RP and EB - Lesson 4 (Other Tax Advantaged Plans) Flashcards
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.
Qualified Plans
What is considered earned income? (Remember: Anything not included on this list is considered Unearned Income).
- 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)
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.
6%
Is there a way to avoid the excess tax for over contributing to an IRA?
Withdraw funds by the following April 15th
When is the due date for ROTH and Traditional IRAs contributions?
The due date of the federal tax return without considering extensions
** 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.
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.
What is the calculation of IRA deduction formula? (KNOW THIS)
Contribution to IRA X (AGI - AGI Phaseout Lower/$10k)
The deductibility of an IRA contribution may be reduced if the taxpayer is active in any of the following plans…
SEP, SIMPLE, Tax Sheltered Annuity 403(b), Qualified Plan, Annuity Plan, Government Plan
When does an individual develop a basis in an IRA?
When non-deductible contributions are made
Formula for determining taxability of IRA with an adjusted basis?
Adjusted Basis (before W/D) FMV of account (at W/D)
What are the exceptions to the 10% early withdrawal penalty for Qualified Plans ONLY, IRA’s ONLY, and both?
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
Can traditional IRA’s or IRA annuities be pledged as collateral?
No
Contributions AGI Phaseout limit for all IRA’s: Single, MFJ, MFS
Single: $129,000 - $144,000
Married Filing Jointly: $204,000 - $214,000
Married Filing Separately: $0 - $10,000
What are the criteria for a qualified distribution from a ROTH IRA?
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
Investments not allowed in an IRA?
Investments allowed in IRA?
Not allowed?
- Life Insurance
- Collectibles
Allowed?
- Gold
- Silver
- Platinum
- Paladium
What are the prohibited transactions in an IRA?
- 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)
The aggregate value of assets in a traditional or ROTH IRA that may qualify for exemption from federal bankruptcy can not exceed $ ______.
$1MM (this cap does not include rollover contributions or earnings on rollovers)
What is the maximum contribution to a SEP IRA?
The lesser of 25% of compensation or $61,000.
Contributions to a SEP are always __________ vested.
100%
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.
SIMPLE
Plans available to certain non-profit organizations and to employees of public educational systems.
403(b) plans (Tax sheltered, Tax Deferred Annuities)
Plans available to certain non-profit organizations and to employees of public educational systems.
403(b) plans (Tax sheltered, Tax Deferred Annuities)
These plans resemble deferred compensation plans that allow employees of state and local governments the ability to defer compensation free from current income taxation.
Section 457 Plans
SIMPLE IRA’s require either employer to (in terms of contributions)…
1) Employer must match employee contributions (of those that participate).
OR
2) Employer must provide non-elective contributions to all eligible employees.
An employer may not establish a SIMPLE if…
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
Eligibility requirements for a SIMPLE IRA?
- Employees who earned $5,000 during any 2 preceding calendar years
- Employees who are expected to earn $5,000 during the current calendar year
Annual elective deferral for SIMPLE IRA:
Max catch up contribution for 2022:
$14,000
$3,000
What is the annual deferral limit for a SIMPLE IRA?
$14,000
SIMPLE IRAs require the employer to either 1) or 2).
1) Match employee contributions of those that participate.
2) Provide non-elective contributions to all employees who are eligible.
Who can SIMPLE Plans be established by?
Companies with 100 or fewer employees who earned at least $5,000 of compensation from the employer for the preceding calendar year.
What is the grace period for employers who cease to comply with the 100 employee limit?
2 years
What is the vesting of contributions and earnings by an employee to a SIMPLE plan?
100% immediate vesting
With the exceptions of rollovers, the only contributions that can be made under a SIMPLE IRA plan are
1) Employees elective deferral contributions
2) Required Employer matching contributions or non elective contributions
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)
3%
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:
- 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.)
Which plan is considered to be ‘more flexible’ for the employer? Why?
SIMPLE IRA, because employers may elect to reduce the 3% matching requirement
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 _____________________ )
2% up to covered compensation limit of $305,000
Employer contribution options for SIMPLE IRA’s:
3% match on all wages
OR
2% non-elective contribution for all eligible employees (up to covered comp limit)
What is the limit for deferral and catch-up options for SIMPLE IRA’s?
% or $ contribution up to $14,000 plus $3,000 for over 50 for 2022
Is an employer required to allow employees to use the “catch-up” feature for a SIMPLE 401(k) ?
No
What type of SIMPLE plan allows loans from the plan?
SIMPLE 401(k) only
What are employer options for SIMPLE 401(k) plan contributions?
$/$ 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)
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.
2 years
A retirement plan for certain employees of public schools, ministers, and employees of various tax exempt organizations. Tax sheltered, but NOT a qualified plan.
403(b) or TSA
What are the 2 types of 403(b) plans?
1) Employer Funded
2) Salary Reduction
What are the 2 catch up options for 403(b)’s?
- 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
Contribution limit for ROTH 403(b)?
Lesser of $20,500 or income earned (no income limitations to contribute)
What is the vesting schedule of a 403(b)?
Always 100% vested
In order to qualify for the 15 year catch-up the business has to be a ?
HER
Health
Education or
Religious Organization
What must a 403(b) plan pass the ADP/ACP test?
If it is an ERISA plan
Who are 457 plans for?
Employees of state and local governments
What are the catch up provisions of a 457 plan?
1) Age 50 catch up ($6500 above elective deferral limit of $20,500)
2) Special “Final 3 year” Additional catch up $20,500
What type of 457 plan can be rolled over?
Public plan only
457 plan contribution/deferrals have no integration with other plans/deferrals meaning…
The max deferral limit does not limit the amount that can be deferred to a 401(k), SEP, SIMPLE, etc.
