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Retirement (V2) > Retirement V2 > Flashcards

Retirement V2 Flashcards

1
Q

Can ESOPs be cross-tested?

A

No. (Cross-tested plans are sometimes known as age-weighted)

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2
Q

Gateway Requirement

A

The lessor of 5% or 1/3 of the highest percentage paid to an HCE.

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3
Q

Section 415 Benefit Limit

A

The maximum annuity BENEFIT is the LESSER of $265,000 or the average of 100% of the participant’s compensation over the three highest earnings season

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4
Q

Section 415 Limit Contribution

A

Lessor of $66,000 or 100% of salary. Contribution percentage based on $330,000. 20% contribution on $400,000 salary (20% x $330,000)

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5
Q

Money Purchase Plan

A

Stable workforce
Employees are relatively young and well-paid
Plan simple to administer
Contributions MANDATORY
Employer CONTRIBUTION is flat

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6
Q

Target Benefit Pension Plan

A

Fixed MANDATORY contributions
Actuary determines target benefit amount
Contributions only change to reflect new participants and employee compensation changes
Employee bears investment risk (Defined Contribution Plan)

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7
Q

Cash Balance Plan

A

Guarantees contribution level and minimum rate of return. If assets receive a higher rate of return less contributions if lower return more contributions needed. (Employer Bears Investment Risk)

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8
Q

412(i) plan

A

Defined benefit plan funded with insurance products

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9
Q

Non-Qualified Retirement Plans

A

SEP, SIMPLE Plans, SARSEP, 403(b)

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10
Q

Year of Service

A

1,000 hours during 12-month period or 500 hours for 3 consecutive years

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11
Q

Minimum Age Requirements and Years of Service

A

Age 21 and one year of service

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12
Q

2 year/100% rule

A

Provision allowing two years of service but employee immediately vests

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13
Q

Coverage Requirements

A

Plan must cover 70% of the non- HCEs of the percentage of HCEs or the benefits of the non HCEs must be 70% of the HCEs

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14
Q

Vesting Schedules - Top Heavy DB Plans and ALL DEFINED CONTRIBUTION PLANS

A

3-Year Cliff, 2-6 Year Graded or 100% vested with 2-year eligibility

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15
Q

Vesting Schedule Non-Top Heavy DB Plans

A

5-Year Cliff or 3-7 year graded vested with 2 year eligibility

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16
Q

Spousal Benefit Social Security

A

Age 62 or any age if child is under 16 or 16 and over but disabled before the age of 22

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17
Q

Divorced Spouse Social Security

A

Must be married 10 years, Age 62, not remarried, and divorced for 2 years

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18
Q

Dependent Benefits Social Security

A

UNDER the age of 19 and enrolled primary or secondary, or 18 or older with a disability before the age of 22

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19
Q

Employer Contributions, Employee Contributions and forfeitures

A

Annual Additions

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20
Q

(HCE)

A

Highly compensated employee. Either a 5%+ owner or an employee earning $150,000 the preceding year

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21
Q

What plans can social security integration NOT be used with?

A

ESOP or SIMPLE

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22
Q

Social Security Wage Base

A

$160,200

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23
Q

Maximum Permitted Disparity Defined Benefit Plan?

A

26.25% or base whichever is less

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24
Q

Excess Percentage

A

Base + Permitted Disparity

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25
Q

Maximum Permitted Disparity Defined Contribution Plan?

A

5.7% or base whichever is less

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26
Q

What can you make deferrals into?

A

401(k), 457, SIMPLE, 403(b)

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27
Q

What is considered EARNED income for IRA contributions?

A

Wages, Salary, Tips, Professional Fees, Bonuses, ALIMONY ALIMONY ALIMONY (Pre-2019)

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28
Q

Does participation in a 457 count as “active participant”?

A

NO

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29
Q

SEP Coverage

A

Must include employees 21 years and older worked 3 out of 5 years (Part-Time) Included

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30
Q

Pure Life Annuity

A

Highest Payout

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31
Q

Serial Payments

A

A steady increase year over year in terms of saving for a goal $10,000, $10,500, $12,000

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32
Q

Spouse Qualifies for Social Security

A

62 or older, Child under 16 or 16 and over and disabled before Age 22, or a widow at age 60

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33
Q

Social Security Dependent Benefits

A

Under 19 and a full time elementary or secondary student, Age 18 or over disability began before the age of 22

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34
Q

Elected Deferrals are available in which plans?

A

1.) 401(k)
2.) 403(b)
3.) SIMPLE IRA
4.) 457

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35
Q

SEP IRAs are good for an employer when?

A

Many short-term employees, not many long-term low paid employees (must have worked 3 out of last 5 years and match same percentage as owner)

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36
Q

SEP Characteristic

A

Only Employer Contribution, Max of 25% of compensation or $66,000, Contribution Vest Immediately, Must cover ALL Employees Age 21 and over with 3 out of the last 5 years of service. Below $750 does not count part-time does count. CAN BE INTEGRATED WITH SOCIAL SECURITY.

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37
Q

Will a worker have social security benefits reduced if working in the YEAR the reach full retirement?

A

Yes, $1 for every $3 for income above $56,250. $1 for every $2 earned above $21,240 if not at full retirement age.

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38
Q

Provisional Income

A

Half of Social Security, Municipal Bond Interest and Earned Income (Either 50% or 85% is included).

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39
Q

Annual Additions

A

Employee contributions, Employer contributions and forfeitures

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40
Q

(HCEs) Highly Compensated Employees

A

EITHER $150,000 PRIOR YEAR or Greater than 5% Owner

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41
Q

Key Employees
(Relates to Plan Vesting)

A

A greater than 5% Owner, An Officer has compensation greater than $215,000, A greater than 1% ownership and compensation greater than $150,000 in CURRENT YEAR

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42
Q

Social Security Integration Calculation

A

Similar to Kiddie Tax Base Percentage * $160,200 + Excess Disparity * Anything over $160,200

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43
Q

Can SIMPLE and SEP IRAs have Roth Options?

A

Yes as of 2023

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44
Q

Current RMD Penalties

A

25%, UNLESS taken the following year it was due 10%

45
Q

When must a must distributions occur for a retirement plan?

A

Normal Retirement Age (NRA) in the case of money purchase plans, 59.5 for 401(k)s, specific age or service or attainment pf age 62 for defined benefit plans

46
Q

(72t) 4 attributes

A

Paid not less than annually
Based up the life expectancy of recipient or recipients
Based upon a reasonable rate of interest
PAID WITHOUT CHANGING THE AMOUNT FOR THE GREATER OF 5 YEARS OR 59.5 YEARS

47
Q

QJSA

A

Qualified Joint and Survivor Annuity - The survivorship annuity must be not less than 50% nor greater than 100% of the annuity payable during the joint life of the participant and spouse POST RETIREMENT

48
Q

QPSA

A

Same as QJSA except occur before retirement

49
Q

Where can a SIMPLE be rolled to in the first two years?

A

Only to another SIMPLE IRA without occurring penalties of 25%

50
Q

RBD

A

SIMPLEs, IRAs, SARSEPs, and IRAs - RMDs start April 1st the following year of turning 73. Owner’s 5% or more of equity corporation must also adhere to this rule

51
Q

Conduit IRAs

A

IRAs who hold qualified assets until the new plan is set to begin

52
Q

AGE 55 Provision?

A

Allows plan participants to take distributions at age 55 without penalty (versus IRAs 59.5)

53
Q

Informally Funded

A

Informally funded is considered unfunded because the assets are owned by the company and are subject to the company’s creditors. Employee has no access. No deduction until employee is taxed. Employee is taxed when they have constructive receipt or an economic benefit

54
Q

Rabbi Trust

A

A non-qualified deferred comp plan. Participant must not have greater rights than unsecured creditors. Used for Hostile takeover, Merger, or Acquisition (When deferred comp plan might not be honored)

55
Q

Secular Trust

A

Lack of security with unfunded plans. Fear of tax-savings disappearing due to higher tax rates. CONSIDERED FUNDED

56
Q

Annuity Rules Change due to Informally Funded Plan

A

If the corporation retains ownership due to an informal plan an ACCRUED GAIN is reported as ordinary income.

57
Q

Disqualifying Rules for ISO

A

Cannot sell stock within 2 years of GRANT date or sell within 1 year of exercise date

58
Q

ISO (When stock is sold within same year of exercise)

A

Bargain element taxed as compensation FICA and FUTA, ST Gains Taxes on stock

59
Q

ISO (When stock is sold following calendar year of exercise)

A

Bargain element taxed as ordinary income not subject to FICA and FUTA, stock receives capital gains treatment (ST or LT)

60
Q

Phantom Stock

A

Bonus paid on shares of stock over period of time. Good when a company is a non for profit

61
Q

Stock and Appreciation Rights

A

An amount of money equal to be paid for the amount of money the date the SARs are granted and the date the they are exercised

62
Q

Non-Qualified Retirement Plans

A

Not subject to ERISA, no vesting schedule. Based on the account balance at retirement. SEP, SIMPLE Plans, SARSEP, 403(b)

63
Q

Spouse of a retired or disabled worked can receive social security at any age under what conditions?

A

Has child in care under the age of 16, had child 16 and over and disabled before age 22

64
Q

Minimum Participation (DEFINED BENFIIT PLAN)

A

50 Employees
The greater of 40% of all employees or two employees (1 Employee if there is only one)

65
Q

Key Employees
Key-Vest

A

(5% “O”, “OF” $215K, 1%”O” $150K Prior Year)

66
Q

HCE

A

5% “O”, $150,000 Current Year

67
Q

403(b) Eligible Investments

A

Mutual Fund, Variable Annuity Contract, Cash Value (No Unit Investment Trusts or Individual Securities)

68
Q

403(b) Plans (TDA and TSA, Tax Deferred Annuity and Tax Sheltered Annuity)

A

Churches, Hospitals, Private Schools

69
Q

403(b) Eligibility for Public Schools

A

A regular faculty and curriculum, A regular enrolled student body

70
Q

Direct Transfer 401(k)

A

Make check payable to custodian to avoid 20% withholding

71
Q

Direct Distribution 401(k)

A

Check is made payable to plan participant

72
Q

How can converted Roth assets receive a penalty?

A

No special purpose less than holding period less than 5 years

73
Q

Special Purpose withdrawals from earnings from a Roth to avoid income tax holding period?

A

Assets need to be held 5 years to avoid income tax.

74
Q

What special purpose items for Roth earnings distributions after holding for 5 years receive no income tax or 10% penalty?

A

Age 59.5, Disability, Death, First Home Purchase up to 10k

75
Q

Are Roth Contributions affected by contributions to IRAs and Qualified Plans?

A

Only contributions to IRAs NOT 401(k)s affect Roth Contributions

76
Q

Can non-spouse beneficiaries convert 401(k) plans to inherited Roth IRAs?

A

Yes, but must be done by direct transfer (CANNOT TAKE 60 DAY Rollover)

77
Q

Can inherited IRAs be converted to Roth IRAs?

A

No

78
Q

For workers under the full retirement age how much is reduced of their social security benefit?

A

$1 for every $2 above $21,240, and $1 for every $3 in the year of FRA

79
Q

If a client has AGI can they contribute to IRA?

A

Only if it clarifies wages

80
Q

When is a money purchase plan appropriate?

A

Retain Young Employees, Simple Easy to Explain, Stable cash flow

81
Q

Max Match on a SIMPLE IRA

A

$15,500

82
Q

Are their forfeitures in 401(k)s?

A

Yes if it does not vest immediately

83
Q

NUA Taxation

A

CO -Cost Basis Ordinary Income,
AL - Appreciation at Long Term Gains
GH - Gains at Holding Period

84
Q

What is the max income taken into for DB plan averaging 3 highest earning years?

A

$330,000 (Is the highest which be used in calculation)

85
Q

Are employee deferral included in the 25% calculation for a company deduction?

A

Yes, but the employer may contribute 25% in addition to the deferral

86
Q

Flexibility, Integrated with Social Security, Not Qualified, Vests Immediately, Employees need to work 3 out of 5 years and be 21 Part-Time Counts

A

SEP IRA

87
Q

No Salary Cap, 100 Employees or fewer, Employer must match 3% if employee defers or 2% on everyone even if they don’t defer $15,500 max deferral and match

A

SIMPLE IRA

88
Q

Cross-Tested Plan
(Comparability Plan)

A

Does not use age based formula - instead tries to provide max compensation to highly compensated employees

89
Q

Parent-Subsidary

A

One organization own 80% of the other entities

90
Q

Brother-Sister

A

Five or fewer owners own at least two or more of each entity

91
Q

Affiliated Service Group

A

A Service or Professional Organization

92
Q

Can hardship withdrawals come from profit sharing plans?

A

No - hardship withdrawals have to come from 401(k)

93
Q

Do you receive a charitable deduction on a QCD?

A

No it satisfies the RMD

94
Q

When does an employer receive a deduction for a non-qualified compensation plan?

A

When the employee takes constructive reciept

95
Q

What are hardship withdrawals comprised of?

A

Elective Deferrals and Vest Profit-Sharing Contributions

96
Q

Percentages for Life Insurance Defined Contribution and Defined Benefit Plan

A

Qualifications for “incidental” Ordinary Life Insurance 50%, Universal and Term (25%), Defined Benefit (No more than 100x the monthly Benefit)

97
Q

Exception to 10% Additional Tax 401(k)?

A

Separation of Service Age 55, QDRO NO ( Health INSURANCE PREMIUMS PAID WHILE UNEMPLOYED, NO QUALIFIED HIGHER EDUCATION EXPENSES, NO QUALIFIED FIRST TIME HOME BUYER UP TO $10,000)

98
Q

Exception to 10% Additional Tax IRA?

A

Health Insurance Premium while Unemployed, FIRST-TIME HOME BUYERS up to $10,000, Qualified Higher Education Expenses

99
Q

Do Defined Benefit Plan need to add forfeitures?

A

Defined Beneift Plans MUST

100
Q

How much is taken into the calculation of an employees salary

A
101
Q

SIMPLE IRAs

A

Immediate Investing, (100 or fewer Employees), Company can not have another plan,

102
Q

Can “Active” Participants make contributions to Roth or Traditional IRAs?

A

Yes, However it depends on AGI

103
Q

If a retirement account has no beneficiary what is the timeline for distribution?

A

Five Years

104
Q

When can SIMPLE IRA Plan be started?

A

Jan 1st - Oct 1st

105
Q

When can a SEP be started

A

End of Companies Fiscal year with Extensions (Very Flexible)

106
Q

When can a 401(k) be started?

A

Must be established before fist deferral can be made

107
Q

Max Employer Contribution on a 3% on SIMPLE 401(k)?

A

Base on $330,000 $9,900 unlike SIMPLE IRA Capped at $15,500 or (3%) $516,667

108
Q

Do employees staying less than a year affect defined benefit plans?

A

No, employees were not elgible, thus does not affect

109
Q

Does inflation affect defined benefit plans?

A

Yes, in theory employee salaries have increased leading for additional contributions

Retirement (V2) (1 decks)

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