Retirement Planning Flashcards

Cash balance plan
Terms Definitions
50% of SS Benefits will be taxed when
Single 25K to 34k

Married 32K to 44K
up to 85% of SS Benefits will be taxed when
Single above 34K

Married above 44K
Does a self employed worker have to w/h taxes, pay FICA etc to a child employed in the biz?
Not if income is less than $5700 (std ded)
A divorced spouse to get SS benefits must have been married for at least ___ years and not be remarried
Dependent child of a deceased or disabled insured worker gets SS benefits if
under 19 and a student
age 18 or over but has disability which began before age 22
SS Benefits between 62-64 are reduced $1 for every $2 earned over
There is a ___ month waiting period for SS disability benefits.
for a group life insurance least ___ % of employees must benefit from the plan.
Sale of non qual stock options will be reported as income/AMT/capital gain?
What is the incidental safe harbor rule re: insurance and qual retirement plans?
cost of whole life insurance cannot exceed 50% of all benefits.
The max contribution for TSAs incl catch ups is
Only ____ pension plans are required to pay benfits to the PBGC.
The amendment of a defined benefit plan into a money purchase plan will result in termination of the plan T or F
a 457 plan is a qual/non qual plan
non qual
Only the first ____ of comp can be taken into account for a money purchase plan
Target Benefit Plan Max contribution is lesser of 100% of comp or ______
Employer profit sharing contributions need to be ________
substantial and recurring.
a 401(k) deferral is still subj to ____ and _____ taxes
Which type of business cannot establish a ESOP?
A Thrift plan can be a ____ or a ______ plan.
money purchase

Profit sharing
the most frequently used defined benefit formula is the _______
unit benefit formula (also known as % of earnings/year of service
Salary cap on pension plan is _____. Benefit cap is ____.

A cash balance plan is a type of ____. Employer guarantees _____ and

Contribution level
Min rate of return
Older/younger workers are hurt when a DB plan is converted to a cash balance plan.
Older - lump sum payout at termination is considerably smaller under cash balance formula.
Max age and service to participate in a Qual Plan.
21 and one year of service
_____ hours of service define 1 year of service
Ratio % test
plan must cover a % of NHCEs that is 70% of HCEs covered. If this test fails then next text must be passed.
Ave Benefit Test
Ave benefits for all NHCEs must be 70% of that for all HCEs.
Min participation rule
A DB plan must benefit at least the LESSER of (1) 50 employees (2) greater of (a) 40% of all employees (b) 2 employees.
Highly comped employee defined
5% owner or employee earning more than 110K in 2010.
Key Employee
Greater than 5% owner OR
officer AND comp > 160K or greater than 1% ownership AND comp > 150K
A plan is top heavy if
more than 60% of is aggregate accrued benefits or account benefits are allocated to key balances
DC Vesting Schedules
Top Heavy DB plans
3 yr cliff
2 - 6 yr graded
100% vested w/2 yr eligibility
Non top Heavy DB plans
5 yr cliff
3 - 7 yr graded
100% vested with 2 yr eligibility
If a plan is top heavy, you can only use _____ vesting schedules
3 yr cliff
2 - 6 yr graded
Parent subsidiary
One entity owns 80% of one (or more ) other entities
Brother sister
5 (or fewer) owners of 2 or more entities own 80% or more of each entity
DB plans can integrated with SS one of two ways
What is max disparity allowed with a money purchase plan?
ADP/ACP testing
if NHCE is 0 to 2% then HCE is "times 2"
if NHCE is 2-8% is "plus 2%"
GICs pay guaranteed return regardless whether actual return is higher or lower T or F
A plan which provides a benefit for wages up to the integration level, plus a higher benefit for wages that exceed the integration level, is an integrated defined benefit excess plan. T/F
A plan which provides that an employee's benefit otherwise computed under the plan formula is reduced by a fixed amount or formula amount is an integrated defined benefit offset plan.T/F
The base benefit percentage is determined by calculating the benefits provided by the plan based on compensation below the integration level, and expressing these benefits as a percentage of compensation below the integration level. T/F
When calculating max permitted deductible employer contribution for a profit sharing plan..multiply covered payroll by ___
For the $3000 catchup in a 403(b) you need ___ years of service.
The maximum service requirement a thrift plan can impose is ___ yr(s)
Would monthly dues to a health club paid by the employer be taxable to the employee? Y/N
what are limitations for contributions to a 403(b) plan
lesser of 100% comp or 49,000
Over 50 catchup in a 403(b) is
If employee receives annual additions that exceed 415 limit the employer has 3 options. The excess
may be reallocated among employees whose 415 limit has not been exceeded.
may be applied to a later year
may be used to reduce future plan contributions
IRA phaseout
Single 55K - 65K
Married 89K to 109K
For self employed, owner-employee contribution is based on
net earnings
Short cut for self employed contribution
for 15% contribution use
for 25% contribution use
A DC plan is top heavy if
more than 60% of the total amount in the accounts of all employees is allotted to key employees.
Min benefits for non key employees. A top heavy plan must provide min benefits or contributions ..must be
at least 2% of comp X # employee's years of service in which plan is top heavy up to a max of 10 years.
DC min employer contribution must be
no less than 3% of each non key employee's comp.
A loan from qual plan
Made under enforceable agreement
Total loans do not exceed lesser of 50% of vested benefit or 50K. (Accounts under % limit)
Loan to be repaid in 5 years unless used to acquire principal residence...also leave of absence.
Which plans do not allow loans?
S corp distributions are earned/unearned income.
unearned (doesn't figure into IRA calc)
If one spouse is an active plan participant and other spouse is non active...then non active can do ded IRA if combined adj gross income is less
phased out at 176K
Exceptions to early distribution before 59 1/2 10% penalty
subst equal payments
first home up to 10K
qual ed expense
qual med expense > 7.5% AGI
med ins premium after separation from employment
IRA loans allowed/not allowed
not allowed
Roth phaseout
single 105K to 120K
married 166K to 176K
A Roth 401(k) can be rolled over to
401(k) with Roth option
403(b) with Roth option
SEP must cover all employees over the age of ___ and who have worked for the employer ___ of the preceding 5 calendar years. Part time counts.
21, 3
No SEP contributions need to be made for comp for the year is less than
SARSEP requirements
up to 25 employees
50% of employees must participate
deferral limit is $16,500
SIMPLE eligibility
must cover any employee earning $5000 in any 2 previous years.
403(b) plan ..also known as a
TSA (tax sheltered annuity
A rabbi trust can pay benefits for either a top-hat plan or an excess benefit plan. T/F
When disability premiums are paid by employer are benefits taxable to employee? Y/N
Cash balance plans can be integrated with SS T/F
At the TSA owner's death, the amount received by the beneficiary is included in the gross estate of the decedent. T/F
Separate-investment accounts are frequently compared to mutual funds because the accounts are pooled. T/F
The mandatory 20% income tax withholding requirement does not apply to distributions of employer stock from an ESOP.
An employer's deduction for ESOP contributions and amounts made to repay interest on an ESOP's debt cannot exceed 25% of the participants' payroll. T/F limit
The 3% matching contribution, however, is not subject to the compensation limit. T/F
Once committed, the 15% prohibited transaction penalty cannot be waived for extenuating circumstances T/F
SEPs and tax-sheltered annuities do not qualify for forward averaging. They are not qualified plans. T/F
Nonelective contributions (2%) are subject to the compensation limit of $245,000 in 2009. T/F
A target benefit plan is a DC or DB plan?
If unrelated business taxable income UBTI is over ____ then the qual plan is subj to income tax
Is income from a ltd/gen partnership (except real estate) considered UBTI?
Which plans cannot provide for death benefits paid from life insurance?
ESOP/403(b)/Profit sharing 401(k)/SIMPLE
SIMPLE - not a qual plan
Only ____ plans can hold second to die insurance policies.
Profit sharing
A financial hardship is defined as _________
immediate and heavy.
When a hardship withdrawal is taken, the plan must suspend a right to make deferrals for ____
six months
Safe harbor distribution is/is not free of the 10% pre 59 1/2 withdrawal penalty
is not
Safe harbor distributions
Medical expenses
College tuition/room and board
purchase of principal residence
Prevent eviction or foreclosure
Funeral expenses
Repair of principal residence
Exceptions to 10% early withdrawal penalty
Equal payments following separation
Distribution following separation from service at age 55 or later
Medical expenses > 7.5% AGI
Lump sum requirements
Entire amount payout
Made in one taxable year
Employee participated for 5 taxable years
Payable due to death, attainment of age 59 1/2, separation from service or disability. Must be elected.
Qual pension plans are required to provide a qual joint and survivor annuity QJSA T/F
Do 457s qual for 10 year averaging Y/N
What is penalty for not taking enough RMD?
50% on the amount not taken
If owner dies before req date (70 1/2) and there is no beneficiary alive as of the owner's death, the ____ applies
5 year rule - all the money must be distributed within 5 years of the year the owner died.
If a trust is the beneficiary of a plan then the deadline for beneficiary docs is ____ of the year following the employees death.
Oct 31
If a charity is named, then the charity's interest should be cash out before ____ of the year following the owner's death
Sept 30
A rabbi trust would be used when
Hostile takeover
A rabbi trust is funded/unfunded
Informally funded plans mainly use _____ not stock grants or options
Life insurance
Only the first _____ worth of ISOs granted to any employee that vest in ___ year is entitled to favorable tax treatment
one calendar
any ISO that exceeds 100K in one calendar year is treated as a
nonqual stock option
Nonqual stock option are taxed at exercise T/F
Two ISO holding period rules
1) Must hold exercised ISO for one year from date of exercise before selling them
2) You must hold shares from ISO exercise at least 2 years from grant issue before selling them.
What is the maximum permitted deductible employer contribution to the profit sharing plan?
Mult 6% times covered payroll
Separate-investment accounts are similar to a mutual fund in that the accounts are usually pooled, provide the plan sponsor with the type of investments. T/F
GICs provide a guaranteed rate of return which is paid regardless of whether the actual rate of return is higher or lower. T/F
Benefits for a top-hat plan or an excess benefit plan can be paid through a rabbi trust. T/F
Under a salary reduction SEP, the maximum salary deferral percentage for any highly compensated employee is 1.25% of the nonhighly compensated employees' ADP. T/F
Investment Grade IGs generally provide a minimum guarantee on the rate of return, but pay the actual rate of return if higher than the guarantee. T/F
for an HSA family plan, the deductible must be from $2,300 to $5,950 with a maximum contribution of the deductible amount, up to these limits. T/F
The maximum TSA contribution for 2009 is $25,000, including all catch-ups. T/F
At the TSA owner's death, the amount received by the beneficiary is included in the gross estate of the decedent, T/F
VEBAs may not offer retirement benefits. T/F
The mandatory 20% income tax withholding requirement does not apply to distributions of employer stock from an ESOP. T/F
A rollover to an IRA can be made tax free only after a two-year period of participation in the SIMPLE plan. T/F
In a SIMPLE IRA, The 2% nonelective contribution is subject to the $245,000 2009 compensation limit. The 3% matching contribution, however, is not subject to the compensation limit. T/F
In a qual plan, are loans available to sole proprietors and S corporation shareholder-participants. Y/N
In an integrated defined benefit plan,the excess benefit percentage cannot be more than double the base benefit percentage. T/F
ESOPs cannot be integrated with Social Security. T/F
The 20% withholding requirement does not apply to IRA distributions. T/F
SIMPLE IRA plans are not subject to the top-heavy or discrimination rules applicable to qualified plans.T/F
Which of the following general requirements are necessary to exempt a qualified plan loan from prohibited transaction treatment?
(1) reasonable rate of interest
(2) dollar limitations
(3) term of the loan
(4) adequate security
1 and 4
The excess benefit percentage cannot be more than double the base benefit percentage. T/F
Which of the following are correct statements about the integration rules for qualified plans?
(1) An integration level for a defined contribution plan that exceeds the current year's taxable wage base may be selected.
(2) The permitted disparity level
2, 3 and 4
The permitted disparity for a flat benefit plan is
The integration level selected cannot exceed the current year's taxable wage base; however, it may be less.
A 403(b) plan participant is subject to the 10% early distribution tax, but an exception applies if the participant is at least age 55 and separates from service. T/F
For group life disability, The employer can deduct the premiums paid if the employee has a nonforfeitable right to the insurance when the premiums are paid.
457 plans are for which of the following:
I. Governmental units
II. Governmental agencies
III. Not-for-profit organizations
IV. Churches
I, II and III...(not for churches)
A TSA is subj to a lump sum treatment. T/F
F. Profit sharing and ESOPs are
Hardship withdrawals can be made from which of the following?
A. All qualified plans
B. Defined contribution plans only
C. Profit sharing plans only
D. Section 401(K) plans only
401(k) plans
Which of the following characteristics of a SEP is false?
A. Loans and hardship withdrawals are not available.
B. Age-weighting or cross-testing is not permitted.
C. Social Security integration is not permitted.
D. Employer matching is not permitted.
For the family plan, the minimum deductible must be
The maximum annual family contribution is
The maximum TSA contribution for 2009 is , including all catch-ups
In a 457 plan, The 457 final three-year catch-up may not be used with the age 50 catch-up. T/F
The IRA deduction for individuals who are not active participants, but whose spouses are, is phased out if their AGI is between $166,000 and $176,000 in 2009. T/F
A rollover to an IRA can be made tax free only after a two-year period of participation in the SIMPLE plan. T/F
Covered Comp
Def Ben Max
Def Cont Max
Key Employee
4 types of Pension Plans
Def Ben
Cash Balance
Money Purchase
Target Benefit
7 types of Profit Sharing
Profit Sharing
Stock Bonuses
New Comparability
Age Based Profit Sharing
is a 403(b) a qual plan?
No, it is a tax advantaged plan
Employers are limited to a max of ___ % of total comp paid to employees as contribution to a qual plan
Purpose of ERISA
provides protection for an employee's retirement assets
Qual plan assets are/are not protected from a QDRO (court divorce order), property settlement, child support, fed tax levy, settlement on a ind for crminal act.
are not
A highly comp employee is either
more than 5% owner (current or past year)
comp >110K
A retirement plan annually must pass one of two following tests
Safe Harbor % of NHC covered > or = 70%
Ratio %
% NHC Covered/ %of HC covered > or = 70%
Ave Benefits Test
Ave Ben % of NCE/Ave Ben % of HCE > or = 70%
Requred Coverage levels

Nonexcl Must be covered
1 1
2-4 2
<125 40%
>125 50
know this
Key employee (3)
>5% owner
>1% owner with >150K comp
officer with >160K comp
if >60% of benefits or comp are going to key employees plan is ____. image of 6 keys with top hats
top heavy
Top Heavy Vesting (2)
2-6 graduated
3 year cliff
For def contribuion plans after 2006
2-6 graduated
3 year cliff
Def Benefit plan Funding
2% x yrs service x comp factor
Def Contribution Plan funding
3% min or less if less provided to key employees
most conservative method to estimate retirement needs?
Capital enhancement method
HIIPA limits "pre-existing look-back period" to ___months
Can deductibles be paid out of an HSA? Y/N
Early withdrawal penalty of SIMPLE
If money in an HSA is not used at the end of the year is it forfeited? Y/N
Does SE retirement plans provide for loans to common law employee participants? Y/N
money purchase and target benefit plans (pension) are DCP or DBP?
When an employee makes a deferral, is FICA paid? Y/N
vesting for qual plans
2-6 grad
3 year cliff
is the participation test same as safe harbor test Y/N
Ratio test
% of NHC Covered/% of HC Covered
Coverage tests in order
Safe Harbor
Ave Bene
50/40 rule only covers DB plans T/F
50/40 test
plan must cover the lesser of 50 employees or 40% of employees
Top Heavy is when ____ account balance or benefits is attributable to a key employee
DCP ..employer must provide non key employee with a contribution equal to at least ___ of comp
Covered comp for plans
DBP limit
lesser of
100% of av last 3 years salary
DCP limit

Limit consists of
lesser of 100% comp

EE, ER contributions and any forfeitures
if employee has annual additions into their qual plan...can they have a DEDUCTIBLE IRA? Y/N
Can you put a life insurance product into any type of IRA? Y/N
For DB plans actuary is required
DB and Cash Balance Plans
Target Benefit
DB and Cash annually
Target at inception
which plans favor older workers
DB and Target Benefit
Profit sharing plans can only use ____ method for SS integration
ADP testing
0-2% 2x ADP for NHC
2-8% 2% plus ADP for NHC
>8% 1.25 x ADP for NHC
if employee dies with a 401(k) can beneficiary elect NUA Y/N
what is tax treatment when NUA first comes out of the account
deferred LTCG (not LTCG til sold)
for a lump sum dist from a qual plan...the distributions are subj to ___ income tax w/h
Plan loans are the lesser of
1/2 vested account balance
if <20K the max is limited to lesser of 10K or vested account balance
non penalized distributions specific
Qual Plans IRA Only
qual plans IRA
Sep Service/55 Health Ins
for unemploy
QRDO Higher ED
1st Time
up to 10K
Plan loans are the lesser of
1/2 vested account balance
if <20K the max is limited to lesser of 10K or vested account balance
non penalized distributions specific
Qual Plans IRA Only
qual plans IRA
Sep Service/55 Health Ins
for unemploy
QRDO Higher ED
1st Time
up to 10K
Plan loans are the lesser of
1/2 vested account balance
if <20K the max is limited to lesser of 10K or vested account balance
calc for self employed doing 15% contribution
SE max is 20%
.15/1.15 = 13.04%
Figure SE Net Earnings
Times 92.35%
File Form ___ with Form 1040 to track adj tax basis in IRA
VEBA pays for
prepaid legal
dental and vision insurance
NOT retirement or commuting benefits
What trust allows gift splitting?
B or bypass
A clause in a 401(k) plan can assist the plan in meeting the requirements of the ADP test?
Negative election
/ 196

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