WAB Retirement Flashcards
Social Security Eligibility
- retired insured worker age 62+
- worker entitled to disability benefits if he/she is under age 65 and has been disabled for 12 mo/is expected to be disabled at least 12mo (5mo waiting period)
Social Security Spousal Eligibility
- spouse of a retired or disabled worker if they are 62+ or have a child under age 16 or disabled child
- divorced spouse who is 62+ and was married to them for at least 10 yrs and not remarried
- surviving spouse or divorced spouse who is 60+
-surviving spouse at any age taking care of child under 16y/o
SS Taxation of Benefits
If income plus 1/2 of SS benefits are greater than $25k single/$32k MFJ then 50% of benefits are included in taxable income
If income plus 1/2 of SS benefits are greater than $34k single/$44k MFJ then 85% of benefits are included in taxable income
When calculating MAGI for SS benefits, make sure to add
Muni bond interest
Retirement salary caps & max contributions
DB/DC Salary Cap - $330k
Simple IRA Salary Cap - $516,667
DC Max Contribution - $66k (50+ $73,500)
DB Max Contribution - stuff like a pig
Factors that affect employer DB Contributions
- older participants (higher contr)
- investment return assumptions (higher assumptions=lower contr, lower assumptions=higher contr)
- forfeitures must be applied to reduce employer contributions (lower contr)
Max deductible employer profit sharing contribution
25% of eligible participant comp.
“Annual Additions” includes
Deferral and employer contributions AND FORFEITURES (total max of $66k)
Keogh and SEP calculation percentages
15% plan multiply business profit by 12.12%
25% plan multiply business profit by 18.59%
Who is subject to ownership attribution rules for key employees and HCEs
Children, spouses, grandchildren and parents but NOT SIBLINGS
ACP/ADP testing percentage
0-2%, you multiply by 2
2-8%, you add 2
To get percentage that a HCE can defer for non discrimination testing
Age weighted DC planning (cross tested and new comparability plan)
Discriminating to give higher benefit to owner/older employee
Employee % is lower of 1/3 of % of HCE or 5%
457 Plans are
Non qualified DC programs that are subject to creditors and are not aggregated with other plan contributions
SS INTEGRATION
discrimination based on wages
HCE gets additional 5.7% on top of regular employee percentage for amount of salary above NHCE salary used for their deferral (26.5% for DB plans)
** not available for ESOPs, Stock bonus plans or 401k w no match or company contribution
DC AND DB Life Insurance allowable amounts (412e3 or 412i)
DC - whole life 50%, Universal 25%, Term Life 25%
DB - 100 times expected monthly benefit for death benefit
If an ISO is sold in the same year it’s exercised, the bargain element is
Taxable comp AND SUBJECT TO FICA AND FUTA (If still within 12mo period but different calendar years, OI but no fica or FUTA)
Does a corporation get a tax deduction for granting an ISO?
No tax deduction for granting not when exercised/sold UNLESS IT BECOMES AN NSO
2 Reductions of SS benefits
1) before FRA - (# of months before FRA/180 x PIA) = reduction amount
2) working after retirement before FRA - (deduct $1 for every $2 EARNED above $21,240) or if turning FRA this year (deduct $1 for every $3 he earns above $56,520)
SEP IRA is an advantage for employers with numerous _________ employees but a disadvantage for employers with numerous___________employees
1) short term
2) long term and part time
What can’t be invested within a 403b
Closed end funds, UITs, individual securities are NOT ALLOWED
(Annuities, life insurance and MFs are)
What entities cannot sponsor a 403b
A state or local govt
(Yes but only if with regard to employees who perform service for an educational org)
Benefits that can be offered to full time employees that may exclude the part time employees
Profit sharing and SIMPLE 401ks have 500/1000 per year service eligibility requirements
Group health insurance participation normally required 30 hours per week
Which plan can hold second to die insurance
Only profit sharing NOT pension plans
Which plan can offer disability insurance
All qualified plans can hold disability insurance
Who is eligible for lump sum death benefit under SS?
A dependent child or spouse living in the same household
Pension max
Electing a single life annuity and using part of the higher monthly benefit to purchase life insurance on employees life
A solo 401k will allow which contributions
- elective deferrals
- employer contributions
- catch ups
BUT NOT FORFEITURES
What plans can make plan loans
All qualified plans (profit sharing, 401k, target benefit, money purchase, etc.) PLUS 403b
Do Roth 401ks have RMDs?
Yes!!
In a rabbi trust, the participant has the same rights as
An unsecured creditor
SS integration formula
Base percentage (given) + permitted disparity (26.25 for DB or 5.7 for DC) = excess percentage
Minimum benefits for non-key employees in a top heavy plans
2% of comp multiplied by number of yrs in service for DB plans
3% of comp for DC plans
Qualified plan coverage (ratio and benefit tests)
Ratio test - must cover at least 70% NHCE of the percentage of HCE covered
Benefits test - avg benefits for all NHCEs must be at least 70% of those for HCE
Minimum participation for DB plans only
Lesser of:
- 50 employees
- the greater of 40% of employees or 2 employees
HCE versus Key Employees
HCE (discrimination/ACP/ADP testing) - 5% owner OR earning $150k+
Key Employee (vesting) - 5% owner, officer and comp over $215k, OR 1% owner and como over $150k
Top Heavy Plans
(Vesting)
A plan is too heavy if more than 60% of accrued benefits or acct balances are allocation to key employees
(*remember the max salary you can use is $330k)
Fast and Slow Vesting Schedules
What is the most stringent service requirement vs the most stringent vesting requirement
Service - 2yr/100% schedule
Vesting - longest graded schedule
83b stock option election (NSO ONLY)
- elected when the stock is expected to appreciate over time
- employee pays the tax at the time of award(grant) (FMV-EE cost = OI comp)
- appreciation after this is taxed when sold at cap gains rate
Stock Appreciation Rights (SARs) vs Phantom Stock
SARs - rights paid in money equal to different between shares on grant date vs exercise date
Phantom stock - right to cash based on stock performance over SPECIFIED time period (no options but have dividend rights)
Employee Stock Purchase Plan (ESPP)
Section 423
- employer discounts price of stock up to 15%
- taxes paid at time of sale of stock
- must be available to all employees*
When more than _______ of ISOs are_______ In the same calendar year, only first __________ will be treated as ISOs
1) $100k
2) VESTED
3) $100k
(If there’s a problem like this look for an answer with income tax liability AND AMT add back element)
401k/403b interest on loans for primary residence is only deductible if
The loan is secured by the residence for which the loan is made and the participant is not a key employee
FICA and FUTA does not apply to which plans contributions
SEP (employeR contributions only)
QDROs apply to
Qualified plans, 403bs, and governmental 457s (NOT IRAS)
*distributions are subject to 20% withholding but not 10% penalty
Rolling an entire ESOP (company stock and other investments) into an IRA________ but __________
Reduces phantom income BUT the company stock loses NUA tax treatment
Suing ERISA plan officials
You can sue for plan losses but ERISA prohibits monetary punitive damages for claims
To receive SS Disability benefits the worker must
- be under FRA (after only Ret benefits)
- be disabled for 12mo, expect to be disabled for 12mo, or result in death
- satisfy a 5mo waiting period
- filed an app for disability benefits and is insured for disability benefits
