Retirement Planning & Employee Benefits Flashcards
Percentage of Self-employment income taxable
92.35%
Investments not allowed in IRA:
Life insurance, collectibles
How much of the corporation’s stock must an ESOP own immediately after the sale to qualify for the nonrecognition of gain treatment?
30%
Golden parachute
Includible in W2 income
Subject to the 20% excise tax
For both qualified and non-qualified retirement plans the employee is taxed when benefits…
When benefits are paid out from the plan
The social security offset method can only be used by
Defined benefit plans
Target benefit pension plan
Employees bears the investment risk
Favors older employees
Netting gains and losses
- Net the short-term gains and losses
- Net the long term gains and losses
- Net them together
Maximum service requirement that a profit sharing plan may impose as a condition of participation
2 years (immediate vesting)
Cash Balance plan vesting schedule
3-year cliff requirement
Permissible disparity
Reduce benefits in a defined benefit plan if employee retires early
Isn’t possible to have a defined benefit plan formula which eliminates benefits for lower paid employees
Required vesting for a defined benefit plan
5 year cliff or 3-7 year
Key employee
- Owns more than 5% of the business
- Officer with compensation greater than $215,000 OR owns greater than 1% of the business and has compensation greater than $150,000
Limitations for life insurance in qualified plan
- Premiums paid for life insurance policy within a qualified plan will trigger a taxable event for participant at the time of payment
- Term and universal life - cannot exceed 25% of employer’s aggregate contributions
- Whole life other than universal - 50% of employer’s aggregate contributions to the participant’s account
Income tax consequences on distribution from QDRO
Tax on distribution amount, with mandatory 20% holding, NO PENALTY!!
