½ will result in a 10% early withdrawal penalty in most cases.

Question 24

When would you advise a person not to wait to exercise a nonqualified stock option?

(1) When long-term price appreciation is anticipated, but uncertainty regarding future stock price remains.

(2) When the individual has had an excellent year resulting in much higher than expected income.

(3) When the price of the stock in the market is out-of-the-money and not expected to enter or change any time soon.

(4) When the stock price seems to have peaked and sale will immediately follow exercise.

Answer 24

Solution: The correct answer is (4)

If all gain has been apparently made in a security, rather than lose the profit, and since there are no special advantages to holding non-qualifieds, it may be the time to exercise and to follow with an immediate sale. The rest of the options are actually reasons for holding the option without exercising it.

Question 25

If an employee receiving incentive stock options does not meet the employment time requirement, but receives options as a nonqualifying and exercises them, what will the consequences be?

A. The employee will be required to recognize income immediately upon receipt of the options.

B. The employee will be required to recognize compensation income in the year the option is exercised.

C. If an employee meets the holding period requirement, it does not matter whether he or she meets the employment requirement and the option is qualified.

D. There are no consequences to this circumstance.

Answer 25

Solution: The correct answer is B.

This illustrates the difference between the treatment of ‘qualified’ versus ‘nonqualified’ stock options. The tax implications are immediate and the income is recognized as soon as the option is exercised rather than when the stock is subsequently sold.

Question 26

What is a QACA and associated requirements

Answer 26

Qualified automatic contribution arrangement which includes an associated mandatory non-elective contribution. ADP testing is not needed/relevant for NHCE. However, the max that can be contributed is limited by IRC 415(c). The non-elective contribution on a QACA is 3% as a standard part of the plan.

Question 27

Which of the following qualified retirement plans are subject to mandatory minimum funding requirements?

Answer 27

Profit sharing plans (including 401(k) plans) are exempt from minimum funding requirements, as are SIMPLE IRA plans.

All pension plans are subject to minimum funding requirements.
- Defined benefit pension plans
- Money purchase pension plans.
- Target benefit plan
- Cash Balance pension plan

Question 28

What are section 415 reversions

Answer 28

Section 415 sets deferral contribution limits and reversions would be reduction/recharacterization of $ put into plans above these limits ($22,500 plus $7,500 for CODA; $66,000 total for profit sharing

Question 29

Define QACA and how applied

Answer 29

Qualified Automatic Contribution Arrangement is a safe harbor option which covers/eliminates need for ADP/ACP and Top Heavy tests as long as the following are met:
- automatic deferral of x% of compensation beginning with 3% at year 1 through 6% at year 4 and beyond
- matching contribution of at least 3% treated equally across all NHC employees with rate of match similar to that for HC employees
- notice of deferrals given to all employees

Question 30

What are the relevant retirement plan limits under section 415 for employee deferral contributions (excluding catch up), total ee+er contributions, top heavy key employee maximum, and annual compensation limit

Answer 30

In 2023, the Section 415 limit for defined contribution plans is:

$22,500 - employee contribution
$66,000 - total defined contribution limit (employee + employer) excludes catch up
$265,000 - top-heavy key-employee maximum/ total defined benefits payable per year
$330,000 - annual compensation limit.

Question 31

What are key features of cash balance benefit plan

Answer 31

Cash balance plans are defined benefit plans due to the guaranteed investment returns and benefit formula, not simply a contribution amount.

While cash balance plans provide guaranteed rates of return, they are not 100% guaranteed by the PBGC (PBGC has coverage limits).

Cash balance plans use 3-year cliff vesting only.

Cash Balance plans consist of individual accounts with guaranteed earnings reflected in hypothetical individual account reflecting hypothetical allocations and earnings (reflecting pay and interest credit

Cash balance plans are generally motivated by two factors: selecting a benefit design that employees can more easily understand, and as a cost saving measure.

Question 32

What are the Defined Benefit Pension Plans and key characteristics

Question 33

What are the Defined Contribution Pension Plans and key characteristics

Question 34

James is covered under his employer’s top heavy Defined Benefit Pension Plan. He currently earns $120,000 per year. The Defined Benefit Plan uses a funding formula of Years of Service × Average of Three Highest Years of Compensation × 1.5%. He has been with the employer for 5 years.

What is the maximum defined benefit that can be used for him for funding purposes and why?

Rules for top heavy plans and minimum defined benefit limit

Answer 34

The maximum defined benefit is the lesser of $265,000 (2023) or his compensation. However, the funding formula will limit his defined benefit to $12,000 (5 × 120,000 × .02). He is not a key employee because he is not a 1) greater than 5% owner, 2) greater than 1% owner with compensation greater than $150,000 or 2) an officer with compensation greater than $215,000 (2023).

Note that you would use 2% instead of the 1.5% because the plan is top heavy. Therefore the plan must use a defined benefit limit of 2% instead of 1.5%.

Question 35

Compare key characteristics of QACA vs Safe Harbor Plan
- Vesting
- Matching Contributions
- Required plan participation
- ADP/ACP testing

Answer 35

Safe harbor plans require 100% vesting, while 401(k) plans with QACAs require two year 100% vesting.

The matching contributions are different for the plans.
- QACA = 100% @ 1% and 50% @ 2-6% or non elective contribution @3%
- Safe Harbor = 100% @ 3% and 50% @ 4-5% (standard match) or

Employees are not required to participate in either plan

Both plans eliminate the need for ADP testing, which means that they eliminate the need for qualified matching contributions and for corrective distributions.

Question 36

What are primary differences of Defined Benefit Pension vs Defined Contribution Pension plans

Answer 36

Defined Benefit Pension ( Defined Benefit Pension/Cash Balance) vs Defined Contribution Pension (Money Purchase/Target):

• Use of actuary: DB=required, DC= not used except at inception for Target
• Who assumes investment risk: DB=employer, DC=employee
• Plan forfeitures: DB=reduce plan costs, DC= reduce costs or allocate to remaining employees
• PBGC coverage: DB= yes, DC=No
• Social Security Integration (Permitted Disparity) : DB=Excess and Offset; DC= Excess only
• Valuation of benefits: DB= Accrued benefit of present value of expected future payments at retirement, based on benefit earned to date; DC = Account balance less any non vested amounts
• Credit for Prior Service: DB= option to give employee service credit pre plan establishment; DC= not allowed, service begins at plan establishment date
• Investment accounts: DB= Commingled funds with individual account summaries to employees; DC= separate individual investment accounts

Question 37

Unique features of SERPs

Answer 37

SERP supplements the pension plan without regard to limits imposed upon salary levels (i.e., maximum salary of $330,000 in 2023) or the maximum funding levels of Section 415. Do not confuse with an excess benefit plan which extends the benefits of a company’s qualified plan above the Section 415 limits but still adheres to maximum salary limitations.

Question 38

SERP vs Excess Benefit Plans

Answer 38

An excess benefit plan extends the same benefits to employees whose contributions to the plan are limited by Section 415 (e.g., employee earns $330,000 yet receives $66,000 contribution instead of the $82,500 contribution due to Section 415 limitation on a 25% money purchase plan). An excess benefit plan would put additional $16,500 into non-qualified retirement plan. Do not confuse with a SERP which provides benefits in excess of the Section 415 limits AND ignores the covered compensation limits (i.e., $330,000 in 2023) applied to qualified plans.

Question 39

Funded vs Unfunded Deferred Comp Plans

Answer 39

If the employee has a non-forfeitable beneficial interest in a deferred compensation account, the IRS considers the plan “funded” and subject to current income tax due because the employee has constructive receipt of the assets.

Question 40

What is required for a group term life insurance plan to be non-discriminatory?

Answer 40

A plan must benefit 70% of all employees or a group of which at least 85% are not key employees.

Question 41

What is a negative election

Answer 41

A negative election is a provision whereby the employee is deemed to have elected a specific deferral unless the employee specifically elects out of such election in writing.

Question 42

Randal was just hired by Chastain, Inc., which sponsors a defined benefit plan. After speaking with the benefits coordinator, Randal is still confused regarding eligibility and coverage for the plan. FOR EACH OF THE following which is correct or incorrect and why?

The plan could provide that employees be age 26 and have 1 year of service before becoming eligible if upon entering the plan, the employee is fully (100%) vested.

The plan may not cover Randal due to his position in the company, even if Randal meets the eligibility requirements.

Part-time employees, those that work less than 1,000 hours within a twelve-month period, are always excluded from defined benefit plans.

Generally, employees begin accruing benefits as soon as they meet the eligibility requirements.

Answer 42

The plan could provide that employees be age 26 and have 1 year of service before becoming eligible if upon entering the plan, the employee is fully (100%) vested. INCORRECT-the general eligibility is age 21, not 26.

The plan may not cover Randal due to his position in the company, even if Randal meets the eligibility requirements. CORRECT: Employees covered under a collective bargaining agreement will not be covered under the company plan.

Part-time employees, those that work less than 1,000 hours within a twelve-month period, are always excluded from defined benefit plans. INCORRECT: a plan could cover part time employees, but will generally not.

Generally, employees begin accruing benefits as soon as they meet the eligibility requirements. INCORRECT: employees become part of a plan only as early as at the next available entrance date after meeting the eligibility requirements.

Question 43

What are annual reporting requirements of employers for Qualified Defined Benefit plans

Answer 43

The plan’s summary annual report and for terminating employee’s benefit statement.

Individual Benefit Statements are not required annually for defined benefit plans. They are however, required at least once every three years. Alternatively, defined benefit plans can satisfy this requirement if at least once each year the administrator provides notice of the availability of the pension benefit statement and the ways to obtain such statement. In addition, the plan administrator of a defined benefit plan must furnish a benefit statement to a participant or beneficiary upon written request, limited to one request during any 12-month period. There are no individual accounts in a defined benefit plan, so a specific listing of invested assets is not required.

Question 44

What is PS58 cost and how related to life insurance included in a plan

Answer 44

Every year the plan participant pays income tax on the dollar value of the actual insurance protection – approximately equal to the term insurance cost. This is commonly called the PS58 cost. The sum of all those costs is the participant’s basis.

Question 45

What are limitations of including life insurance as incidental benefit to a qualified plan

Answer 45

Under the 25 percent test, if term insurance or universal life is involved, the aggregate premiums paid for the policy cannot exceed 25 percent of the employer’s aggregate contributions to the participant’s account. If a whole life policy other than universal life is used, however, the aggregate premiums paid for the whole life policy cannot exceed 50 percent of the employer’s aggregate contributions to the participant’s account. In either case, the entire value of the life insurance contract must be converted into cash or periodic income at or before retirement.

Question 46

Tara is a participant in Kean Co.’s defined benefit plan and standard 401(k) plan. Tara, who is a mid-level manager, is 44 years old and earns $100,000. She has five years of service for purposes of the plans and has worked at Kean for five years. The plan provides a benefit of 2% for each year of service. Both plans have the least generous graduated vesting schedule possible. Almost eighty percent of the accrued benefits in the defined benefit plan are attributable to the rank and file employees, and not the owners. According to the actuary, Tara’s accrued benefit in the defined benefit plan is $10,000. Over the last five years, Tara has deferred a total of $30,000 from her salary, which has grown to $40,000. In addition, Kean has matched these contributions with $15,000, which is now worth $20,000.

If Tara were to leave today, how much could she rollover into a new employer’s plan?

Answer 46

The DB plan is not top heavy. Therefore, the vesting for the DB plan is a 7 year graded schedule and he is 60% vested in the $10,000. She is 100% vested in the $40,000, but only 80% vested in the employer matching contribution.

This question requires you to know the vesting schedules, which are not provided on the exam.

For DB either 5 year cliff or 7 year graded, for DC 3 year cliff or 6 year graded.

DB DC
Yr 1 0% 0%
Yr 2 0% 20%
Yr 3 20% 40%
Yr 4 40% 60%
Yr 5 60% 80%
Yr 6 80% 100%
Yr 7 100% –
DB plan has 10,000 and is 60% vested = 6,000

DC Employee contribution is $40,000 (100% vested)

DC Employer match is 20,000 and is 80% vested = 16,000

Total vested is $62,000

Question 47

What are anti-cutback rules for retirement plans

Answer 47

The anti-cutback rules state that you cannot “cutback” benefits that have been accrued to date. Any change that would result in a reduction in benefits is not permitted.

Question 48

What are rules surrounding UBTI (

Answer 48

Unrelated business taxable income (UBTI) is income earned by a tax-exempt entity that’s not related to the tax-exempt purpose of the entity.

UBTI prevents or limits tax-exempt entities from engaging in activities that are unrelated to their primary purposes. An activity is considered unrelated business (and the income generated taxable) if it meets the following thresholds, as defined by the IRS:
- It is a trade or business that produces income from selling goods or performing services.
- It is regularly carried on in a way that’s similar to the commercial activities of nonexempt organizations.
- It is not substantially related to furthering the exempt purpose of the organization. Activities that generate income must play a major role in achieving an organization’s tax-exempt purpose to be substantially related.

Most forms of passive income, such as dividends, interest income, and capital gains from the sale or exchange of capital assets, are not treated as UBTI.

Organizations with taxable unrelated business income pay corporate or trust tax rates. Organizations must make estimated tax payments if they expect annual unrelated business income tax to be $500 or more.

Question 49

How are leased employees treated for eligibility coverage of a qualified plan by a related company

Answer 49

Leased employees must be considered because their leasing company’s plan is not a pension plan.

Question 50

What are safe harbor requirements for leasing company employees

Answer 50

Under the safe-harbor leasing rules the plan must provide a 10%, non-integrated money purchase plan with immediate vesting. No more than 20% of the employer’s non-highly compensated employees may be leased to qualify for the safe harbor rules.

Question 51

What are key elements of life insurance policy held within qualified plan

Answer 51

Owner will be subject to income for all the policy in his qualified plan because all life insurance in qualified plans is subject to income when purchased, regardless of the type.

The policy will be included in his gross estate if he were to die while still working.

Part of the proceeds could be taxable to his beneficiary if it is a cash value policy.

When owner distributes the policy from his plan at retirement, he can convert it to an annuity within 60 days to avoid taxation.

Question 52

How are ratio percentage, average benefits and general safe harbor test determined?

Answer 52

Ratio = Covered NHCE/ Eligible NHCE = >70%

Average Benefits = (Covered NHCE/ Eligible NHCE) / Covered HCE/ Eligible HCE) - >70%

General Safe Harbor = 3% salary match at 100% and 4-5% salary at 50% (for deferral plans) or min 3% contribution or rate of Key Employee contribution for NHCE (for contributory only plans)

Question 53

What is calcualtions for ADP and ACP tests and how are they different?

Question 54

What are requirments for 403B special catch up

Answer 54

$3,000 additional contribution can be made if
- Completed 15 yrs of service in same org
- Org must be Heath, Education or Religious (HER)
- Max of $15k or 5 times at $3k/yr taken over lifetime
- Must have available unused deferral

Question 55

Define following alternative retirment terms:

FIRE

Lean Fire

Sabbaticals

Answer 55

FIRE is Financial Independence, Retire Early. This movement is summed up by high savings and low spending in your early working years to allow early retirement as young as your 40s.

Lean FIRE is characterized as minimalistic lifestyle where investment or supplemental income only covers basic necessities.

Sabbaticals are defined by Merriam-Webster as a period of time during which someone does not work at his or her regular job and is able to rest, travel, do research, etc. Sabbaticals are as short as 4 - 6 weeks, or could be a year, depending on your employer.

Question 56

What are requirements for group life insurance ?

Answer 56

Most Group Life Insurance policies require at least 2 people to form a group. If your group has less than 10 employees, you’ll need to provide the insurance to all your full-time employees in order to form a valid group for tax purposes.

The plan must benefit 70% of all employees, or a group consisting of 85% non-key employees, or a non-discriminatory class, or meet the non-discrimination rules of Section 125.

Employees who can be excluded are: those with fewer than 3 years service, part-time / seasonal, non-resident aliens, or those covered under a collective bargaining unit.

Question 57

What values are included with property subject to alternative valuation date

Answer 57

Any sale or DISTRIBUTION (ie..mutual funds) of a tangible real or personal property property that would be included as a gross asset and is not subject to normal amortized reduction in value (ie..annuities, copyrights..)

Question 58

How are gross estate valuations treated for UGMA/UTMA accounts

Answer 58

The value of an UGMA account is included in the custodian’s gross estate if the custodian is the legal guardian of the child and dies before the child takes control of the account (which occurs at the age of majority).

If the child had died, the child would include the UGMA in his/her own gross estate.

Question 59

How are gross estate valuations treated for life estate interests

Answer 59

A retained life estate would be included in the gross estate. However, a GIFTED life estate is excluded from the gross estate.

Question 60

How are gross estate valuations treated for life insurance interests

Answer 60

If an insured transfers his or her life insurance policy to an irrevocable trust within three years of death, the life insurance will generally be brought back into the gross estate. However, if the transferor was NOT the insured, the three-year rule does not apply.

Question 61

What are key elements of QTIP

Answer 61

During the husband�s lifetime, he can make unlimited marital gifts to his wife. If he makes them into a QTIP Trust, the assets are qualified for the marital deduction for gift and estate tax purposes. Wife is provided for from the income from the Trust and the Trust can distribute principal by an ascertainable standard in Trustee�s discretion. The grantor may either specially name his children as remaindermen or give his spouse a limited power to allocate the remainder among a class of beneficiaries consisting of his children.

At husband�s death: His estate takes a marital deduction for the QTIP Trust.

At wife�s death: The QTIP Trust is included in her estate. Her estate has the right to recover estate taxes due to the inclusion of the Trust from the QTIP Trust. The assets pass in accordance with husband�s instructions.

The essential elements of a QTIP…

1. The grantor must �pass� the property to the spouse. (i.e. An income interest in any old Trust won�t do.)
2. The surviving spouse must be entitled to all the income (no other beneficiary may receive any income during his/her lifetime) and the income must be paid at least once a year. The surviving spouse must have the right to demand non-income producing property be made productive.
3. No one can hold a power to appoint the Trust property to anyone other than the surviving spouse during his/her lifetime.

Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return automatically designates gifts meeting the requirements under IRC Section 2523(f) and meeting the other specifications on the return as QTIP property.

Question 62

What items are included in IRD and how treated

Answer 62

Qualified plans
IRA
US Savings Bonds
Instllment Notes
Annuitized Annuities
Accrued Dividends
Accrued Wagrs

Tax Advantaged Accounts (IRAs) do not qualify for step up in basis and are included in gross estate ; Beneficiaries pay income tax on distributions, but if including these amounts in gross estate creates a estate tax liability, the beneficiary is eligible for misc itemized deduction (not subject to 2% AGI floor) equal to estate tax attributable to net IRD

Net Unrealized Appreciation on employer securities is an IRD asset, does not avoid probate and is calculated as ????

Installment note receivable is an IRD asset, does not avoid probate and is calculated as ??

Question 63

What is an IDGT

Answer 63

The IDGT is also a technique for transferring a business interest that Alfred may want to consider because it arranges a transfer of the business interest without gift tax and removes the business interest from the grantors gross estate

Question 64

What is values driven planning

Answer 64

Values-driven planning looks at the clients life goals, including personal, emotional, and spiritual goals, rather than just financial goals.

No such thing as life fulfillment or principles driven planning

Question 65

Name key features of ESOP

Question 66

What is the deadline for employers to adopt new qualified retirement plans

Answer 66

A profit-sharing plan is a type of qualified plan. The deadline for employers to adopt new retirement plans for the preceding taxable year is extended until the due date of the employer’s tax return under the SECURE Act 2019.

Question 67

What are primary differences between Roth 401k and Roth IRA

Answer 67

Loans?
Early withdrawal amounts subject to tax:
- Roth 41K = prorata portion of earnings applied to withdrawal and penalty
- Roth IRA = contributions first at no tax or penalty; then earnings and conversion is less than 5 yrs completed