Retirement Planning Flashcards

Question

MoneY Purchase Pension Plan - QP: - How do these work? - Max ER deduction? - Max consideration? Max contribution? - Fixed or flexible?

Answer 1

Follows a benefit formula requiring an annual employer contribution that is a flat percentage of each eligible employees comp. Only the first $330k is taken into consideration, but the max contribution is $66,000. - Up to 25% employer deduction. - Fixed contribution. Company needs stable cash flow. - Maximum annual contribution is LESSOR of 100% of salary or $66,000.

Answer 2

DC plan where the final retirement benefit is determined by ACCOUNT BALANCE. Employee assumes investment risk like all DC plans. - Up to 25% employer deduction. - Fixed contribution. Company needs stable cash flow. - Maximum annual contribution is LESSOR of 100% of salary or $66,000. - Favors older workers. - Employee assumes investment risk like all other DC plans.

Answer 3

- Up to 25% employer deduction. - Flexible contributions (substantial and recurring). - Max annual contribution is LESSOR of 100% of salary or $66,000. - Can have 401(k) provisions. $22,500. - Can have SIMPLE provisions (exempt from creditors). Traditional profit sharing plans consist of employer contributions, investment returns and forfeitures. Only when a PS plan adopts 401k provisions will the employee be able to defer comp into the plan.

Answer 4

- Up to 25% employer deduction - Flexible contributions. - Max annual contribution lesser of 100% of Salary or $66,000. - 100% of contribution can be invested in company stock. - ESOP CANNOT be integrated with Social Security or cross-tested. - ESOP: E for Entirely invested in employer stock (almost).

Answer 5

- Max $22,500 deferral for participants under 50 (subject to FICA and FUTA but not federal withholding). - Additional $7,500 catch-up for age 50 and over. - The above limits only pertain to employee deferrals. The Employer can also contribute to the plan, but combined contributions between EE and ER are capped at $66K. 401(k), also known as a CODA, is a provision that is added to a qualified profit sharing or stock bonus plan. Participants have the option to defer compensation into the plan, or to receive the same amount as taxable cash compensation.

Answer 6

- QP only for sole proprietor and partnerships. - May operate as a defined benefit, money purchase or profit-sharing type plan for sole props or partnerships. - The owner employee contribution is based on net earnings ( after all deductions, including the deduction for non0owner employee plan contributions. Net Schedule C). - Self-employment tax must be computed and a deduction of one-half of the self-employment tax must be taken before determining the Keogh deductible contribution. Shortcut below: - If contribution 15% - multiply by 12.12% of net earnings. - If contribution 25% - multiply by 18.59% of net earnings.

Answer 7

- >5%, >$150k >5% owner, or, An employee earning >$150,000 in the previous year. Second letter in highly is i, second letter in discrimination is i. The concept of HCEs relates to discrimination (ADP/ACP tests).

Answer 8

- >5% / Officer >$215k / >1% >$150k If at any time during the year: - >5% owner - Officer with compensation of >$215,000 - >1% owner with compensation of >$150,000 Second letter in key is e, second letter in vesting is e. The concept of key employees relates to plan vesting.

Answer 9

Top-heavy DB & All DC plans: - 3 year cliff, - 2-6 year graded - 100% vested after 2 years participation Non top-heavy DB plans: - 5 year cliff, - 3-7 year graded - 100% vested after 2 years participation When you see the word "retained" select a graded schedule. Employees will perceive that it is economically desirable to stay with the company at least until fully vested.

Answer 10

Base % + Permitted Disparity = Excess % - Integration level- Any dollar amount up to Social Security wage base ($160,200) - Base % - DC plan contribution for compensation below integration level - Permitted Disparity = LESSOR of Base OR 5.7% - Excess % - DC plan contribution for compensation above integration level.

Answer 11

Base % + Permitted Disparity = Excess % - Integration level- Level of comp above which the excess contribution is made. Any dollar amount up to Social Security wage base ($160,200) - Base % - DB plan contribution for compensation below integration level - Permitted Disparity = LESSOR of Base OR 26.25% (B for Bigger) - Excess % - DB plan contribution for compensation above integration level.

Answer 12

Elective deferrals to multiple plans with more than one employer are aggregated. - 401(k)/403(b)/SIMPLE/SARSEP = $22,500 + $7,500 - SIMPLE and other SIMPLE = $15,500 + $3,500 *Note than 457 plans are NOT part of aggregated amounts. Operate as NQ deferred comp.* *Also note that for unrelated employers that offer Pension plans, the contributions are not aggregate. Can have 2+ with full limits*

Answer 13

- Must be incidental to the primary purpose of the plan, and must meet either of the following to pass that test: 1. - Ordinary Whole Life: 50% - Term: 25% - Universal: 25% 2. The participants insured death benefit must be no more than 100 times the expected monthly benefit. DB plans typically use the 100 times limit. DC plans normally use % test DB plans normally use 100 times test

Answer 14

April 1st of the year following the attainment of age 73

Answer 15

Age 62-FRA: benefits reduced $1 for every $2 earned over $21,240.

Answer 16

- Must include muni bond income to calculate MAGI. - If income plus 1/2 of social security benefits is: 1. Above $25k for Single, then 50% of the total social security is included in income 2. Above $44k for MFJ, then 85% of the social security is included in income.

Answer 17

- Cost basis is taxable as ordinary income WHEN DISTRIBUTED! - NUA (market value at lump-sum distribution MINUS employer cost basis) is NOT SUBJECT TO TAXATION UNTIL THE EMPLOYEE SELLS THE STOCK. - NUA is always taxed at LTCG regardless of holding period. - If stock appreciates after the distribution, the gain not attributable to NUA is either LTCG or STCG depending on holding.

Answer 18

- 21 & 1. - 2 years service, but then immediately vested. One year of service is 1,000 hours (includes vacations, holidays and illness time) or 500 hours and worked for the company for 3 years.

Answer 19

Salary reduction plan - Uses portion of employee's current compensation to fund the ultimate benefit. Salary continuation - Uses employer contributions to fund the ultimate benefit.

Answer 20

- Federal employees continuously employed since 1984. - Some Americans working abroad. - Student nurses and students working for a college or college club. - Railroad employees. - Child under 18, employed by a parent in an unincorporated business. - Ministers, members of religious orders and Christian Science practitioners if they claim an exemption. - Members of tribal council. - Some state employees and teachers. Members of the armed services ARE covered under OASDI.

Answer 21

- Maximum annual contribution is the LESSER of 100% of compensation, or $66,000. - Includes employer contributions, employee salary reductions, and plan forfeitures. - Applies to all defined contribution plans. - Only time can exceed limit is for 50+ catch-up. - An individual with two unrelated employers can have two accounts, both having their own $66k limits (not aggregate).

Answer 22

A safe harbor 401(k) plan automatically satisfies the nondiscrimination tests involving HCEs with EITHER an: - Employer match, or, - nonelective contribution

Answer 23

- $1/$1 match on the first 3% employee deferral AND $.50/$1 on the next 2% employee deferral. - If the employer chooses to use the nonelective deferral method, the employer must contribute 3% of all eligible employees' compensation regardless of whether the employee is deferring or not (nonelective). Employer contributions must be immediately vested.

Answer 24

- Transfers to another 457 plan remain the only option for non-governmental tax exempt organizations. - Hardship distributions cannot be rolled into any other qualified plan. - RMDs are not eligible to be rolled over. Obviously.

Answer 25

- If NEITHER spouse, or single person, is an active participant in an employer plan, the IRA is deductible. Virtually all employer plans affect participation status, EXCEPT 457 plans (NQDC). - If ONE spouse is an active participant, the other spouse (not active) can do a deductible IRA if combined AGI is less than $218k-$228k. - If BOTH spouses are active participants, AGI limits apply (given): - $73k-83k Single - $116k-$136k MFJ - Qualified plans, SEP, SIMPLE, 403(b)/TSA/TDA, Union Plans (NOT457)

Answer 26

1. Contributions 2. Conversions 3. Earnings

Answer 27

There is no RMDs for Roth IRAs, only must be distributed after death in accordance to the following: - Owners surviving spouse can delay distributions until the Roth owner would have reached 73, or may roll it over and treat it as their own. - Distributed over 10 years to designated beneficiary. - Distributed within 5 years of owners death if there's no designated beneficiary.

Answer 28

- Key words: merger, acquisition, or change of ownership - Assets in trust available for creditors - Fear that ownership/management may change before deferred compensation is paid. - Plan must provide clear rules describing when the benefits will be paid

Answer 29

- 2 years from Grant to Sale - 1 year from Ex to Sale - If either are not met, it results in a disqualifying disposition (NSO). - First $100k granted is entitled to favorable treatment.

Answer 30

62 65, 12 months, 12 months, 5 month.

Answer 31

- 62 or over - or any age and has a child under 16, or child disabled before 22.

Answer 32

10 year. not have been remarried. If at least age 62 and divorced for 2 years, ex-spouse can get retirement benefits based on the workers earnings even if the worker claims no retirement benefits.

Answer 33

- Under 19 and a full-time elementary/secondary school student. - Age 18 or over, but has a disability before age 22.

Answer 34

50%. Greator. 10 years, not remarried. 62 divorced for 2 years can receive retirement benefits.

Answer 35

PIA - [(#months before FRA/180) x PIA]

Answer 36

T Even if the worker has reached FRA, SS benefits are subject to federal income tax if the taxpayer's provisional income exceeds the applicable threshold. Working after retirement: If you take benefits and continue working BEFORE FRA, then you can lose benefits if your workplace earnings exceed a threshold. Income tax of benefits: If you take benefits, you may have to pay income tax on those benefits if provisional income exceeds a threshold. Dont confuse these

Answer 37

$1 from benefits for every $2 earned above $21,240 $1 from benefits for every $3 earned above $56,520

Answer 38

(Earned + Unearned income) + 50% of Social Security + Tax-exempt income 50% S: If >$25,000 50% of FULL benefit is included in gross income. MFJ: If >$32,000 50% of FULL benefit is included in gross income. 85% S: If >$34,000 85% of FULL benefit is included in gross income. MFJ: If >$44,000 85% of FULL benefit is included in gross income. Even though 50% of Social Security is included in provisional income, the FULL benefit is taxed at the applicable amount if over the threshold.

Answer 39

- Insured for disability benefits, and under age 65. - Been disabled for 12 months, expected to be disabled for at least 12 month, or disability expected to result in death. - Filed for disability, and has completed 5-month waiting period.

Answer 40

Its paid in the month following, the 6th month, not on the 5th month.

Answer 41

Qualified plan subject to ERISA, and covered by PBGC. Vesting schedule, admin costs, exempt from creditors, integrates with Social Security. DB and Cash Balance.

Answer 42

Qualified plan subject to ERISA. Vesting schedule, admin costs, exempt from creditors, integrates with Social Security (except ESOP) Money Purchase, Target Benefit, Profit Sharing, Stock Bonus, Keogh

Answer 43

A nonqualified plan exempt from most ERISA requirements. No vesting schedule, LOWER admin costs. SEP, SIMPLE, SARSEP, 403(b)/TSA/TDA, 457.

Answer 44

- Must have been in existence before 12/31/96. - May have up to 25 employees, and 50% of the eligible employees must defer. - Salary deduction limit is $22,500 (FICA). - New employees may participate if established before '97.

Answer 45

Years to retirement (older more, younger less) Investment returns (lower assumptions more, higher assumptions less) salary levels employer contributions Forfeitures (MAY be applied to reduce employer contributions)

Answer 46

- Wants stable work force - Simple to administer and explain - Young/well-paid employees

Answer 47

Alternative to a DB plan that provides adequate retirement benefits to older employees but has the lower cost and simplicity of a DC plan.

Answer 48

- Employer has varying cash flow from year to year. - Provides incentive for employees to make the company profitable. - Employees are young, well-paid, and have substantial time to accumulate savings.

Answer 49

- Employer wants to provide a qualified plan but can only afford minimal extra expense beyond the costs of existing salary and benefit costs. - Employees want to increase their savings on a tax-deductible basis.

Answer 50

- Not subject to coverage testing and nondiscrimination rules like typical 401(k) plans. - Allows for two different contributions: $22,500 elective deferral + Employer contribution with a cap of $66,000 + $7,500 catch up if 50+. This differs from Keogh and SEP. - Generally permitted when only owner and spouse or two partners. "Solo no employees" - Can take a policy loan. - Allows for more to be put away than Keogh/SEP because of above.

Answer 51

- Safe harbor 401(k) plans automatically satisfy the nondiscrimination tests which involve HCEs with either an: - employer matching contribution, or - non-elective contribution - Employer matching contribution would be $1/$1 on the first 3% employee deferral AND $0.50/$1 on the next 2% employee deferral - Non-elective deferral would be 3% of all eligible employee's comp REGARDLESS of whether the employee is deferring. - Employer would pick one to satisfy the safe harbor. - Immediately vested.

Answer 52

- If you use it to borrow money, its a LESOP - You can't integrate it with Social Security or cross-test it. - Primarily in employer stock - Cannot use it in a partnership - 55 or older with 10+ years of PARTICIPATION can diversify up to 50% of account balance.

Answer 53

Variations of profit-sharing plans. Stock bonus may invest assets in employer stock, ESOP MUST invest plan assets primarily in employer stock. Employers may deduct dividends with respect to stock held in an ESOP. Deductible if paid in cash, distributed as cash no later than 90 days after the close of the plan year, used to make payments on loans to acquire employer stock, or reinvested in employer stock.

Answer 54

Contribution percentage formula for one category of participants is greater than the contribution percentage for other categories of participants. Tested under cross-testing rules.

Answer 55

Measures DC plans for nondiscrimination on the basis of benefits, and DB plans on the basis for contributions. Creates max benefit for HCEs

Answer 56

- Employer wants to max plan contributions to older employees. - An older controlling employee wants to max tax-deferred retirement savings for their own benefit.

Answer 57

- For a benefit beginning at age 65, the max annual life annuity benefit is the LESSOR of: - $265,000, or - 100% of comp averaged over the employees three highest consecutive earnings years.

Answer 58

Unit-benefit. Rewards long-service employees.

Answer 59

- Less expensive and simpler DB plan. - May allow past service credits, which means the plan may cover periods of employment prior to the plan's inception date.

Answer 60

DB plan funded entirely with insurance products like Life insurance and annuities. Avoids minimum funding standard.

Answer 61

Employer contributions would decrease. If the forfeiture in a money purchase plan is not reallocated to the remaining participants, then they must be used to reduce company contributions.

Answer 62

Forfeitures in defined benefit plans and cash balance plans must reduce plan costs or contributions. Money purchase plan forfeitures may (not must) be allocated to employee account balances. Forfeitures in a profit- sharing plan normally are allocated to the plan participants.

Answer 63

Unit-benefit, also known as, Percentage-of-earnings-per-year of service.

Answer 64

1. Age and service: - 21 and 1 year of service - 2 years of service, 100% vested After meeting the above, employee must be able to participate at the earlier of 1st day of 1st plan year after meeting age and service, or, the date 6 months after these conditions are met. One year of service is 1,000 hours in a 12 month span, or 500 hours for 3 consecutive years will also suffice. 2. Coverage - Ratio % test- Must cover a % of NHCE that is at least 70% of the HCE whom are covered. IF THIS TEST FAILS, THE NEXT TEST MUST PASS. - Average benefit test- Avg benefit for NHCE must be at least 70% of those for HCE.

Answer 65

Lesser of: - 50 Employees, or - The greater of 40% of all employees, or, two employees.

Answer 66

A plan is top-heavy if 60% or more of its aggregate accrued benefits or account balances are allocated towards key employees. top-hEavy ---- kEy

Answer 67

Virtually all vesting schedules offer participation in the plan with one year of service. Ie: 3 year cliff, 2-6 graded, 5 year cliff, 3-7 graded. The only option that allows for more than one year of service requirement to participate would be the 2-year/100% option which allows immediate vesting after 2 years of service.

Answer 68

spouse, parent, child, grandparent. Only a parent is deemed to own stock on behalf of children under age 21.

Answer 69

No, their salaries would not be included.

Answer 70

- Elective deferral programs are more likely to cover higher paid employees, and are subject to nondiscrimination testing under ADP. - Employer matching and Profit-sharing contributions are subject to nondiscrimination testing under ACP. - 0%-2% is x2 NHCE get 2% deferral, HCE get 4% deferral. - 3%-8% is +2 NHCE get 4% deferral, HCE get 6% deferral.

Answer 71

- Parent-subsidiary - Brother-sister - Affiliated service group - Employee leasing

Answer 72

$160,200 for '23

Answer 73

Deferrals, company contributions, or the $66,000 maximum annual additions limit. They are permitted in addition to 415 limit of $66,000.

Answer 74

The employer can only deduct a maximum of 25% of all participants (aggregate) eligible compensation. Certain participants may receive contributions in excess of 25% as long as total company contributions do not exceed 25%, and contributions do not violate the rules of discrimination.

Answer 75

60%, key employees.

Answer 76

- Benefit must be at least 2% of compensation x years of service where the plan has been top heavy, up to a maximum of 10 years. Remember: For DB, B is the 2nd letter in the alphabet, use 2%.

Answer 77

- Employer contribution must be at least 3% of compensation for non-key employees. Remember: For DC, C is the 3rd letter in the alphabet, use 3%.

Answer 78

1. There's a loan agreement requiring repayment. 2. Total loans don't exceed 50% of vested benefit, OR, $50,000. (Special rule allows small accounts to borrow up to $10,000) 3. Loan repaid in 5 years or less, unless the loan is used to acquire PRINCIPAL residence (home does not need to be pledged), or there is a leave of absence. 4. Loan repayments are paid in level installments at least quarterly. If participant fails to make payments, the entire balance due is deemed a taxable distribution (income tax + 10% penalty if less than 59.5).

Answer 79

"For income tax purposes, interest on a plan loan will be treated as consumer interest. Generally, it will not be deductible by the employee as an itemized deduction unless the loan is secured by the principal residence. Principal residence loans are also allowed to key employees. However, the interest is not deductible (ever!) even when the loan is secured by the key employee’s principal residence. Interest is never deductible when a plan loan is secured by elective contributions made to a 401(k) or tax-sheltered annuity. In other words, the only way a non-key participant can deduct interest paid on a plan loan is if the following two conditions are met: 1. The loan is for the participant’s primary residence 2. The loan is secured by the primary residence"

Answer 80

T! Even though these are not Qualified plans, they do offer plan loans.

Answer 81

$6,500 + $1,000 catch-up if 50+ Must have earned income (wages, salaries, tips, professional fees, and bonuses. Plus alimony and separate-maintenance payments for pre-2019 divorces). S-corp (k-1) distributions are unearned income and do not count!

Answer 82

SEP TSA/TDA Union plans (but not 457 give or non-gov plans) Qualified plans SIMPLE Annual additions. Annual additions include employer contributions, employee contributions, and forfeitures.

Answer 83

- Money Purchase Pension plan (fixed contribution) - Target Benefit Pension plan (fixed contribution) - Profit sharing plan (flexible contribution) - Stock bonus plan (flexible contribution)

Answer 84

T As long as there are no annual additions or accrued benefits (for DB purposes) .

Answer 85

QPs, SEP, SIMPLE, 403(b) or 457

Answer 86

- No income tax - No 10% early withdrawal penalty

Answer 87

Must meet one of the special purposes: 1. 59.5+ 2. Death 3. Disability 4. First home purchase up to $10k 5. Medical expenses 6. Medical insurance premiums while unemployed 7. Substantially equal periodic payments 8. Higher education expenses 9. Birth/adoption If special purpose is met, no income tax or 10% early withdrawal penalty If no special purpose is met, no income tax (already paid at conversion) but subject to 10% penalty.

Answer 88

If a Qualifying Triggering Event: No income tax or 10% penalty 1. 59.5+ 2. Death 3. Disability 4. First home purchase up to $10k If a Special Purpose: Income tax, but no 10% penalty 5. Medical expenses 6. Medical insurance premiums while unemployed 7. Substantially equal periodic payments 8. Higher education expenses 9. Birth/adoption If no qualifying triggering event or special purpose: Both income tax AND 10% penalty

Answer 89

If a Special Purpose: Income tax, but no 10% penalty 1. 59.5+ 2. Death 3. Disability 4. First home purchase up to $10k 5. Medical expenses 6. Medical insurance premiums while unemployed 7. Substantially equal periodic payments 8. Higher education expenses 9. Birth/adoption If no Special Purpose: Income tax and 10% penalty

Answer 90

- Only 401(k), 403(b) and Government 457 plans may offer a qualified Roth program. - $22,500 + $7,500 for 50+. - All employer contributions (including match) are into a traditional 401(k) pre-tax account. - There are no income limits associated with these Roth contributions. - Subject to a 5-year term from first contribution, and there is no exception for first-time home purchase. - To be tax-free, participants needs to meet 5-year hold, reached 59.5, died, or become disabled.

Answer 91

Achieve a Better Life Experience - Expands on code section 529 to create tax-advantaged accounts for disabled. - Can contribute up to $17,000 annually (Annual gift tax exclusion). - Distributions for qualified disability expenses are not included in gross income if beneficiary becomes disabled before 26. - Exempt from the $2,000 limit on personal assets for Medicaid and SSI.

Answer 92

Yup. Dont get fooled by retirees.

Answer 93

- Must cover everyone who is 21 and worked for the employer during 3 out of the 5 preceding calendar years. Part-time counts. - No contributions need to be made for employees whos comp for the year is less than $750. For the employer with numerous short-term employees, this permissible exclusion can be an advantage, but for the employer with numerous long-term, part-time employees, this can be a disadvantage.

Answer 94

- Easy to administer - 5304 or 5305 SIMPLE. Form is given to employees not filed with the IRS. - SIMPLE cannot be terminated mid year. Must be Jan 1 of the year following confirmation to employees. - Employer cannot maintain any other qualified plan, 403(b) or SEP.

Answer 95

- Must cover employees who earned $5,000 in any two previous years and is reasonably expected to earn $5k in the current year. - Employer must notify participants of the 60-day window just prior to the calendar year to make a salary deferral election, or modify a previous election from the following year. - Employees are fully vested at all times. - 10% early distribution penalty is increased to 25% for the first 2 years of participation.

Answer 96

This is when a traditional 401(k) adopts SIMPLE provisions. - Deferral limit of $15,500 like SIMPLE IRAs. Remember, its a 401(k) that adopts SIMPLE provisions. - Exempt from ADP and ACP tests and top-heavy requirements. - Cannot choose the special 1% match election like SIMPLE IRAs. - Both SIMPLE and SIMPLE 401(k) have a catch-up of $3,500.

Answer 97

DB or DC: the plan document must be executed within the tax year for which the employer wishes to take the tax deduction for its contribution. However for: - Standard 401(k) must be established before the first deferral can be made (before end of employers tax year) - Safe Harbor 401(k) must generally be adopted before the beginning of the plan year. - SIMPLE 401(k) may be adopted anytime on or after January 1, but not later than October 1 of the year in which it is adopted.

Answer 98

May be established by an employer up to the due date of the employers tax return.

Answer 99

may be establish after an employers fiscal year end. An employer has until the due date of the business tax return, including extensions, to establish and make contributions to a SEP for the taxable year.

Answer 100

Income from a limited partnership or dividends from a margin account. If exceeds $1000 the qualified plans UBTI is subject to income tax in the current year. UBTI is taxable income generated by a tax-exempt entity by means of certain passive activities.

Answer 101

Profit-sharing plan. No Pension plans.

Answer 102

* RMD age is raised to 73 (from 72) for years 2023-2032. The RMD age is increased to age 75 for years 2033 and beyond. * RMD penalties have been lowered from 50% to 25% or 10% if the RMD is taken by the end of the second year following the year it was due * Plans can allow employer matching contributions to be made on a Roth (after-tax) basis * SIMPLE and SEP IRAs can offer Roth options * QLACs may have up to $200,000 (adjusted for inflation) invested and the 25% limit has been eliminated. * Additional 10% penalty exceptions added (federally declared disasters most notable) * Qualified charitable distributions (QCDs) indexed for inflation and one time $50,000 allowed to a CRAT or charitable gift annuity

Answer 103

1. Attainment of specific age or years of service (NRA for Money purchase, 59.5 for 401(k)). 2. Hardship (any age, any type of profit-sharing plan. Must follow financial needs test & resources test). 3. Attainment of age 62 (for defined benefit plans).

Answer 104

yes. No 10% penalty if over 59.5 or disability qualified plan exemptions.

Answer 105

- Paid not less frequently than annually. - Paid without changing the amount for the LONGER of 5 years or until the payee reaches age 59.5. - Based upon the life expectancy of the recipient or recipients. - Based on a reasonable rate of interest. - If applicable, based upon reasonable mortality assumptions. If payments are changed or stopped within the 5 year period but its after they reach 59.5, recapture will be for only those payments before he turned 59.5. An important exception is that a one time election allows participants to switch from the annuity or amortization method to the RMD method with no penalty.

Answer 106

- a post-retirement death benefit for the plan participants spouse. - qualified pension plans are required to provide a QJSA option. - must be not less than 50% of, nor greater than 100% of the annuity payable during the joint lives of the participant and spouse.

Answer 107

- Pension Protection Act requires a second joint and survivor annuity option in pension plans. - must be a 50% joint and survivor annuity. Many plans specify a 75% joint and survivor annuity. - The participant can elect out of this benefit only with written spousal consent. Election out must be made during a 180 day prior to the annuities starting date.

Answer 108

A QPSA is a preretirement death benefit for the plan participant’s spouse payable upon the death of the participant who dies before the starting date of the QJSA. The survivorship annuity must be not less than what would be payable under the plan’s QJSA.

Answer 109

A participant in a QP, 403(b) or 457 may now roll over their distribution from that plan into a SIMPLE, however the receiving SIMPLE had to have been established at least 2 years prior to receiving funds from the non-SIMPLE plan.

Answer 110

- An IRA owner can withdraw all or part of the balance in the account and reinvest it within 60 days in another IRA. This can occur only once per year, per taxpayer. - If a participant receives a direct distribution from a QUALIFIED PLAN, the distributing plan must withhold 20% of the distribution. The check is made to the participant. - To ensure tax-deferred treatment on the full amount with no 20% withholding, rollovers must be completed by means of a DIRECT TRANSFER.

Answer 111

This is TRUE!! one from a QP and one from a IRA per year per taxpayer. Also, unlimited trustee to trustee transfers!

Answer 112

25% or 10% if the RMD is taken by the end of the second year following the year it was due.

Answer 113

- At 70.5 (not 73) individuals can make QCD of up to $100,000 annually. - The amount is excluded from taxable income, and satisfied RMDs. This does not offer a charitable income tax deduction tho.

Answer 114

surviving spouse, person not more than 10 years younger than the plan participant, minor child, disabled person, and a chronically ill person.

Answer 115

The 10% early withdrawal penalty is waived if a distribution from a governmental plan (not 457) is made after the public safety employee participant turns 50 (instead of 55).

Answer 116

- Plans to entice high profile employees. - Does not meet the tax and labor laws of ERISA which are applicable to qualified plans. - No employer tax deductions for contributions until the employee is taxed. - Fund's earned may be taxable to employer - non-profits cannot offer these.

Answer 117

- A "naked promise" to pay benefits. - It also could informally funded with life insurance, annuities, mutual funds or other investments. These assets are owned by the company and are subject to the companies creditors. - Both are considered unfunded plans.

Answer 118

- Ann irrevocable trust established for the exclusive benefit of the employee. - Addresses two current problems associated with nonqualified deferred compensation: - The lack of security in relying on an informally funded plan - The fear that tax savings will disappear because tax rates after retirement may be higher.

Answer 119

- Exists if conditioned upon performance of services for a period of time. - If you can lose it, there is forfeiture. Also considered: - The employee's relationship to other stockholders and the degree of their potential control - The employee's relationship to corporate officers.

Answer 120

$100,000. Favorable ISO treatment. Options granted which exceed that amount are non-qualified.

Answer 121

- If ISOs are SOLD in the SAME calendar year as exercised, the bargain element is taxable compensation subject to FICA/FUTA. - If the ISOs are SOLD within 12 months but in the following calendar year, the bargain element is ordinary income but not subject to FICA/FUTA. If both the 1 and 2 year rule are violated, the bargain element is taxable compensation and subject to FICA and FUTA.

Answer 122

No. It is an AMT add-back item.

Answer 123

Yeah you can, but they become NSOs (disqualifying disposition), and when the recipient exercises the options, the bargain element is taxed to the transferer.

Answer 124

This is dealing with NSOs not ISOs. Employee elects to recognize the ordinary income tax at the time of the award instead of at the time of exercise. Any appreciation in the stock after the date of the award (grant) will not be taxed to the employee until he/she sells the stock. This allows for more of the final award to be taxed at the lower capital gains tax rates. 83(b) should be elected if the stock is really expected to substantially appreciate over time.

Answer 125

- RSUs have no value when issued but can have great value once vested. - Value of shares are taxed as compensation, and then taxed as cap gains based on the difference between the sale price and the value of the shares upon vesting.

Answer 126

Rights to be paid an amount of money equal to: value of specified number of shares granted, and the value on exercise.

Answer 127

Section 423 stock purchase plan. Employer is allowed to discount the stock by 15% of the market value. Creates a constant demand for shares.

Answer 128

Individual employees can receive contributions in excess of 25% providing the contributions conform to the 415 limit (as long as company contributions do not exceed 25% of total eligible plan compensation).

Answer 129

Although the SEP will have to cover the part-timers, at worst, the contribution would only total $3,000 @ 25% or $750. The part-timers still have to meet the 3-out-of-5 years of service rule. The employees under age 21 would not be eligible. A SEP is the simplest, most flexible plan.

Answer 130

SEP contribution rules are similar to those for a Keogh PS Plan. For self-employed individuals, the maximum contribution percentage is 18.59% (Note: $18,590/$100,000 is 18.59%) of earned income with a 25% plan, and for corporate employees (including owners) the contribution limit is 25%. The 1.0 rule has been repealed. Note: She works for two unrelated employers, so both contributions are allowed. When do qualified plan coverage rules apply or not apply here? shes covered by a DB plan regardless if she has an unrelated employer.

Answer 131

Pledging the stock is like buying stock on the margin. It makes the most sense. The loan interest deduction is disallowed when municipal bonds are pledged for a loan. Municipal income is not investment income. If an IRA is pledged for a loan, the IRA will be disqualified.

Answer 132

Contributions to a secular trust are deductible in the contribution year by LK Industries. The secular trust is irrevocable (funded) and not subject to the company's bankruptcy or insolvency creditors. A secular trust can be funded with various investments including (but not limited to) variable annuities. Creditors before anyone in a Rabbi trust

Answer 133

When deferred compensation is subject to "substantial risk of forfeiture," the amount, if any, of economic benefit is uncertain and the deferred income is then not taxable until it is distributed.

Answer 134

Yes, if her reason for making the trip is for a valid business purpose. Travel-related expenses are deductible if the individual is an employee of the taxpayer, the travel of the individual is for a bona fide business purpose, and the expense would otherwise be deductible by the individual. Roger’s wife is an employee.

Answer 135

Yes, but you only up to investment income! If there is no investment income, there is no investment interest expense. Popular investment expense is margin interest, but make sure there is investment income.

Answer 136

Martha will be covered by FDIC for an additional $500,000 in a jointly held account with her son at another bank. It will be fully insured ($250,000 for her and $250,000 for him).

Answer 137

The lesser of at least 1/3 of the allocation rate of the HCE with the highest allocation rate, or, 5% of the NHCE’s compensation.

Answer 138

They MUST be applied to reduce employer contributions.

Answer 139

Under age 16, or became disabled before age 22.

Answer 140

Sue had already worked part time. Her PIA is $250. If your husband Sam’s PIA is $1000, then Sue’s spousal benefit is $500.

Answer 141

Municipal bond interest is considered income for the purposes of determining the taxation of Social Security benefits. Provisional income is AGI plus tax exempt interest, and 1/2 of Social Security income.

Answer 142

Taxable compensation paid or accrued during the tax year. Elective deferrals under section 401(k) in section 457. Salary reduction contributions to section 125 cafeteria plans. FSA.

Answer 143

He can make a deductible contribution of $6500 to an IRA, or $13,000 with a spousal IRA. If smart ink does not make a contribution to a profit, sharing plan in a given year, Elliot is not considered to be an active participation, although he is still covered under the plan. This is true as long as there are no annual additions made to the employees account. Annual additions are employee contributions, employer contributions, and forfeitures.

Answer 144

If one spouse is actively participating in an employer-sponsored qualified plan, and the other spouse is not covered under an employer-sponsored qualified plan, the couple can make a deductible IRA contribution if they are under the “spousal IRA” phaseout on the provided tax tables.

Answer 145

No. Don’t get this confused. Look at the tax sheet.

Answer 146

T. Read carefully.

Answer 147

Contributions, conversions, earnings.

Answer 148

DOES IT MEET THE 5 YEAR HOLDING PERIOD?

Answer 149

When employers make contributions for employees, they must be sent to a employees traditional IRA. The employee is responsible for the investment management of that SEP-IRA??

Answer 150

The normal 10% penalty for IRAs is increased to 25% in the first two years of participation in a SIMPLE. This is to discourage participants from spending their account.

Answer 151

There is no compensation cap for SIMPLE IRAs, but the the $330,000 salary cap does exist for SIMPLE 401(k)s. This is because SIMPLE 401(k)s are qualified plans!! Under a SIMPLE 401(k) using the max match (3%) formula, an employee under 50 earning $516,667 is eligible to receive an employer match of $15,500 plus another $15,500 employee deferral. $31,000 total. Under a SIMPLE 401(k), the employee can defer up to $15,500 plus get 3% of up to $330,000 ($9,900) for a total of $25,400.

Answer 152

Distributions from an eligible governmental section 457 plan must include deferred compensation in gross income for the tax year in which such deferred compensation is paid. Distributions from an eligible non-governmental tax exempt plan are required to include deferred compensation for the tax year in which such deferred compensation is paid, or otherwise made available. Substantial risk of forfeiture is removed.

Answer 153

Only governmental for 57’s can be rolled into an IRA, Roth IRA, or a qualified plan. Non-governmental 457’s can only be rolled over into another non-governmental 457.

Answer 154

Amounts deferred under non-qualified plans are not subject to Social Security taxes until the year the employee has constructive receipt, or no longer has a substantial risk of forfeiture. At that point, the deferred compensation is subject to withholding and Social Security taxes.

Answer 155

Uni-401(k) allows a deferral of $22,500 + Employer profit sharing contributions with a cap of $66,000 + a $7,500 catch-up if 50+. Generally permitted when only one participant or husband and wife. SEP (and Keogh) allows for a $66,000 contribution max, but no catch-up.

Answer 156

All defined benefit, defined contribution, 403(b), and governmental 457 plans.

Answer 157

- A distribution from a qualified plan into another qualified plan or to an IRA. - A QDRO distribution to a spouse, former spouse, or alternate payee, may be rolled over to an IRA or to another qualified plan. - A distribution to a surviving beneficiary may be ruled to an IRA or a qualified plan. - A distribution from a 403B may be rolled over to a qualified plan or to an IRA. - A distribution from a simple IRA may be rolled over to an eligible retirement plan after two years of participation. Less than two years of participation can be rolled to another simple IRA. - After tax contributions can be rolled over from a qualified plan to a traditional IRA, or can be transferred in a direct trustee to trustee transfer to a defined contribution account. - Pretax contributions from an IRA may be rolled over from a traditional IRA into a qualified plan. If the qualified plan documents allow. After tax contributions from an IRA may not be rolled over into a qualified plan. - A distribution from a 457 governmental plan can be rolled over to a qualified plan or to an IRA. - hardship distributions from any retirement plan cannot be rolled into any other qualified plan.

Answer 158

The conduit IRA holds the funds that have been distributed from the qualified plan for the subsequent transfer to a new or different qualified plan.

Answer 159

The secure act change the requirements for inherited IRAs, requiring that the entire balance of the participants account to be distributed within 10 years. The five exceptions to the rule are called eligible designated beneficiaries: 1. Surviving spouse 2. Child who is less than 18 years of age 3. Disabled individual 4. A chronically ill individual 5. Any other individual who is no more than 10 years younger than the deceased IRA owner Once a minor child beneficiary reaches the age of 18, the 10-year rule goes into effect. A disabled individual is allowed to use their own life expectancy to calculate RMD’s .

Answer 160

No. It is assumed by the employee for DC plans.

Answer 161

For participants age 50, the salary reduction catch-up contributions are not included in calculating employer deduction limits or contribution limits. If the question says deferral, it is $22,500 maximum. If it says contribution, then it includes the deferral and the catch-up ($30,000).

Answer 162

This only applies to 401(k) plans. Loans may be available with other plans, but not hardship withdrawals. The hardship withdrawal is subject to ordinary income tax and the 10% early withdrawal penalty.

Answer 163

The NUA would be lost. All the company funds must be distributed in one taxable year to qualify. Lump sum all in one year.

Answer 164

Keogh plans These cover business organizations that are not Inc. They are qualified plans with special contribution limits for owner employees. For a 15% plan, the employee would get 15% contribution, but for the owner use the 12.12% shortcut. For a 25% plan, the employee would get 25% contribution, before the owner use the 18.59% short cut.

Answer 165

$330,000 x 3% equals $9900. The salary cap applies for 401(k) SIMPLE plans. It is still a 401(k) plan thus, it functions like a qualified plan. Employee deferral is still $15,500.

Answer 166

When an older controlling employee wants to maximize tax deferred retirement savings for their benefit, and when the company has a very stable, cash flow with excess profits.

Answer 167

It is the amount deferred into a QP by the employer at the EMPLOYEES ELECTION. It is a salary deferral from the employee. It is not included in the 25% amount the employer is allowed to deduct.

Answer 168

ESOP, SIMPLE, 401(k) SIMPLE

Answer 169

When considering multiple plans, an EMPLOYEE's DEFERRALS are aggregate no matter what, but if there are multiple employers, ANNUAL ADDITIONS FROM THE EMPLOYER *CAN* be aggregate or separate!! Employee deferrals: Must be aggregate 401(k) / 403(b) / SIMPLE / SARSEP: $22,500 + $7,500 SIMPLE and another SIMPLE: $15,500 + $3,500 Annual Additions from ER: CAN be aggregate or Separate. - Aggregate for single employer, or 2+ related employers - Separate for UNRELATED employer plans.

Answer 170

T A 60-day distribution from a Qualified Plan DOES NOT disqualify an IRA from another 60-day distribution within one year. What the client CANT do is ANOTHER IRA distribution (60-day) until one year has passed. The client can however, do a direct trustee-to-trustee transfer within the same year. This is because there is no distribution or 60-day window initiated! Good!

Answer 171

If a QDRO orders a distribution of funds to a spouse or former spouse, it is not taxable income to the plan participant, and no 10% penalty applies. If the order is distributed to a child or dependent, it is taxable to the plan participant, but no 10% penalty. If the order is distributed to a random, it is taxable to the participant, and the 10% penalty could apply!

Answer 172

$22,500 deferral +7500 catch-up is over 50 years old. The catch-up only pertains to governmental 457 plans. For non-governmental 457 plans the contribution max is 22,500 deferral.

Answer 173

1. Company contributions would decrease. 2. The amount of the employers contribution would not change. 3. The employer contributions would decrease. 4. Employer contributions would increase.

Answer 174

Safe harbor 401k is 1/1 match on first 3% and .50/1 on next 2 percent. Or a non elective contribution of 3%. Remember 3% for DC plan!! SIMPLE is dollar for dollar matching up to 3% of employees compensation, or 2% nonelective contribution of compensation

Answer 175

Roth conversions = 5 years or 59.5. Roth earnings = five years and 59.5.

Answer 176

They only apply to Qualified plans, 403(b)s, and governmental 457s. NOT IRAs!!!!! FIGURE IT OUT

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