RP and EB - Lesson 4 (Other Tax Advantaged Plans)

Question 1

IRA’s, SEP’s, SARSEP’s, SIMPLE’s, and tax sheltered annuities (403(b) plans) are not ____________________ and are not entitled to the same benefits as those plans that are.

Answer 1

Qualified Plans

Question 2

What is considered earned income? (Remember: Anything not included on this list is considered Unearned Income).

Answer 2

• W-2 Income
• Schedule C net income
• K-1 Income from an LLC
• K-1 Income from a partnership where partner is material participant
• Alimony (If divorce decree agreement signed prior to or by 12/31/18. (TCJA 2017)

Question 3

Contributions to an IRA that exceed the limits are subject to a ____ % excess tax that is charged each year that the excess contribution is made to the IRA.

Answer 3

6%

Question 4

Is there a way to avoid the excess tax for over contributing to an IRA?

Answer 4

Withdraw funds by the following April 15th

Question 5

When is the due date for ROTH and Traditional IRAs contributions?

Answer 5

The due date of the federal tax return without considering extensions

Question 6

** KNOW THIS.

What is the AGI Phaseout for each of the following scenarios? What is the IRA deductibility of each of these scenarios?

1) Tax payer is not an active participant in a qualified plan.
2) Taxpayer is an active participant in a qualified plan.
3) One spouse is an active participant in a qualified plan, the other is not.

Answer 6

1) No AGI Limit. It is deductible.
2) Single. AGI Phaseout: $68k -78k, MFJ. AGI Phaseout: $109k-129k. Deductible as long as income does not exceed phaseouts.
3) Phaseout $204k-214k. Deductible as long as income does not exceed phaseouts.

Question 7

What is the calculation of IRA deduction formula? (KNOW THIS)

Answer 7

Contribution to IRA X (AGI - AGI Phaseout Lower/$10k)

Question 8

The deductibility of an IRA contribution may be reduced if the taxpayer is active in any of the following plans…

Answer 8

SEP, SIMPLE, Tax Sheltered Annuity 403(b), Qualified Plan, Annuity Plan, Government Plan

Question 9

When does an individual develop a basis in an IRA?

Answer 9

When non-deductible contributions are made

Question 10

Formula for determining taxability of IRA with an adjusted basis?

Answer 10

Adjusted Basis (before W/D)
FMV of account (at W/D)

Question 11

What are the exceptions to the 10% early withdrawal penalty for Qualified Plans ONLY, IRA’s ONLY, and both?

Answer 11

Qualified Plans:

• QDRO
• Attainment of age 55 and separation from service
• Public Safety employee who separates from service after age 50

IRA’s:

• Higher Education Expenses
• First Time Home Purchase (up to $10,000)
• Payment of Health Insurance Premiums by unemployed’

BOTH:

• Death
• Attainment of age 59.5
• Disability
• Substantially Equal Periodic Payments (72(t))
• Medical Expenses that exceed 7.5% of AGI
• $5,000 per tax payer for birth or legal adoption of a child

Question 12

Can traditional IRA’s or IRA annuities be pledged as collateral?

Answer 12

No

Question 13

Contributions AGI Phaseout limit for all IRA’s: Single, MFJ, MFS

Answer 13

Single: $129,000 - $144,000
Married Filing Jointly: $204,000 - $214,000
Married Filing Separately: $0 - $10,000

Question 14

What are the criteria for a qualified distribution from a ROTH IRA?

Answer 14

1) 5 year holding period (begins Jan 1 of year of contribution for tax year )
2) 59.5, death, disability, 1st time home purchase up to $10,000

Question 15

Investments not allowed in an IRA?

Investments allowed in IRA?

Answer 15

Not allowed?

• Life Insurance
• Collectibles

Allowed?

• Gold
• Silver
• Platinum
• Paladium

Question 16

What are the prohibited transactions in an IRA?

Answer 16

• Selling, exchanging, leasing property to an IRA
• Lending money to an IRA
• Receiving unreasonable compensation for managing an IRA
• Pledging an IRA as security for a loan
• Borrowing money from an IRA
• Buying property for personal use with IRA funds

PLCPBB (Paul Likes Cats, Paul Bats Bats)

Question 17

The aggregate value of assets in a traditional or ROTH IRA that may qualify for exemption from federal bankruptcy can not exceed $ ______.

Answer 17

$1MM (this cap does not include rollover contributions or earnings on rollovers)

Question 18

What is the maximum contribution to a SEP IRA?

Answer 18

The lesser of 25% of compensation or $61,000.

Question 19

Contributions to a SEP are always __________ vested.

Answer 19

100%

Question 20

This type of plan provides incentives to “small employers” (100 or fewer employees) to adopt retirement plans for employees with less administrative costs and fewer set up procedures than qualified plans and no annual filing requirements.

Answer 20

SIMPLE

Question 21

Plans available to certain non-profit organizations and to employees of public educational systems.

Answer 21

403(b) plans (Tax sheltered, Tax Deferred Annuities)

Question 21

Plans available to certain non-profit organizations and to employees of public educational systems.

Answer 21

403(b) plans (Tax sheltered, Tax Deferred Annuities)

Question 22

These plans resemble deferred compensation plans that allow employees of state and local governments the ability to defer compensation free from current income taxation.

Answer 22

Section 457 Plans

Question 23

SIMPLE IRA’s require either employer to (in terms of contributions)…

Answer 23

1) Employer must match employee contributions (of those that participate).
OR
2) Employer must provide non-elective contributions to all eligible employees.

Question 24

An employer may not establish a SIMPLE if…

Answer 24

1) Employer contributes to defined benefit plan, SEP, or 403(b) for employees during the year
2) If employees accrue from a defined benefit during the year

Question 25

Eligibility requirements for a SIMPLE IRA?

Answer 25

• Employees who earned $5,000 during any 2 preceding calendar years
• Employees who are expected to earn $5,000 during the current calendar year

Question 26

Annual elective deferral for SIMPLE IRA:

Max catch up contribution for 2022:

Answer 26

$14,000

$3,000

Question 27

What is the annual deferral limit for a SIMPLE IRA?

Answer 27

$14,000

Question 28

SIMPLE IRAs require the employer to either 1) or 2).

Answer 28

1) Match employee contributions of those that participate.

2) Provide non-elective contributions to all employees who are eligible.

Question 29

Who can SIMPLE Plans be established by?

Answer 29

Companies with 100 or fewer employees who earned at least $5,000 of compensation from the employer for the preceding calendar year.

Question 30

What is the grace period for employers who cease to comply with the 100 employee limit?

Answer 30

2 years

Question 31

What is the vesting of contributions and earnings by an employee to a SIMPLE plan?

Answer 31

100% immediate vesting

Question 32

With the exceptions of rollovers, the only contributions that can be made under a SIMPLE IRA plan are

Answer 32

1) Employees elective deferral contributions

2) Required Employer matching contributions or non elective contributions

Question 33

For SIMPLE IRA’s the employer is generally required to match the employees ELECTIVE deferral contributions on a dollar for dollar matching basis up to _________ of compensation for employee (without regard to covered comp limit)

Answer 33

3%

Question 34

Employers for a SIMPLE IRA may elect to reduce the 3% matching contribution requirement for a calendar year, but only under ALL of the following circumstances:

Answer 34

• Limit reduced to no less than 1%
• The limit is not reduced for more than two years out of a 5 year period (that ends with and includes the year for which the election is effective)
• Employees are notified of the reduced limit (within a reasonable time period before the 60 day election period for a salary reduction agreement.)

Question 35

Which plan is considered to be ‘more flexible’ for the employer? Why?

Answer 35

SIMPLE IRA, because employers may elect to reduce the 3% matching requirement

Question 36

For SIMPLE IRA’s (if employer chooses not to match employee elective deferrals) the non-elective contribution to employees must be _____ % of each eligible employees compensation. (Up to _____________________ )

Answer 36

2% up to covered compensation limit of $305,000

Question 37

Employer contribution options for SIMPLE IRA’s:

Answer 37

3% match on all wages
OR
2% non-elective contribution for all eligible employees (up to covered comp limit)

Question 38

What is the limit for deferral and catch-up options for SIMPLE IRA’s?

Answer 38

% or $ contribution up to $14,000 plus $3,000 for over 50 for 2022

Question 39

Is an employer required to allow employees to use the “catch-up” feature for a SIMPLE 401(k) ?

Answer 39

No

Question 40

What type of SIMPLE plan allows loans from the plan?

Answer 40

SIMPLE 401(k) only

Question 41

What are employer options for SIMPLE 401(k) plan contributions?

Answer 41

$/$ Matching contributions up to 3% of employee’s compensation (up to covered comp limit for SIMPLE 401(k))

OR

A non-elective contribution of 2% of each eligible employee’s compensation to the plan (up to covered comp limit)

Question 42

A distribution or transfer made from a SIMPLE during the first ________ years of an employee’s participation in the SIMPLE must be contributed to another SIMPLE to avoid taxation and penalty.

Answer 42

2 years

Question 43

A retirement plan for certain employees of public schools, ministers, and employees of various tax exempt organizations. Tax sheltered, but NOT a qualified plan.

Answer 43

403(b) or TSA

Question 44

What are the 2 types of 403(b) plans?

Answer 44

1) Employer Funded

2) Salary Reduction

Question 45

What are the 2 catch up options for 403(b)’s?

Answer 45

• Age 50 Catch up provisions (lesser of $6500 or comp)
• 15 year rule exception - worked for same employer for 15 years (typically $3k)

POSSIBLE TOTAL $9,500

Question 46

Contribution limit for ROTH 403(b)?

Answer 46

Lesser of $20,500 or income earned (no income limitations to contribute)

Question 47

What is the vesting schedule of a 403(b)?

Answer 47

Always 100% vested

Question 48

In order to qualify for the 15 year catch-up the business has to be a ?

Answer 48

HER

Health
Education or
Religious Organization

Question 49

What must a 403(b) plan pass the ADP/ACP test?

Answer 49

If it is an ERISA plan

Question 50

Who are 457 plans for?

Answer 50

Employees of state and local governments

Question 51

What are the catch up provisions of a 457 plan?

Answer 51

1) Age 50 catch up ($6500 above elective deferral limit of $20,500)
2) Special “Final 3 year” Additional catch up $20,500

Question 52

What type of 457 plan can be rolled over?

Answer 52

Public plan only

Question 53

457 plan contribution/deferrals have no integration with other plans/deferrals meaning…

Answer 53

The max deferral limit does not limit the amount that can be deferred to a 401(k), SEP, SIMPLE, etc.