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Retirement Planning > Retirement Planning > Flashcards

Retirement Planning Flashcards

1
Q

Role of IRS of qualified plans…

A
  • supervising the creation of new retirement plans
  • monitoring and auditing existing ones
  • interpreting federal legislation (tax consequences of pensions)
  • administering the qualified system
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2
Q

What is ERISA?

A
  • a federal law that governs the non-tax aspects of private retirement plans and other employee benefits
  • requires plan sponsors to report and disclose plan information to the IRS, DOL, Pension Benefit Corporation, and plan participants.
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3
Q

Department of Labor

A
  • ensures the compliance with ERISA’s pan reporting and disclosure rules, and oversees compliance with the prohibited transaction rules
  • regulates the actions of the plan fiduciaries, which include individuals or firms that exercise discretionary authority over plan assets, or that provide investment advice for a fee
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4
Q

Pension Benefit Guaranty Corporation (PBGC)

A
  • responsible for insuring the vesting plan participants against loss of benefits from plan termination
  • benefit payments are financed by premiums paid by the sponsors of defined benefit plan
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5
Q

Who are exempt from PBGC requirements?

A

Service employers with 25 or fewer active participants

Limit determined by age at retirement

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6
Q

PBGC can terminate a defined benefit plan if…

A
  • minimum funding standards are not met
  • benefits cannot be paid when due
  • the long run liability of the company to the PBGC is expected to increase reasonable
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7
Q

Who are involved in the regulation of Qualified plans?

A

IRS (tax aspects) and DOL (labor law and employee relations)

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8
Q

Plan eligibility for a qualified plan?

A
  • 21 years old
  • one year of service
  • worked at least 1,000 hours
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9
Q

What is a highly compensated employee? (HCE)

A
  • was a greater than 5% owner of the employer at any time
  • ownership of 5% immediately disregards ownership
  • owning exactly 5% doesn’t count

OR

-in the preceding year had compensation greater than $130,000 from the employer

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10
Q

If employer makes an election, who is included in the highly compesated group?

A

Anyone in the top 20% compensation

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11
Q

1% owner vs 5% owner?

A

1% = owns more than 1%, 5% owns more than 5%

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12
Q

Percentage Test

A

non-HCE’s who benefit / total non-HCE’s

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13
Q

Ratio Test

A

% of non-HCE’s covered / % of HCEs covered

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14
Q

Average Benefits Percentage Test

A

average benefits % non-HCEs / average benefits % HCE

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15
Q

50/40 Test

A

Applies for defined benefit pension plans

Must benefit lesser of

  • 50 employees
  • 40% of all eligible employees
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16
Q

Purpose of Controlled Groups?

A

to prevent top management or owners from organizing their way out of providing a qualified retirement plan for many rank-and-file employees

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17
Q

When does vesting occur?

A

when an employee’s nonforfeitable right to receive a present or future retirement plan benefit is accrued over time, per the schedule identified by the employer-sponsored retirement plan

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18
Q

What schedules must be “non-top-heavy” for defined benefit pension plans?

A

1) Five Year 100% or Cliff Vesting - no vesting required before 5 years of employee service with 100% vesting required at the end of 5 years
2) 3 to 7 year - the plan must provide vesting as such

3 20%
4 40%
5 60%
6 80%
7 100%
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19
Q

What schedules must “non-top-heavy” be for defined contribution plans?

A

1) Three year cliff - no vesting required before, 100% after 3 years (starts with hire not start date of plan)
2) 2 to 6 year

2 20%
3 40%
4 60% 
5 80%
6 100%
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20
Q

Who is a key employee?

A

1) an officer of the employer having annual compensation from the employer of more than $185,000
2) a greater than 5% owner of the employer
3) a greater tan 1% owner of the employer having annual compensation from the employer of greater than $150,000

No more than 50 employees will be treated as officers

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21
Q

Top Heavy Requirements

A

a DB plan that provides more than 60% of its aggregate benefits or account balances to key employees

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22
Q

Consequences of top heavy plans?

A

1) must provide accelerated three-year cliff or two - six graded vesting
2) it must provide a minimum defined benefit accrual of 2% times the number of years of service, up to 20% for all non-key employees
3) Must make a minimum contribution of at least 3% of annual compensation to each non-key employees account (if less then contribution for non-key must be the same as key employees)

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23
Q

Covered compensation annual limit used o determine contributions for a qualified plan?

A

$285,000 annually

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24
Q

Defined benefit pension plans pay benefits that cannot exceed…

A

The lesser of

1) 100% of the participants compensation averaged over the three highest consecutive years of compensation
2) $230,000 annually

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25
Q

Annual additions limit for defined contribution plans cannot exceed…

A

The lesser of

1) 100% of the participants annual compensation
2) $57,000 annually

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26
Q

Annual additions include…

A

employer contributions
employee contributions
forfeitures allocated to the defined contribution plan on behalf of the employee

NOT catch up contributions!

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27
Q

What type of plan works best for an employer who wants substantial, immediate, tax deduction for plan contributions? (As long as employee demographics and long term company finances favor a plan)

A

defined benefit

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28
Q

Deduction limit for employer to plan?

A

25% of overall compensation (can be averaged out between multiple employees)

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29
Q

Maximum percentage difference for integration of social security for defined benefit plans?

A

26.5%

base benefit percentage + permitted disparity = excess contribution percentage

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30
Q

Maximum percentage difference for integration of social security for defined contribution plans?

A

Lesser of

1) two times the base percentage or
2) the base percentage plus 5.7%

base benefit percentage + permitted disparity = excess contribution percentage

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31
Q

What cannot be integrated with social security?

A

ESP, SARSEP, SIMPLE

employee elective deferrals, and employer matching contributions

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32
Q

Difference between master and prototype plan?

A

Master uses one and prototype uses more than one.

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33
Q

Who can provide qualified plan services?

A

Trust companies, commercial banks, investment firms, asset management groups, and insurance companies

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34
Q

Reporting and disclosure elements of qualified plans…

A

1) Summary plan description (SPD)
2) Annual report (5500 Series)
3) Summary Annual Report (SAR)
4) Individual Accrued Benefit Statement
5) Summary of Material Modification

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35
Q

Prohibited transactions in a qualified plan include…

A

1) Sale, exchange, or lease of any property between the plan a a part of interest
2) Loans between the plan and any part in interest
3) The transfer of any plan assets or use of plan assets for the benefit of a party in interest
4) The plan’s acquisition of employer securities or real property in excess of legal limits; and
5) Self-dealing, acts in their own interest over clients

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36
Q

Violation of prohibited transactions in a qualified plan?

A

penalty imposed is 15% of the amount involved in each transaction from the date of first occurrence until the date of the correction

additional 100% of full amount is tax imposed if not settled

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37
Q

When is a defined benefit plan suitable for a business?

A

1) owners and highly valued executives age 50 or older

2) Stable cash flow

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38
Q

Advantages of DB plans?

A

1) benefit levels guaranteed
2) allows the maximum amount of contributions to be made for their benefit
3) may encourage early retirement

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39
Q

Disadvantages of DB plans?

A

1) expensive
2) complex
3) employer assumes risk of poor investment results
4) plan determines adequacy of retirement income that will be addressed (might assume things)

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40
Q

Pension Protection Act of 2006

A

a special reduced premium is effective for employers with 25 or fewer employees (do not have to be covered by PBGC)

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41
Q

Three formulas used to caluculate promised benefit in a DB plan…

A

Flat Amount - a specified dollar amount monthly for life (typical of union plans

Flat Percentage - percentage of employees average earnings and requires a certain amount of minimum years

Unit Benefit - percentage of earnings is paid for each year of employee service (1%-2% usually)

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42
Q

How is benefits determined in a pension plan?

A

Licensed actuary

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43
Q

Relationship between cost and…

1) Returns
2) Turnover of employees
3) mortality
4) life expectancies
5) wages
6) average age of new employees
7) cost of living adjustments

A

1) inverse
2) inverse
3) inverse
4) direct
5) direct
6) direct
7) direct

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44
Q

What must DB(k)’s include?

A

automatic enrollment feature and a fully vested 50% match on the first 4% of compensation deferred by an employee

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45
Q

Employee advantages of DBk?

A

guaranteed monthly payment from benefit portion

encourages employers without pension plans to establish a plan

combines the security employees of both plans

allows automatic enrollment provisions (encourages employers to save more)

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46
Q

Employer advantages of DBk?

A

exemption from top-heavy rules

predictable costs since 401k matching contribution is not contingent of mortality, returns, and other factors DBs have

specifications defined in advance

simplified administration and potentially lower costs than having two different plans

requires one plan document

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47
Q

Advantages of cash balance pension plans?

A

certain level of benefits guaranteed by PBGC

significant cost savings

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48
Q

Disadvantages of cash balance pension plans?

A

employer bears the risk

subject to income taxes and early 10% withdrawal

minimum funding rules

inadequate for older participants

could pay out less than that of a DB plan if converted over

actuaries are required!

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49
Q

Cash balance plan appropriate for…

A

Young employees

Mid size or large company

Company that already has a well funded DB plan

cost savings

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50
Q

Pros of Section 412(e)(3) Plan

A

funded by cash value life insurance or annuity contracts

insurance carrier guarantees death benefit

exempt from minimum funding requirements

not required to be certified by actuary

benefits guaranteed by insurance company

pension plans allow far greater deductible contributions

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51
Q

Cons of Section 412(e)(3) Plan

A

low interest rates

requires larger premiums

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52
Q

Keys factors of Money Purchase Pension Plan

A

Benefit not guaranteed, but promised by end of year

Plan does not require actuary services

Insurance cannot be purchased

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53
Q

Advantages of Money Purchase Pension Plan

A

Relatively straightforward and simple to explain

May be rolled over to an IRA

Percentage of compansation is used to determine the contribution NOT age

Advantageous for younger employees

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54
Q

Disadvantages of Money Purchase Pension Plan

A

Lack of contribution flexibility (fixed and mandatory)

Employer securities in plan cannot exceed 10% of FMV

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55
Q

Key factors of Target Benefit Pension Plans

A

employer contributions are made in an actuarially determined amount to reach a target benefit

First year of plan, actuary services need.

After first year, not needed.

Funded like a money purchase plan

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56
Q

How are Target Benefit Pension Plans similar to DB plans?

A

Plans favor older participants

Require an actuary

Retirement contribution is mandatory

Mandatory minimum funding standards apply

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57
Q

How are pensions in contrast to contribution plans?

A

Require mandatory annual retirement contributions

1) Traditional Benefit Plan
2) Money Purchase
3) Cash Balance
4) Target

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58
Q

How are Target Benefit Pension Plans similar to contribution plans?

A

employee bears the investment risk

each employee has separate account

PBGC insurance not available

final actual dollar benefit not guaranteed

maximum deductible contribution is limited to 25% of covered payroll with max compensation limited to $285,000 per individual

Most they may receive in their account is limited to lesser of 100% of compensation or $57,000

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59
Q

How are forfeitures used in a DB plan?

A

Towards plan expenses or future contributions

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60
Q

How are forfeitures used in a contribution plan?

A

Towards offsetting plan expenses or future employer contributions

reallocated among the remaining planb participants, increasing their potential individual account balances

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61
Q

How much of forfeitures are distributed to employees?

A

Pro rata basis on their compensation

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62
Q

Traits of a profit sharing plan

A

flexible contributions from employer

can make a contribution when there are no profits

contribution must be made 3 of 5 years

participant may have access to balance prior to retirement (in-service distribution) due to financial hardship or resources

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63
Q

When can money be withdrawn from profit sharing plan?

A

unreimbursed medical expense or funeral costs

purchase of primary residence

higher education expenses

prevent foreclosure

NOTE: taxes and 10% penalty will still be paid except unreimbursed medical expenses over 10% of AGI

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64
Q

When is a profit sharing plan appropriate?

A

cash flow fluctuates annually

employees account balance increases with employer profits

majority of employees are under 50

employees willing to accept investment risk

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65
Q

Age Based Profit Sharing Plan is appropriate for…

A

when business owner is significantly older than most of the employees and wishes to skew the annual contribution on their behalf without violating nondiscrimination rules

(Cross tested plan)

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66
Q

New Comparitability Plan traits…

A

Cross tested plan

works well when there is more than one owner of a business

to skew contributions in favor of highly compensated key employees, management, and owners

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67
Q

How does a new comparitability plan satisfy nondiscrimination plans?

A

Each eligible non-HCE must receive an allocation of at least 5% of compensation

If plan provides less than 5%, the minimum allocation rate for non-HCE’s is 1/3 of the highest allocation rate under the plan

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68
Q

Stock Bonus Plan - What is it and who is it appropriate for?

A

profit sharing plan with distributions via stock not cash

has the advantage to defer net unrealized appreciation (NUA)

appropriate for an employer with unstable cash flow

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69
Q

How is NUA taxed?

A

Ordinary income at the time of distribution amount equal to the value of the stock at the time of contribution

All other gains are taxed at LTCG

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70
Q

Disadvantage of investing in employer stock?

A

largely undiversified portfolio

dilution of existing ownership that occurs under both a stock bonus and employee stock ownership plan

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71
Q

Employee Stock Ownership Plan (ESOP)

A

stock bonus plan in which individual participant accounts are invested primarily in employer stock

advantage that ESOP may borrow money in the name of the plan without violating the prohibited transaction rules

72
Q

Advantage of LESOP

A

only defined contribution plan that can fund more than 25% of the employees covered compensation

73
Q

ESOP most appropriate when…

A

employer wishes to make the employees owners of the business through a tax advantages means at a relatively low cost

employer wishes to provide an advantageous vehicle for the company to borrow money for business needs

the owner of the business wants to engage in estate and financial planning that creates a market for the stock

74
Q

Difference between ADP and ACP

A

Deferrals vs contributions

75
Q

If ADP/ACP for non-HCE is

1) Less or equal to 2%
2) More than 2% but less than or equal to 8%
3) Greater than 8%

Then maximum ACP / ADP for HCE is _________.

A

1) 2 x ACP of non-HCE
2) 2% + ACP of non-HCE
3) 1.25 x ACP of non-HCE

(ADP or ACP)

76
Q

A 401k is most appropriate when….

A

minimal expense beyond salary costs

employees are relatively young

employers want to encourage employees to save

77
Q

What is negative election?

A

Automatic enrollment in a 401k without the employees consent

78
Q

Safe Habor Section 401k Plan allows…

A

high level of elective deferrals by employees without annual discrimination testing.

Not subject to the top heavy plan provisions

79
Q

Two mandatory minimum employer contribution methods for safe harbor are…

A

1) nonelective contribution of 3% of compensation for all eligible employees (regardless of whether they are contributing or not)
2) an employer matching contribution of 100% on the first 3% of non-HCE compensation plus a 50% match on the next 2% of non-HCE for those non-HCEs who are actually deferring salary into the 401k plan (total of 4% match)

80
Q

Why would many small businesses opt for the safe harbor arrangement?

A

Less expensive to operate and does not need to be tested annually

81
Q

How is a SIMPLE 401k to a safe harbor option?

A

Exempt from the special nondiscrimination testing that applies to the traditional Section 401k plan

82
Q

How much can be matched in a SIMPLE 401k?

A

May match those elective deferrals amounts up to 3% of employee compensation or make a flat (nonelective) contribution of 2% of compensation for all eligible employees, even those who choose not to make elective deferrals. (Employee is 100% vested in employer contributions)

83
Q

Difference between savings / thrift verusu profit sharing?

A

provides and encourages after-tax employee contributions to the plan

84
Q

Three most common types of Keogh plans…

A

profit sharing, money purchase pension, and target benefit pension plans

covers self employed individuals

85
Q

Steps to determining Keogh deduction…

A

1) Determine the net income of the business from Schedule C IRS Form 1040 or the Schedule K-1 provided to the partner or the LLC member-partner
2) Subtract the deductible amount of SE tax applicable from that income ( income x .9235 x .0765)
3) Multiply the result by the net contribution rate

86
Q

How to find net contribution rate for Keogh deduction?

A

% contribution / (1+ % contribtion)

87
Q

What type of deduction is the contribution for the owner-employee of a Keogh?

A

Above the line

88
Q

What is not included in nonqualified / tax-advantaged plans?

A

10 year forward averaging

special pre 1974 capital gain treatment

NUA

89
Q

How are SIMPLE IRA’s different from normal qualified plans?

A

Not subject to the nondiscrimination and top heavy rules applicable to qualified plans.

90
Q

When are rollovers no permitted in SIMPLE IRAs?

A

Within 2 years

91
Q

Eligibility for SIMPLE plans…

A

Less than 100 employees

Salary $5,000 annual minimum

Not other employer sponsored plans in place

92
Q

Exception for SIMPLE having another qualified plan…

A

union employees with a qualified plan or SEP plan

93
Q

SIMPLE Annual Contribution and Catch Up

A

$13,500 and $3,000

94
Q

How can employers make contributions to SIMPLE IRA’s?

A

1) Match up to 3% compensation, can match as little as 1% no more than two out of five years
2) a 2% of compensation nonelective contribution for each eligible employee

95
Q

Advantages of a SEP IRA plan

A

Simplicity

May be adopted and funded as late as the due date of the sponsoring employers tax return

Portable

Less expensive to operate

96
Q

Requirements of a SEP PLan

A

21 years age who have worked 3 of 5 preceding years (including part time)

Contributions made by employer

Contributions mad on behalf of any employee making $600 per year

Contribution lesser of 25% comp or $57,000

97
Q

How is a SEP top heavy and what is the effect?

A

60% of balances are key employees

Must make a minimum 3% contribution

98
Q

Disadvantages of SEP IRAS?

A

Cannot rely on it alone

Employee bears the investment risk

Contributions deductions limited if has another qualified plan

Only employer can make contributions

Cannot receive Roth contributions

99
Q

SARSEP Contribution limit

A

$19,500 and $6,500 catch up

100
Q

***Catch Up Provisions with 403b TSA plans…

WILL BE ON EXAM

A

1) Regular catch up $6,500 having attained age 50
2) Special catch up provision (worked for 15 years)

Can increase further an amount equal to the lesser of

a) $3,000
b) $15,000 reduced by amounts previously deferred under previous catch up
c) $5,000 multiplied by the employees years of service with the employer, less the sum of all prior salary deferrals

101
Q

Advantages of 403b plan

A

Not subject to to special ADP or ACP testing

Not subject to ERISA

Special catch up limit applies to those with 15 services

No annual 5500 form

102
Q

Disadvantages of 403b plan

A

Must comply with ACP contributions

Employees bears the investment risk

Stocks and bonds not permitted

103
Q

403b plan most appropriate when…

A

employee works at public or private tax exempt employer

Minimum administrative expenses for deferral plan

Employees willing to accept investment risk

Wants something similar to a 401k

104
Q

What is a 457 plan? (Definition and unique traits)

A

a nonqualified deferred compensation plan established be a private tax-exempt employer or municipal government for the benefit of its employees

Does not allow NUA

Subject to some bankruptcy

No penalty 10% made before 59 1/2

Permitted to have Roth accounts for state and government accounts

105
Q

What can a 457 participant do after 2 years?

A

may make a one time in=service withdrawal of a limited amount set by law amount, not the entire amount

106
Q

Who is permitted to have catch up in a 457 plan?

A

Government employees

107
Q

Special catch up provision in 457 plans…

A

During last 3 years of employment before retirement, catch up contributions can increase to the lesser of…

1) twice the amount of the regular elective deferral limit ($39,000)

or

2) the sum of the otherwise applicable limit for the year plus the amount by which the applicable limit in the preceding years exceeded the participants actual deferral for those years (AKA limited to unused deferrals in prior years)

108
Q

A governmental 457 plan participant may defer the greater of…

A

1) the elective deferral limit plus the regular catch up amount
2) the elective deferral limit plus the amount permitted under the three year catch up provision

109
Q

What does earned income NOT include?

A

Rental income

investment income

interest or dividend income

pension

annuity

deferred compensation income

110
Q

Penalty for excess contributions?

A

6%

111
Q

Income phaseouts for single, married, and married filing separately…

A

Single: $65,000-$75,000

Married: $104,000-$124,000

Married (filing separately) $0-$10,000

112
Q

If a spouse is an active participant and the other is not, the phaseouts are…

A

Active: $104,000-$124,000

Non Active: $196,000-$206,000 (Same as roth)

113
Q

Prohibited transactions in an IRA…

A

1) borrowing money
2) selling property
3) receiving unreasonable compensation for managing IRA
4) using as security for a loan
5) buying property for personal use

114
Q

What can IRAs not be invested in?

A

Collectibles

Life Insurance Policies

Any form of participant note or obligation

Cannot own S-Corp Stock

115
Q

Primary owner of a stretch IRA…

A

adult child of the deceased owner

116
Q

Surviving spouses options with an inherited IRA…

A

Can move it into a retirement account in her own name (not treated as an inherited account)

Can defer withdrawals until she is 70 1/2

Can be treated as the beneficiary versus the owner

117
Q

What is a stretch IRA?

A

extends or stretches the period of tax deferred earnings within an IRA beyond the lifetime of the owner who originally established it, typically over several generations

beneficiaries are allowed to name their own beneficiary

118
Q

Nontaxable portion of early distribution…

A

(Nondeductible contributions prior to current year + All contributions for current year)
_________________________________________

(Balances at end of current year + Distributions received in current year)

X

Total distributions at the end of the year

119
Q

Penalty will not be imposed on early IRA distributions if they are taken out for…

A

Disability
Death
Healthy Insurance Premiums for unemployed
$10,000 for first time home purchase
Higher education costs (IRA Only not 401k)
Unreimbursed medical expenses that exceed 10% AGI
As part of substantially equal periodic payments at least annually over the life expectancy of owner

120
Q

Phaseout range for Roth IRA contributions…

A

S: $124,000-$139,000
M: $196,000-$206,000
MFS: $0-$10,000

121
Q

Order of distributions for Roth IRA…

A

1) Contributions - Never subject to any tax income or 10% penalty
2) Conversions - Never subject to tax a second time, not subject to penalty if conversion has been in place for more than 5 years
3) Earnings - Always subject to income taxes UNLESS part of a qualified distribution (Roth IRA) and always subject to penalty UNLESS one of the exceptions (Traditional and Roth IRA)

122
Q

What is a qualified distribution for a Roth IRA? (penalty free AND tax-free)

A

59 1/2

Owner dies and payment is made to a beneficiary or estate

Disability

Payment made to buy, build, or rebuild a first time home

123
Q

Difference between IRA and employer plans for 10% rule?

A

IRA - Qualified expenses

Employer plan - separation from service who is 55 or older

124
Q

What is a qualified charitable contribution?

A

allows IRA owners and beneficiaries age 70 1/2 age or older to donate up to $100,000 per year ($200,000 for married couple)

Only traditional and Roth IRAS allowed (SEP and SIMPLE allowed only if there are no more contributions to those accoutns)

125
Q

Rollover between 457 governemental and non governmental…

A

Non governmental can only be rolled into a 457 plan.

126
Q

Required Beginning Date (RBD)

A

the first distribution from a qualified plan, 403b, or 457 is April 1 of the year following the year in which the retired plan participant becomes 70 1/2.

127
Q

What is not an exception to the RBD rule?

A

If the owner is a 5% owner, either directly or through family attribution, of the business sponsoring the retirement plan

128
Q

What are Table’s I, II, and III used for?

A

I. Single life expectancy table

for use by beneficiaries

II. The joint and last survivor expectancy table

for use by owners whose spouses are more than 10 years younger and are the sole beneficiaries of their IRAS

III. Uniform Table

Unmarried, Married Owners whose spouses aren’t more than 10 years younger and married owners whose spouses aren’t the sole beneficiaries of their IRAS

129
Q

If 2020 is the year someone turns 70 1/2, what is the RMD they must take out?

A

Zero. They are not required to do so the same year they turn 70 1/2.

130
Q

How much can be borrowed from the following ranges of vested balances from a qualified account?

1) $10,000 or less
2) $10,001-$20,000
3) $20,001-$100,000
4) $100,000+

A

1) Entire balance
2) $10,000
3) 50% of balance
4) $50,000

131
Q

Death before and after RBD for no designated beneficiary?

A

Before: 5 year rule

After: Remaining distribution period of decedent, reduced by one each year

132
Q

Death before RBD for nonspouse beneficiary?

A

1) Remaining life expectancy of the beneficiary in the year following the year of death, reduced by one for each subsequent year or
2) elect five year rule, if plan provisions allow

133
Q

Death after RBD for nonspouse beneficiary?

A

Remaining life expectancy of beneficiary in the year following the year of death, reduced by one for each subsequent year (may use owner’s if longer, had death not occured)

134
Q

Death before RBD for spouse beneficiary?

A

1) Distributions over spouses remaining single life expectancy, beginning in the year the decedent would have attained age 70 1/2
2) roll over and treat as spouses own or
3) elect 5 year rule if plan provisions allow

135
Q

Death after RBD for spouse beneficiary?

A

1) Distributions over spouses remaining single life expectancy, beginning in the year following the year of death recalculated using Table I
2) Distributions based on the deceased owner’s age at subsequent year beginning the year following the year of death or
3) roll over and treated as spouse’s own

136
Q

Automatic survivor benefits may also apply to any other defined contribution plan unlesss…

A

1) the plan provides that, at the participants death, his vested account balance, will be paid in full to the surviving spouse
2) the participant does not elect payments in the form of a life annuity; and
3) with respect to such participant, the plan is not a direct or indirect transferee of a plan to which the automatic survivor annuity requirements apply

137
Q

What amount must be payable for a survivor annuity?

A

Not less than 50% and not more than 100%

Spouse can waive survivor benefits

138
Q

Distribution on Tax and penalties of a transfer from a qualified plan to a QDRO…

A

Subject to income tax but exempt from 10% penalty

unless a roll over

139
Q

What are the three major categories eligible for Medicare without being eligible for Social Security retirement based on their own work histories?

A

1) Spouses
2) Railroad retirees
3) State and local government employees

140
Q

Who may or may not be covered depending on whether or not certain other cicumstances exist?

A

1) Household or domestic employees
2) Agricultural services
3) Family workers
4) Members of the clergy

141
Q

How much credits must someone age 31 have? (for disability)

A

At least 20 of 40 credits as of the date of disability onset

142
Q

How to caluculate number of credits to be fully insured?

A

Age - 22

143
Q

When has someone been currently insured versus fully insured?

A

6 credits in 13 calendar quarters ending with the calendar quarter in which the individual died, becmae eligible for disability benefits, or became entitled to retirement insurance benefits

144
Q

Currently insured is eligible for which benefits?

A

1) Surviving spouse caring for a dependent child
2) Dependent benefit
3) Lump Sum death benefit of $255

145
Q

Full retirement age for SS by year?

A

1) Before 1938, 65
2) 1938-1960, 65+
3) 1950 or later, 67

146
Q

Reduction for 36 months before retirement and months after that SS….

A

36 months = 20%

36+ months = 5%

147
Q

If a worker delays SS, then benefits increase by…

A

8% per year not beyond 70 years old

148
Q

Who is eligible for SS retirement benefits?

A

1) Retired worker 62
2) Spouse of worker receives 50%
3) Divorced who is 62 and was married for at least 10 years and is unmarried
4) Unmarried child who is under 18 or 19 if still in high school or any time a child is disabled before 22
5) A parent taking care of a child who gets disabled before 22

149
Q

Who is eligible for SS survivor benefits?

A

1) Surviving spouse who is 60+
2) Disabled widower who is 50+
3) Surviving spouse who has a child under 16 years old
4) Unmarried child under age 18 or 19 still in high school or disabled child under the age of 22
5) A dependent parent age 62 or older
6) Divorced who is 62 and was married for at least 10 years and is unmarried

150
Q

Who is eligible for SS disability benefits?

A

1) Disabled worker
2) Spouse of disabled worker
3) Unmarried child of disabled worker under age 18 or 19 still in high school or disabled child under the age of 22
4) Divorced who is 62 and was married for at least 10 years and is unmarried

151
Q

Credits needed for SS retirement, disability, and survivor?

A

40,

6 if less than 24, credits in half of quarters if less than 31, 20 of last 40 quarters if older than 31

Currently insured credits in at least 6 of 13 quarters

152
Q

Thresholds for Social Security taxation…

A

$25,000 / $32,000 - 50%

$34,000 / $44,000 - 85%

153
Q

Windfall Elimination Provision perks

A

Formula used to calculate a workers PIA is reduced, resulting in a lower benefit

Covered by SS but also earns a pension from an employer who does not withhold Social Security taxes

For workers whose primary employment does not pay SS taxes, but also qualifies for a SS benefit through other covered employment would receive a SS benefit as if they were a career low earning worker

154
Q

Government Pension Offset

A

Benefits for spouses, widows , or widowers

If a worker receives a pension from a federal, state, or local government based on compensation on which social security taxes were not paid, SS benefits for that person as a spouse or widower may be reduced (reduced by 2/3 of the government pension)

155
Q

Retirement accounts that are and are not easily understood? (for profit plans)

A

Yes
Money purchase
SEP IRA
SIMPLE IRA

Maybe
Traditional Profit Sharing
SIMPLE 401k

No
Defined Benefit
Cash Balance
Target Balance

156
Q

Which accounts assumes employer risk? (for profit)

A

Traditional Defined Benefit & Cash Balance Plan

157
Q

What accounts favor older participants? (for profit)

A

Traditional Defined Benefit

Target Plan

Traditional Profit Sharing (if age waited) without 401k

158
Q

Which plans offer elective deferrals? (for profit)

A

Traditional Profit Sharing Plan with 401 feature
$19,500

SIMPLE 401k
$13,500

SIMPLE IRA
$13,500

159
Q

What business entities offer stock bonus and ESOPS?

A

S-corp and C-Corp

160
Q

Who can adopt 403b and who can adopt 457?

A

403b- Non profit hospitals, public schools, churches

457- Tax exempt private institutions

state or local gov entities

161
Q

Employer maximum deduction for defined contribution plans?

A

Profit / Stock Bonus

  • 25% of covered payroll
  • flexible contribution

Money Purchase Pension and Target
-25% of covered payroll
fixed annual contribution to meet min funding requirement

162
Q

Employer maximum deduction for defined benefit plans?

A

Cash Balance
-generally fixed % of comp; annual actuarial adjustment

Defined Benefit
-actual annual determination of minimum funding requirement

Limited to amount neccesary to fund benefit of up to the lesser of $230,000 or 100% of participants average compensation over three highest consecutive calendar years

163
Q

Annual Benefit Limit (415) for defined contribution and benefit?

A

Contribution - N/A

Benefit - $230,000 or 100% compensation fo highest average three years

164
Q

Which qualified plans are most appropriate for the objectives below?

1) Achieve retirement income objective
2) Motivate employees
3) Promote employee savings
4) Provide flexible compensation
5) Share profits
6) Share ownership

A

1) Defined benefit
2) 401k and defined contribution
3) 401k / profit sharing
4) 401k/ Profit Sharing
5) Defined Contribution
6) Defined Contribution

165
Q

Six characteristics of any investment vehicle considering the assets potential suitability?

A 
Liquidity
Capital Preservation
Future Purchasing Power
Diversification
Marketability
Taxation
166
Q

What is excluded from UBI calculation?

A

Dividends / Interest
Real estate income
All gains and losses from disposition of property
liquidity of investment
certain amounts received from controlled entities and foreign corporations

167
Q

A distribution is qualified if…

A

Made after 5 year holding period

Made for one of the following reasons

  • 59 1/2
  • death
  • disability
  • homebuyer (first)
168
Q

A new comparability plan will only satisfy the nondiscrimination rules if the plan design satisfies one of either of these…

A

1) Each eligible non-highly compensated employee (HCE) must receive an allocation of at least 5% of compensation.
2) If the plan provides for an allocation rate of less than 5%, the minimum allocation rate for the non-HCEs is one-third of the highest allocation rate under the plan.

169
Q

When is an employee stock ownership plan (ESOP) an appropriate choice for an employer to implement?

A

1) The employer is either a C or an S corporation.
2) Creating a market for the employer stock helps diversify the employer-owner’s stock portfolio.
3) The employer wishes to increase the company’s liquidity by pledging the stock for a loan in the name of the ESOP.
4) The employer wishes to transfer ownership of the business to the employees.

170
Q

Section 401(k) plans must have automatic survivor benefits (QJSAs and QPSAs) unless…

A

1) the plan provides that, upon the participant’s death, the vested account balance will be paid in full to the surviving spouse.
2) the plan is not a direct or indirect transferee of a plan to which the automatic survivor annuity requirements apply.
3) the participant elects to receive payment as a lump-sum distribution.
4) the participant does not elect payments in the form of a life annuity.

171
Q

Certain gold coins allowed in an IRA?

A

American Eagle

172
Q

What plan is offset only available in?

A

DB PLan

173
Q

How much is vested in a safe harbor plan?

A

100%

174
Q

Eligible VS Ineligible 457?

A

1) Plans that provide limits on the amounts deferred are called eligible Section 457 plans.
2) Plans that are designed for corporate executives and provide for greater deferral amounts are called ineligible plans.

175
Q

NOTE: Upon the death of a Roth IRA owner, the same required minimum distribution rules apply to the Roth IRA as apply to a traditional IRA when death occurs prior to the required beginning date.

A

Upon the death of a Roth IRA owner, the same required minimum distribution rules apply to the Roth IRA as apply to a traditional IRA when death occurs prior to the required beginning date.

176
Q

NOTE: QPSAs and QJSAs must be offered to participants in target benefit pension plans.
Section 401(k) plans are not required to offer QJSAs and QPSAs if certain provisions are met.
Section 403(b) plans that match employee deferrals must meet the automatic survivor benefit rules.
Automatic survivor benefit requirements may be waived by the plan participant with the written, notarized consent of the spouse.

A

QPSAs and QJSAs must be offered to participants in target benefit pension plans.
Section 401(k) plans are not required to offer QJSAs and QPSAs if certain provisions are met.
Section 403(b) plans that match employee deferrals must meet the automatic survivor benefit rules.
Automatic survivor benefit requirements may be waived by the plan participant with the written, notarized consent of the spouse.

Retirement Planning (2 decks)

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