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Ben cfp help > Retirement Plans > Flashcards

Retirement Plans Flashcards

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1
Q

Defined benefit vs defined contribution

A

DB: employer assumes risk
DC: employee assumes risk

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2
Q

Defined benefit: pension plans

A

1) Defined benefit pension plan
2) Cash balance pension plan

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3
Q

Defined Contribution: pension plan

A

1) money purchase pension plan
2) target benefit pension plan

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4
Q

Profit sharing plans

A

No mandatory funding
All are defined contribution plans
Ex: profit sharing, stock bonus plan, ESOP, 401k, thrift plan, age based profits sharing

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5
Q

Qualified plan eligibility

A

Age 21 and 1 year of service

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6
Q

Qualified plan coverage tests (ACP test)

A

Needs to pass 1 of 3 tests to qualify
1) average benefits test
2) ratio test
3) safe harbor test

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7
Q

Average benefits test

A

Avg benefits of NHC / avg benefits of HC
Needs to be at least 70%

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8
Q

Safe Harbor Test

A

More than 70% of NHC are covered

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9
Q

Ratio % test

A

% of NHC covered / % of HC covered
Needs to be at least 70%

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10
Q

Highly compensated employee

A

At least 5% owner OR
comp in excess of $150k (unless top 20%)

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11
Q

Key employee

A

At least 5 % owner
At least 1% owner and comp over $150k
Officer and comp over $215k

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12
Q

Top heavy plans

A

60% of benefits attributable to key employees

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13
Q

Top heavy
Defined contribution plans

A

Employer must provide non key employees a contribution of at least 3% of comp

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14
Q

Top heavy
Defined benefits

A

Employer must contribute 2% per years of service (20% max) x annual comp
Vesting schedule must increase

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15
Q

Defined contribution plan
Vesting

A

Deferrals 100% vested
Noncontributory: 2-6 graduated or 3 year cliff

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16
Q

Defined benefit plan
Vesting

A

3-7 year graduated
Or 5 year cliff

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17
Q

Covered comp for Qualified plans

A

$330k

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18
Q

Defined benefit plan limits

A

Lesser of $265k or 100% of 3 year avg salary

19
Q

Plan limits
Defined Contribution

A

Lesser of $66k or 100% of comp
Total: employer, employee and forfeitures

20
Q

Stock bonus plan

A

Profit sharing plan
Employer contributes stock to plan

Net unrealized appreciation

21
Q

Nonqualified retirement plans

A

Benefit to group of employees without limitations of qualified plans
No tax advantages
Deferral of income

22
Q

Phantom stock

A

Fictional shares, later stock is valued and receives increase in value as compensation

23
Q

Stock options

A

The right to buy stock at specified price for specified time period
Option price = FMV at date of grant

24
Q

Incentive Stock Options (ISO)

A

Ties employe s benefit to a stock
Up to $100k per year
Qualified: hold for 2 years from grant and one year from exercise

25
Q

Taxation of ISO

A

Grant: no taxable income
Exercise: no regular tax, AMT adjustment
Sale: LTCG on appreciation, AMT adjustment

26
Q

83B election

A

Employee elects to include value of stock in taxable income at date of grant instead of vesting date
Gain over grant price is capital gain

27
Q

Actual Deferral Percentage (ADP test)

A

Limits employee elective deferral for HC based on elected deferrals of NHC

28
Q

Failed ADP test

A

1) corrective distributions
2) recharacterize contributions (pre to after tax)
3) qualified non elective contribution
4) qualified matching contribution

29
Q

Rabbi Trusts

A

NonQualified Deferred Comp Plan
Funds not available to employer but available to employers creditors under bankruptcy
Not currently taxable due to Forfeiture risk

30
Q

Actual Deferred Percentage (ADP) test

A

ensures highly compensated employees are not contributing too much more than NonHighly Comp
if NHC contribute 0-2%, HC are able to do 2x
If NGC contribute 2-8%, HC are abe to do 2% +
If NHC contribute 8% +, HC are able to do 1.25%

31
Q

Defined Benefit 50/40 test

A

defined benefit plan must satisfy 50/40 test
DB plan must benefit lesser of 50 eligible employees or 40% of all eligible employees

32
Q

Advantages of Qualified Plans to Employer

A
  • Employer contributions are tax deductible
  • Employer contributions not subject to payroll tax
33
Q

Advantages of Qualifies Plans to Employees

A
  • Pre tax contributions
  • Tax deferral of earnings
  • ERISA protection
  • Lump sum distribution options
34
Q

457 Plan

A

NQ plan
allows employees of state, local Gov & NonGov TaxExempt employees ability to defer comp free from tax
Allows for Final 3 year catchup of $22,500

35
Q

Fringe Benefits

A

form of comp where benefit other than taxable wages is provided by employer
used to increase employee total compensation without increasing taxable income

36
Q

taxation of Fringe Benefits

A

taxable as wages unless specific provision IRC excludes OR employee pays fair value for it

37
Q

Fringe Benefits: Adoption Assistance

A

$15,950 benefit
Phase Out: $239,230 - $279,230

38
Q

Fringe Benefits: Education Assistance Program (Amount)

A

$5,250

39
Q

Fringe Benefits - Group term Insurance (Amount)

A

$50k excluded from taxable income

40
Q

Net Unrealized Appreciation (NUA)

A

NUA = FMV at date of distribution - Value of securities at date of Employer Contribution

Distribution: taxed on employers contribution
Sale of securities:
LTCG on NUA (if taken as Lump sum)
recognize additional growth above NUA

41
Q

403(B) Plan CatchUp Contributions

A

1) Age 50 Catch-up Provision: Additional $7,500 contribution if over 50
2) 15 Year Rule Exception: $3k additional contribution for business in Health, Education or Religious Org (HER)

Able to defer max $33k

42
Q

457 Catch Up Contributions

A

Final 3 Year: for Public & Private 457 Plans- 3 years before normal retirement age able to contribute additional unused Max deferal amounts

Age 50 Catchup: not available for private 457s, only public 457s

43
Q

SEP

A

Simplified Employee pension
- no salary deferrals, employer contributions ONLY
- can be integrated with SS
- max contribution: 25% or $20k per employee

44
Q

Simple IRA max contribution

A

100% salary up to $15,500
Company match up to 3% of salary

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