Retirement Planning

Question 1

125 Cafeteria plans

Answer 1

-only 25% of total benefits can accrue to key employee.

-Mid year changes in reductions are allowed for qualified changes in status

Question 2

Cafeteria plans allowed benefits

Answer 2

-Accident and health benefits (but not medical savings accounts or LTC insurance)
-Adoption assistance
-Dependent care assistance
-Group term life insurance (including costs that cannot be excluded from wages)

Question 3

Cafeteria plans disallowed benefits

Answer 3

-Acher medical savings accounts
-Athletic facilities
-de minimum fringe benefits
-Educational assistance
-Employee discounts
-Lodging on employer’s business premises
-meals
moving expense reimbursements
-no additional cost services
-transportation benefits
-tuition reduction
-working condition benefits

Question 4

Incentive Stock Options

Answer 4

-For favorable tax treatment the stock must be held two years from grant and one year from exercise for LTCG.
-No regular taxable income will be recognized by the employee when the qualified option is granted or exercised.
-Bargain element is an AMT preference item
-If disqualifying disposition, then bargain element is OI and then LTCG or STCG depending on holding period

Question 5

Qualified group life insurance

Answer 5

-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.

-if using a non-discriminatory classification, will have a bottom tier with benefits no less than 10% of the top tier and no more than 250% increase between tiers

-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 6

SIMPLE