Retirement Planning - Other Tax-Advantaged Retirement Plans (Module 5)

The total amount of tax-deferred employer and employee contributions to the employee's account in a 403(b) plan is subject to the annual Section 415 limitation of the lesser of _______% of compensation or $____________.

100% ; $56k For examples, Employee Barb earns $90,000 in 2019. She is covered under a 403(b) plan that provides for salary reductions and employer discretionary contributions. Barb elects a salary reduction of $21,000 for 2019. The employer can contribute up to a total of $35,000 for Barb (a total of $56,000 for 2019).

Victoria Sanderson, an outside director of a publicly traded corporation, receives a $75,000 fee for her services as a director. She wants to shelter as much of her director's fees as possible. What do you tell her? 1. As a director, she is not eligible to establish a qualified retirement plan because no employer/employee relationship exists between her and the corporation. 2. She is eligible to fund an IRA because director fees are earned income.

2 An outside director (an individual that is not an employee of the corporation for which he or she is a director) may establish a qualified retirement plan on the basis of director fees. Board of Director fees qualify as compensation.

An employer cannot use a salary reduction SEP unless ____% or more of the employees eligible to participate elect to make SEP contributions.

50%

Tim works two jobs, and both provide SIMPLE plans. He wants to maximize his deferrals and matches. At Company A he defers $6,500. How much can be deferred at Company B? a. $11,500 at Company B ($18,000 total) b. $6,000 at Company B c. None as an employee can only have one SIMPLE plan d. $12,500 at Company B

B Multiple plan deferrals are generally aggregated. In case of SIMPLE/SIMPLE, the limit is $12,500 total. A worker having two employers, both of which offer a SIMPLE plan, may participate in both plans but may only defer $12,500 (total) in the aggregate.

Dan, age 56, wants to contribute the maximum allowable amount to his IRA account for 2019. His MAGI is $167,000 and he actively participates in his 401(k) plan. What amount can he contribute? A. $0 B. $1,000 C. $6,000 D. $7,000

Correct Answer: D. $7,000 Explanation: He can contribute $7,000, the $6,000 regular contribution and an additional $1,000 as a "catch-up" contribution as he age 50 or older. He may not be able to deduct his contribution but he can make it.

Harry Grisham is 45 years old. He joins a company which provides a SEP to its employees. Which of the following statements is true regarding Harry and the SEP plan? 1. Provides an adequate retirement benefit for him. 2. May not provide an adequate retirement benefit for him. 3. Provides significant benefits 4. May not provide significant benefits

Correct Answers: 2, 4 Explanation: Employees must not rely upon a SEP to provide them with an adequate retirement benefit. Benefits are significant only if the employer makes substantial, regular contributions to the SEP. But such regular contributions are not a requirement for a SEP, so it may not provide significant benefits.

Keogh Plans are subject to an annual funding limit of $17k per year. True or false? Why?

False The maximum contribution under a Defined Contribution Keogh Plan is the lesser of 100% of compensation or $56k in 2019

The limit on a SIMPLE IRA is the same as it is for contributions to a traditional or ROTH IRA. True or false? Why?

False Unlike traditional and ROTH IRA's, the SIMPLE IRA is limited to $11,500 in 2012

How is life insurance in a Keogh plan treated for the self-employed individual?

for a self-employed individual, the pure life insurance element of an insurance premium is not deductible. Only the portion of the premium that exceeds the pure protection value of the insurance is deductible.

SIMPLE IRA's are used extensively in which types of cases?

- An employer has 100 or fewer employees and wants an easy-to-administer plan funded through employee salary reductions, or - An individual has a relatively small amount of self-employment income, and the SIMPLE IRA contribution limit is higher than that available for any other form of tax-favored plan, such as a Keogh plan or SEP.

A participant can roll over his/her Roth 401(k) account to which of the following? 1. Traditional IRA 2. 401(k) plan with Roth 401(k) option 3. Governmental 457 plan with 457(b)option 4. 403(b) plan with Roth 403(b) option 5. Other qualified plan without Roth 401(k) option

2, 3, 4 A participant cannot roll over his/her Roth 401(k) account to a traditional IRA, a governmental 457, or any type of qualified plan without a Roth 401(k) type option. Answers II, III, and IV have Roth 401(k) type options. A participant can roll over his/her Roth 401(k), Roth 403(b) or Roth 457(b) account to Roth IRA, but that option is not given in this question.

John, an employee of ABC, Inc., is concerned because he has not received an annual addition to the ABC profit-sharing plan for the past two years. John, who makes $100,000 per year, is age 40 and married. Which of the following is/are true? 1. All defined contribution plans are subject to minimum funding rules. 2. He cannot contribute to an IRA because he is an "active participant" in an employer plan. 3. He can make a deductible contribution of $5,500 to an IRA. 4. He can make a deductible contribution of up to $11,000 using a spousal IRA. 5. He can make a deductible IRA contribution because ABC hasn't made contributions to the profit-sharing plan.

3, 4 If ABC, Inc. does not make a contribution to a profit-sharing plan in a given year, John is not considered an active plan participant although he is covered under the plan. This is true as long as there were no "annual additions" made to the employee's account under the plan. Answer V says contributions not annual additions that makes Answer V incorrect. Money purchase and defined benefit plans are subject to minimum funding rules, but profit-sharing plans are not subject to minimum funding rules(Answer I). - If one spouse is an active participant and the other spouse is not an active participant, the non-active spouse can do a deductible IRA contribution if their combined adjusted gross income (AGI) is less than $184,000 (phased out at $194,000).* - For active participants, deductible IRAs are phased out between the AGI limits shown.* Year Single taxpayers (active) Married filing jointly (active) 2016 $61,000 - $71,000 $98,000 - $118,000 *NOTE: In both of these cases, the spouses can do non-deductible IRAs if they are both above phaseout. Phaseout numbers are given.

Which of the following income sources can be used to determine the amount of deductible IRA contribution allowed? 1. S corporation distributions 2. Deferred compensation (informal funding) 3. Professional fees 4. Board of director fees 5. Taxable alimony received under a divorce settlement

3, 4, 5 S corporation distributions are unearned income (K-1 distributions). Informal funded deferred compensation is not constructively received. It is not income until it is constructively received.

Benefit payments from a traditional IRA must begin by: A. April 15th following the calendar year in which the participant turns 70½ B. April 1st following the calendar year in which the participant turns 70½ C. Between the ages of 72 and 75, depending on the IRA contract provisions D. When the participant separates from service

Correct Answer: B. April 1st following the calendar year in which the participant turns 70½ Explanation: Distributions must begin by April 1 of the year after the year in which age 70½ is reached.

The maximum annual additions limit to a defined contribution plan on behalf of a participant in 2019 is: A. Lesser of 25% of compensation or $19,000 B. Lesser of 100% of compensation or $56,000 C. Increased from 15% to 20% D. Unlimited

Correct Answer: B. Lesser of 100% of compensation or $56,000 Explanation: The annual additions limit for 2019 is the lesser of 100% of the participant's covered compensation or $56,000. Annual additions includes employee contributions, employer contributions, and reallocated forfeitures.

Brad is a retirement planning analyst who wishes to determine the benefits of a Section 403(b) tax annuity plan. All of the following are benefits of a Section 403(b) tax-deferred annuity plan, except: A. Contributions may not be currently taxable to employees. B. Lump-sum distributions qualify for special 5-year averaging. C. Plan account balances accumulate tax-free. D. The tax on plan contributions and earnings is deferred until the employee actually withdraws the money.

Correct Answer: B. Lump-sum distributions qualify for special 5-year averaging. Explanation: Contributions to a 403(b) tax deferred annuity plan may or may not be currently taxable. It depends on whether the contributions are traditional or Roth. The plan account balances can accumulate tax-free (and may even be distributed under certain circumstances tax free). Lump sums do not qualify for any special averaging.

Evershine Inc. is setting up retirement plans for its employees. Can Evershine Inc. set up a Keogh plan? A. Yes B. No

Correct Answer: B. No Explanation: A Keogh plan can only be set up for an unincorporated business.

Sara Jones is 55 years of age and has taught at the state university for over 15 years. Her tax-deferred annuity plan allows her to make the maximum elective deferral permitted by law, including catch-up contributions. Sara does not participate in any other salary deferral plan. What is the maximum salary deferral she can make to the plan in the 2019 plan year? A. $25,000 B. $19,000 C. $28,000 D. $56,000

Correct Answer: C. $28,000 Explanation: Normally, Sara could contribute the maximum salary deferral amount for 2019 of $19,000. However, she can take advantage of the age 50 or older catch-up of $6,000 and the "15 years of service" catch-up of another $3,000 for a total of $28,000 assuming that her income from the university is at least that amount.

Assume that Mr. And Mrs. Stevens are both participants in qualified retirement plans and that their combined modified adjusted gross income (MAGI) in year 2019 is $180,000. Which of the following statements is true? A. They may not contribute funds to an IRA B. They may make a contribution to an IRA, but the contribution is limited C. They may make a contribution to an IRA, but it will not be deductible D. They may make a contribution to an IRA, but only to the extent allowed under Code Section 415

Correct Answer: C. They may make a contribution to an IRA, but it will not be deductible Explanation: For married filing jointly taxpayer who are both participants in an employer-sponsored retirement plan, the deduction for traditional IRA contributions is fully phased out at MAGI of $123,000 (2019). However, they can make nondeductible contributions to the traditional IRA within limits.

A law firm is made up of two partners who will earn $500,000 each this year, a secretary who will earn $40,000 and several law clerks who earn from $25,000 to $35,000 each per year. The partners and the secretary started out the firm over seven years ago. Law clerks serve for a year or two and then move on. The firm has a SEP-IRA plan. Which individuals must receive a contribution to their SEP-IRA account for this year? Why? A. only one of the lawyers and any one other person B. both of the lawyers, but not the secretary or clerks C. both lawyers and the secretary but not the clerks D. every person employed by the firm

Correct Answer: C. both lawyers and the secretary but not the clerks Explanation: Contributions do not need to be made to employees until their third year of service.

An HR10 Keogh plan covers which of the following? 1. Self employed individuals 2. Employees of an unincorporated business 3. Employees of an S Corporation 4. Employees of a C corporation

Correct Answers: 1, 2 Explanation: A Keogh plan only covers one or more self-employed individuals and the employees of an unincorporated business.

Rodney is analyzing various retirement plans. From the situations listed below, choose when a SIMPLE IRA is useful? 1. When an employer is looking for an inexpensive plan 2. When an employer has less than 100 employees 3. When an employer has more than 100 employees 4. When an individual has a substantial self-employment income

Correct Answers: 1, 2 Explanation: A SIMPLE IRA is attractive for employers who are looking for inexpensive and easy to install plans. It is ideal for employers with 100 or less employees so that the employer can fund the plan with an employee salary reduction. SIMPLE IRAs are useful for individuals with a small amount of self-employment income, and not for individuals with high self-employment income.

Which of the following are advantages of traditional IRAs? 1. Eligible individuals can contribute up to the maximum annual contribution amount to a traditional IRA. 2. This amount may be deducted from their current taxable income 3. Investment income earned on the assets held in a traditional IRA is not taxed until it is withdrawn from the account 4. Traditional IRAs do not have the early withdrawal penalty

Correct Answers: 1, 2, 3 Explanation: Eligible individuals can contribute up to the maximum annual contribution amount to a traditional IRA, and the amount may be deducted from their current taxable income. Income earned from the assets in a traditional IRA is not taxed until it is withdrawn (subject to the 10% early withdrawal penalty).

Earned income comprises which of the following? 1. Income from employment 2. Income from self-employment 3. Investment income 4. Taxable alimony payments

Correct Answers: 1, 2, 4 Explanation: Earned income refers to income from employment or self-employment. Investment income is not counted as earned income. Taxable alimony payments are considered earned income.

Paul is a financial planner who wants to find the uses of a Keogh plan. A Keogh plan is used for which of the following reasons? Click all that apply. 1. Long-term capital accumulation 2. Retirement purposes 3. Short-term capital accumulation 4. Loan purposes 5. To shelter current earnings from federal income tax for a self-employed individual

Correct Answers: 1, 2, 4, 5 Explanation: A Keogh plan is used for long-term capital accumulation, loan purposes, retirement purposes, and to shelter current earnings from federal Income tax for a self-employed individual. It is also applicable in the case of an employee of a self-employed individual.

Following 15 years of service, employees of which of these employers may be eligible for the special "15 years of service" catch-up? 1. Hospitals 2. Schools 3. Health care insurance agency 4. Adventist Church 5. Law firm

Correct Answers: 1, 2, 4. Explanation: Health care insurance agencies, law firms and health maintenance organizations are not tax-exempt organizations, so they cannot install a Section 403 (b) plan.

Premature Roth IRA withdrawals in excess of contributions may be subject to: 1. 100% tax 2. 50% tax 3. 10% penalty 4. 20% penalty

Correct Answers: 1, 3 Explanation: Premature Roth IRA withdrawals in excess of contributions are taxed in full and may also be subject to a 10% penalty on premature withdrawals.

Which of the following statements is true in regards to a SEP tax-deferred employee retirement plan? 1. Simple to implement 2. Difficult to handle 3. Expensive to administer 4. Not expensive to administer 5. A preferred option when an employer wishes to install a retirement plan after the time to adopt a qualified plan has passed.

Correct Answers: 1, 4, 5 Explanation: A SEP tax-deferred employee retirement plan is very simple to implement and not at all expensive to administer, hence making it a popular choice for employers, and even more so for employers who wish to install a tax-deferred plan and are too late to adopt a qualified plan for the year in question.

In the case where one spouse is an active participant in an employer-sponsored plan, when does a nonactive participant spouse filing a joint return receive a partial IRA deduction?

if the joint income is between $173k & $183k

SIMPLE IRA salary reduction contributions are limited by the maximum $__________ in 2019 salary reduction permitted for each participant (plus the employer's matching contribution).

$13,000.00

The employer using a SIMPLE IRA may deduct employer contributions if certain Code requirements are met. The principal requirements are what?

- 100 or fewer employees (only employees with at least $5k comp in preceding year count) - Participants who have reached the age of 50 during the plan year may be permitted to make catch-up contributions of $3,000 additional to the limits listed above.

What are the major SEP coverage requirements?

- A SEP must cover all employees who are at least 21 years of age and who have worked for the employer during three out of the preceding five calendar years. Part-time employment counts in determining years of service. - Contributions need not be made on behalf of employees whose compensation for the calendar year was less than $600.

In a SIMPLE IRA the employer is required to make a contribution equal to what?

- A dollar for dollar matching contribution up to 3% of the employee's compensation (the employer can elect a lower percentage, not less than 1%, in no more than two out of the five years ending with the current year), or - 2% of compensation for all eligible employees earning at least $5,000 (whether or not they elect salary reductions).

How does SEP contributions need to be allocated?

- cannot discriminate - under written formula based on compensation (comp capped at $280k) - can be integrated with Social Security

What are the ways that a Keogh plan can be designed?

- profit sharing plan - money purchase plan - target benefit plan - defined benefit plan

403(b) vs. Qualified Plan: 1. Catch up provisions (15 years >) 2. Eligible for 10-year averaging 3. General investment-annuity contracts 4. May invest in incidental life 5. Main investments - mutual funds

1 = 403b 2 = Qualified plan 3 = 403b 4 = Both 5 = Both

What taxes are direct employer contributions not subject to in SIMPLE IRAs? 1. federal income tax 2. FUTA (Federal unemployment tax) 3. capital gains tax 4. FICA

1, 2, 3, 4

Name nonprofit institutions that are eligible to adopt a 403(b) plan? 1. Charitable institution 2. Churches 3. Hospitals 4. Private college 5. C corporation 6. S corporation

1, 2, 3, 4 Nonprofit institutions such as churches, hospitals, private schools and colleges, and charitable institutions are eligible to adopt a 403b plan

When is an IRA used? 1. to shelter earned income from taxation 2. for long-term accumulation 3. as an alternative to a nonqualified pension 4. to defer taxes on investment income

1, 2, 4 IRA's are used to: - shelter earned income from taxation - defer taxes on investment income - long-term accumulation - as an alternative to a qualified pension

Assuming the 5-year holding period has been met, when are withdrawals from a ROTH IRA tax-free in their entirety? 1. first-time home-buying expense 2. after a three-year wait 3. Upon death or disability 4. after the age of 55

1, 3 Withdrawals are tax-free in their entirety in a ROTH IRA after a five year wait and either: - upon death or disability - first-time home buying - after the age of 59.5

Paul and Mary, married filing jointly, have an AGI of $125,000. Mary participates in a 401(k) plan at work. Paul does not. Which of the following are true? 1. Both Paul and Mary can do Roth IRAs. 2. Only Paul can do a Roth IRA. 3. Only Mary can do a Roth IRA. 4. Only Paul can do a deductible IRA. 5. Both Paul and Mary can do deductible IRAs.

1, 4 Their AGI limit is below $184,000. Paul can fund a deductible IRA; Mary can't above $118,000, and both Paul and Mary can fund Roth IRAs.

Generally, contributions to an Coverdell ESA must be made on or before the beneficiary attains what age?

18 Contributions must be made on or before the date on which the beneficiary attains the age of 18

Which of the following statements are true regarding SIMPLE IRA's? 1. the catch-up contribution limits are greater for SIMPLE IRA's (and SIMPLE 401k plans) than for traditional 401k plans and 403b plans 2. distributions from SIMPLE IRAs are not eligible for special 10-year averaging available for certain qualified plan distributions 3. distributions from SIMPLE IRAs are eligible for special 10-year averaging available for certain qualified plan distributions 4. annual contributions are generally lower than amounts that would be available in a qualified plan

2, 4

Which of the following statements are true in regards to employer contributions for a SEP? 1. Must contribute every year 2. Can omit a contribution 3. Specific employer amount 4. no specific employer amount

2, 4 An employer offering a SEP does not have to contribute a specific amount or make contributions every year

Participation in which of the following retirement plans may affect the deductibility of an IRA? 1. Nonqualified retirement plan 2. qualified retirement plan 3. 457 plan 4. section 403(b) tax-deferred annuity plan 5. SIMPLE IRA 6. SEP

2, 4, 5, 6

An employer can deduct contributions to a SEP up to ____% of the total payroll of all employees covered under the plan, if the contributions are made under a written formula that meets various requirements of the Internal Revenue Code.

25%

George is the sole proprietor of George's Plumbing. He has established a 25% money purchase plan. In the current year, his business will produce $50,000 of net earnings. How much can he contribute to his Keogh plan? a. $9,294 +/- $1 b. $10,000 +/- $1 c. $9,235 +/- $1 d. $12,500 +/- $1

A $50,000 minus $3,532 ($50,000 x 92.35% x .0765) times 20% (owner-employee contribution) equals $9,294 or use shortcut $50,000 x .1859 = $9,295

Jerry Knight works for two unrelated companies. It is not easy both need his specialized services. He usually works for one or the other 30 plus hours per week. He enrolled in both of their SIMPLE plans and defers the maximum. His salary ranges between $125,000 to $150,000 in total for both companies. How much can he defer to the SIMPLE plans? a. $13,000 in total b. $13,000 plus 3% of salary in total c. $13,000 plus catch-up of $3,000 in total d. $26,000 e. $18,000

A Deferrals are in the aggregate. There is nothing to indicate his age. When no age is given you cannot use catch-up.

Who can contribute to their SEP IRA?

A SEP provides for employer contributions only, except for salary reduction SEPs (SAR-SEPs), which were adopted before 1997. Employers wishing to adopt a simplified plan after 1996 that is funded through employee salary reductions may wish to consider a SIMPLE IRA plan.

Keogh: Target Benefit Plan

A target benefit plan permits funding based on age, similar to a defined benefit plan but with annual funding limited to the annual additions limit. This is the lesser of $56,000 or 100% of earned income or compensation.

Does the 10% premature distribution penalty apply during IRA to ROTH IRA conversions?

All money converted from an IRA to a Roth-IRA will represent a taxable distribution for the year. However, if the IRA owner is under age 59 1/2, the 10% penalty will not be due on all money rolled into, or converted to, the Roth-IRA account. Note, any of these "converted" dollars that are removed from the Roth-IRA during the five years following the conversion will be subject to a 10% penalty if the conversion occurred when owner was under age 59 1/2 .

Debbie has a qualified plan at Company A. She has decided to quit her job at Company A and plans to join Company B. Company B also has a qualified plan, but she will not be able to enter the plan for one year. What is the best advice you can give her? a. Roll the qualified plan assets from Company A into her existing contributory IRA. b. Roll the qualified plan assets from Company A into a conduit IRA. c. Take the distribution in cash. d. Roll the qualified plans assets from Company A into her existing nondeductible IRA.

B After Tax Act 2001, rollovers are generally permitted between one traditional IRA and another or in some cases, between a traditional IRA and a qualified plan. However, in order to preserve capital gains and special averaging treatment, a distribution from a qualified plan may still need to be made to a "conduit IRA." Answer D is the safest answer to cover all bases for the exam.

Which of the following rules correctly apply to Roth IRA recharacterization and conversion? a. The taxpayer may not recharacterize a Roth IRA conversion if his AGI exceeds certain annually-indexed AGI thresholds. b. If a taxpayer assumes that the investments in his converted Roth IRA will continue to decline, he may wish to reverse that conversion by recharacterization. c. If a Roth IRA is reconverted, it automatically loses its potential for tax-free distributions. d. The taxpayer may not convert from a traditional to a Roth IRA if her AGI exceeds certain annually-indexed thresholds.

B If a taxpayer assumes that the investments in his converted Roth IRA will continue to decline, he may wish to reverse that conversion by recharacterization. Thus, he will pay lower tax on a smaller amount of converted assets. No AGI limitation applies to conversions or recharacterizations. Reconversion does not change the Roth IRA's potential for tax-free distributions.

Nate, a sole proprietor, is going to contribute to a SEP. His net income is $50,000. What is the maximum he can contribute? a. $10,000 b. $18,000 c. $9,295 d. $6,059 e. $12,500

C 25% short-cut method $50,000 x 18.59% = $9,295 He is self-employed.

What are the IRS requirements for a profit sharing plan that prevent it from being deemed terminated? a. no payment requirements b. payments must be made every year c. payments must be substantial and recurring d. payments must be 15% of employee's salary

C The IRS requires substantial and recurring contributions, or the plan may be deemed to have terminated. This contribution flexibility is very advantageous for a small business, whose income may fluctuate substantially from year to year

Which of the following is true about loans from 403(b) plans? a. There are no limits on the amount each participant can borrow (not a qualified plan). b. They are not allowed (not a qualified plan). c. Interest deductions are prohibited if the loan on the plan is secured by amounts attributable to salary reductions. d. The loans don't have to be adequately secured.

C They are allowed; they have to be adequately secured, and limits apply ($50,000, etc.). Secured by what? The loan can be secured by the plan assets or if the loan was used to purchase a home, then it could be secured by the home.

What is the tax treatment of a distribution to a beneficiary of a seven year old ROTH-IRA following the owner's death? a. taxed as ordinary income b. taxed at capital gains rate c. tax-free What would have happened if it was less than 5 years?

C. tax-free Distributions to beneficiaries after the owner's death are tax-free to the recipients, but they lose their character as ROTH IRA's when distributed. Had the ROTH-IRA been established for less than five years, any gain would be taxable at the owners death.

Which of the following is a SIMPLE IRA limitation? A. Dollar limitation B. Percentage limitation C. Limitations of Section 415 D. Limitations of Section 404(a)

Correct Answer: A. Dollar limitation Explanation: The SIMPLE-IRA does not have a percentage limit. In 2012, the maximum dollar limit for employee deferrals is $11,500.

A Roth IRA can be rolled over to another Roth IRA: A. Tax-free B. With a 10% tax imposition C. With a 15% tax imposition D. With a 20% tax imposition

Correct Answer: A. Tax-free Explanation: A Roth IRA can be rolled over to another Roth IRA tax-free. There are no tax liabilities.

A person who has only investment income can contribute to an IRA. A. True B. False

Correct Answer: B. False Explanation: A person needs to have earned income to be able to contribute to an IRA.

What is the five-year rule with ROTH IRA's?

Distributions of contributions from a Roth IRA are always tax-free. Distributions of tax-sheltered gain may be tax-free if the Roth-IRA is over five years old The five-year holding period is defined as beginning with the first taxable year for which the account holder has a Roth IRA contribution of any kind. Subsequent rollovers into a Roth IRA will not require a new five-year holding period.

How are contributions in a SIMPLE IRA taxed?

Employer contributions and employee salary reductions are not included in the employee's taxable income (except that employee salary reductions do not reduce taxes paid for Social Security).

What is the vesting schedule for 403b employer contributions?

Employer matching contributions are subject to the same vesting requirements as are applied to top-heavy plans. That is, 100% cliff vesting after three years, or graded vesting starting with 20% after two years, increasing by 20% each year until 100% is reached after six years

A money purchase Keogh plan does not have to meet minimum funding requirements. They just have to make substantial and recurring contributions or the plan may be deemed to have terminated. True or false? Why?

False A money purchase plan is subject tot he Code's minimum funding requirements. These require the employer to make contributions to each employee's and self-employed person's account each year equal to the percentage of compensation stated in the plan

SEPs must be adopted in the year in which they are to be effective. True or false? Why?

False Qualified plans must be adopted before the end of the year in which they are to be effective. But, on the other hand, SEPs can be adopted as late as the tax return filing date, including extensions, for the year in which they are to be effective

In the case where one spouse is an active participant in an employer-sponsored plan, when does a nonactive participant spouse filing a joint return receive a full IRA deduction?

If the joint income is less than $173k

Leo, a self-employed individual, has a Keogh plan providing incidental insurance through a cash value life insurance contract. This year's premium is $3,000, of which $1,200 is for pure life insurance protection and the remainder is used to increase the cash value. How much can he deduct?

Leo can deduct $1,800 of the premium as a plan contribution. The remaining $1,200 is nondeductible. Leo therefore must pay tax on the $1,200 used for pure life insurance protection.

Mabel earns $75,000 annually. Her husband, Al, has no earned income, although he has investment income over $100,000 annually. Neither spouse is over 49 or an active participant in a tax-favored plan. Who and how much can deduct income using an IRA?

Mabel can contribute and deduct up to $6,000 to an IRA for her and up to $6,000 to an IRA for Al, for a total of $12,000, provided they file a joint return.

Is it advisable to incorporate a business just to obtain corporate treatment for qualified plans?

No. Under current law, it does not help to incorporate a business in order to obtain corporate treatment for qualified plans. Incorporation results in higher taxes in most cases

403b: Are salary reductions and/or employer contributions subject to FICA & FUTA taxes?

Only salary reductions

How does the premature distribution penalty differ in a IRA vs ROTH?

Premature Roth IRA withdrawals in excess of contributions are taxed in full and are also subject to a 10% penalty on early withdrawal similar to that applicable to traditional IRAs. Unlike a traditional IRA, withdrawals are first considered return of principal and thus nontaxable, even before age 59½.

Which plans may the employer not maintain if he maintains a SIMPLE IRA?

Qualified plan, SEP, 403a annuity, 403b or governmental plan. Exception to the governmental plan is the section 457 plan

What are the SEP contribution limits?

The 2019 annual SEP contributions are limited to the lesser of 25% of compensation (capped at $280,000), not to exceed $56,000.

Is it advisable to convert a traditional IRA to a Roth IRA?

The Roth IRA conversion produces better results, especially if taxes are not paid out of the amount converted, and is therefore a good idea on paper. The longer the converted assets remain in the Roth IRA before withdrawal, the greater the advantage.

What is the maximum contribution for a Keogh plan?

The maximum contribution under a Defined Contribution Keogh Plan is the lesser of 100% of compensation or $56k in 2019

What makes Keogh plans unique compared to other plans?

The unique feature of a Keogh plan, as compared with qualified plans adopted by corporations, is that the Keogh plan covers self-employed individuals, who are not technically considered employees. This leads to some significant special rules for self-employed individuals covered under the plan.

A plan loan to an owner-employee is permitted under the same requirements that apply to those from qualified plans. True or false? Why?

True

The five-year holding period begins with the first taxable year for which the account holder has a ROTH IRA contribution. True or false?

True

Are salary reduction SEPs still used?

While new SAR-SEPs may not be adopted after 1996, an employer who has 25 or fewer eligible employees and who adopted a salary reduction SEP, which means one funded through employee salary reductions prior to 1997, can continue to operate the plan and may add new participants. Under a salary reduction plan, employees have an election to receive cash or have amounts contributed to the SEP.

if a participant over 50 with annual compensation of $100,000 has regular annual additions of $56,000 to the employer's defined contribution plans for the year (that is, the full Section 415 limit in this case), can he still participate in the 15 year rule?

Yes

Keogh Plans

a qualified retirement plan designed for unincorporated businesses that allows the business owner to participate an an employee.

Who can establish a Keogh retirement plan?

any sole proprietor or partnership, whether or not the business has employees, for example, doctors, lawyers, accountants, writers, ect. Generally, employees of the business must be included as participants in the plan on the same general basis as the key employees

What is the contribution cutoff date for a ROTH IRA? a. December 31st b. April 1st c. April 15th d. January 1st

c. April 15th

Employees must make salary reduction elections during a 60-day period prior to what date of the year for which the elections are made? a. April 1st b. April 15th c. January 1st d. December 31st

c. January 1st Employees must make salary reduction elections during a 60-day period prior to January 1st of the year for which the elections are amde

The _____________ bears the investment risk in a 403(b) plan

employee

For example, suppose that in 2019 a single taxpayer's AGI is $67,000, and he is an active participant under age 50. The taxpayer is $3,000 into the phase-out range of $64,000 - $74,000, what is the maximum contribution he can make into a traditional IRA?

his annual traditional IRA deduction is reduced by $3,000/$10,000, or 30%. This is a reduction of $1,800 (30% of $6,000), so the maximum IRA deduction is $4,200 ($6,000 less $1,800).

When do salary reduction elections become ineffective? What tax doctrine is this a result of?

if salary reduction is elected after compensation is earned, it becomes ineffective. It is based on the tax doctrine of constructive receipt

Is the employer required to contribute to a SEP every year?

no

403(b): 15 Year Rule

salary reductions in a 403(b) plan are subject to catch-up provisions that allow certain employees with 15 or more years of service to contribute in excess of the elective deferral limit. The 403(b) Lifetime Catch-up is called the 15-year rule in IRS publication 571 and allows for an additional $3,000 to be contributed. This is in addition to the over 50 catch-up provision of $6,000.

Do SIMPLE IRA's have a premature distribution penalty like traditional IRAs?

the 10% penalty on premature distributions is increased to 25% during the first two years of participation.

What should you be aware of when rolling over a ROTH 403b into a ROTH IRA to avoid the 403b RMD payments?

there's a "tax trap" here to be careful of. If the receiving Roth IRA is established at that point in time, a new five year rule will have to be satisfied before untaxed gains can be withdrawn tax free, even though the five year rule was satisfied in the 403(b) plan. It would be wise for the participant to have anticipated this and started a Roth IRA at least five years prior to rolling the Roth 403(b) money in.

Can you rollover a SIMPLE IRA into a traditional IRA?

while a rollover may be made at any time from one SIMPLE IRA to another SIMPLE IRA, a rollover from a SIMPLE IRA to a traditional IRA during the first two years of participation is permitted only in the case of distributions to which the 25% early distribution penalty does not apply.