Retirement Plans & Beyond Flashcards
What are the 401k safe harbor rules?
How do safe harbor contributions vest?
What does safe harbor get you out of?
Either:
- Match 100% of the first 3% of deferral and 50% of the next 2%, or
- Make 3% contribution to everyone, even those who don’t defer.
Safe harbor gets the plan out of discrimination testing + top heavy rules
Contributions must vest immediately or before.
How do ESOP’s work?
Can partnerships use them?
Think of an ESOP as a separate entity from the company. It receives cash from the company, and then uses it to buy the company’s stock. Sometimes the company even borrows $ to buy the stock. In this sense, ESOP’s can be said to finance company operations.
Partnerships can’t use ESOPs because they don’t issue stock.
What do ESOP’s accomplish for EE’s?
Are EE’s then stuck with all their retirement assets in company stock? How do they get out of that?
ESOP’s give stock to the EE’s as a stock bonus retirement plan.
EE’s aren’t completely stuck with the stock; those 55+ who have 10 years in can demand diversification. They either get $ or 3 investment choices.
What do ESOP’s do for the company and the owner?
They give the owner a market for the stock, and liquidity for his estate.
They allow the company to continue after the owner cashes out.
They can even be leveraged to allow the company to borrow money.
How do New Comparability plans work? Are they expensive and complicated?
NC plans use different formulas to compute the contribution % of different types of EE’s.
They’re expensive and complicated but they bring to the owner and the older.
How do DB plans work (specifically the ones that aren’t CB plans)?
Whom do they benefit?
DB plans compute benefit by unit formula (years of service x a factor x average pay). Can’t pay more than $230k a year, or compute with more than $290k as pay.
They bring to the owner and the older employees. They even allow credit for past service.
How do Cash Balance DB plans work? Why are they driving out DB plans? What do they guarantee, and whom do they favor?
Do they allow credit for past service?
CBDB plans pay a % of EE salary to a fictitious account, and guarantee a rate of return (the 30-year treasury yield).
Ultimately, EE’s get whatever’s in their fake account.
Gives more to younger workers compared to other plans.
Much cheaper/simpler than DBDB plans, so pushing them out.
Allow credit for past service, like all DB plans.
Are 401k’s Qualified Plans?
Yes.
Who is eligible for 401k participation? Does the ER have 2 eligibility options?
What about part-time EE’s?
When does eligibility begin?
- Age 21 and 1 year of at least 1,000 hrs service
- Can require 2 years, but then must fully vest.
- 3 years + 500 hrs qualifies part-timers
- Eligibility begins on first plan enrollment date after you meet the criteria.
You have a client who can’t remember if they filed their tax return. Can you call their CPA? Why/why not?
No. You must call their attorney. The attorney is a privileged person and can protect the confidentiality of the client. The CPA cannot.
What is your estimated tax if your AGI was > $150,000?
110% of last year’s tax.
If you get divorced toward the end of the year AND you have a dependent, can you file HOH?
Yes. You’re married and divorced as of your status at the end of the year.
How much investment interest expense is deductible? Can you deduct against qualified dividends or LTCGs?
Investment interest expense is deductible against investment income, but cannot create a loss.
LTCGs and qualified dividends already get a special rate. You cannot deduct investment interest expense against them unless you treat them as OI.
When do meals and entertainment of clients qualify as a deductible expense?
3 criteria
If you’re present, the expense is non-extravagant, and business is conducted.
Are meals for the convenience of the ER or incurred by the EE while traveling deductible?
If so, at what rate?
Yes, at 50%
Are the cost of recreational or social activities not just for HCE deductible?
Yes, 100%
Is entertaining clients without conducting business deductible?
No.
Is there a deduction for meals and travel for the salaried EE who isn’t reimbursed? What should that person do?
No. That person should seek reimbursement from the ER. The ER can deduct at 50%
Are wages from an S-Corp SE income?
Is a K-1 from a general partnership?
Is part-time work?
No and yes and yes
What are the two components of FICA tax? Note: They’re BOTH FICA.
What are their tax rates?
SS = 6.2% on W-2 income up to $142,800 Medicare = 1.45% on all W-2 income
What is the oldest a child can be for the child care tax credit?
What is the max credit for the exam?
A child must be under 13 for the child care tax credit.
Max that can be claimed is 20% of expenses up to 3,000 for 1 child and up to 20% of up to 6,000 for 2.
How old must a child be for the child tax credit? How much is the credit and how much is refundable?
Child must be under 17. 2k credit, up to 1.4k refundable.
What is the max credit for dependents that are 17 or over?
What is the income catch?
Do they have to live with you?
$500. They can’t earn over $4,300 indexed.
I don’t think so.
When can adoption expenses be claimed for the adoption credit? What if they happened in the year before the adoption was final?
Adoption expenses can be claimed in the year the adoption was final or the year after. If the expense occurred in the year before final, it can be claimed in the year of final.