RETIREMENT PLANNING: Ch10. SIMPLE, 403(b), AND 457 PLANS

True/False A 457 plan may accept after-tax contributions from employees

False

True/False Employers that sponsor SIMPLE 401(k) plans must allow for catch-up contributions for participants over 50

False (optional)

What types of SIMPLE plans are available?

IRA or 401(k)

True/False 403(b) plans generally provide for 100% immediate vesting of contributions

True

True/False 403(b) plans may be covered under ERISA.

True

True/False Distributions from SIMPLE IRAs are generally taxed like traditional IRAs

True

Who is eligible to establish a 457 plan?

- Anyone who enters into a salary reduction agreement before the 1st of the month they begin contributions; or the first day of paid work for new employees. - funds aren't fully vested, right away. They follow a cliff vesting system.

List the requirements to establish a SIMPLE plan.

- Established by employer via a written plan (SIMPLE-5304 [employees can have funds sent to any institution] or 5305-SIMPLE [funds must go to an employer-elected institution]) - Employer is required to match the employee contribution or provide nonelective contributions to all employees who are eligible - Maintained in calendar, not fiscal, year basis - Can only establish if you have less than 100 employees (if you have 101 employees next year, that's okay, there's a 2 year grace period from the last calendar year you had 100 employees to keep the SIMPLE active) -

What are the characteristics of a SIMPLE 401(k) plan?

- Here, employees can reduce their salary in return for "salary reduction contributions" or deferrals to a 401(k) SIMPLE, expressed as a percentage of their compensation though no more than $12,000. - not required to offer, but may, the $2,500 catchup - can take a loan, with same restrictions as qualified plans - employer must match dollar-to-dollar up to 3%, but cannot contribute less than 3% unlike a SIMPLE IRA. - OR non-elective contributions up to 2% - they are essentially safe harbor plans, so ADP/ACP/top-heavy rules don't apply here

What are the characteristics of a SIMPLE IRA?

- can establish between Jan 1st-Oct1st of year - Nov2-Dec31st participants have 60days to specify deferral elections. - Eligibility characteristics: employees must earn $5k during any two preceding calendar year, employees are expected to earn $5k during current calendar year - all eligible employees MUST receive a benefit from the plan - Employee elective deferral (optional) - employer match (or non elective contribution) - 100% vesting in all contributions/earnings - employer must have equal or less than 100 employees Contribution characteristics: -$12,000/yr -$2,500 catchup

What rules are applicable to employee contributions to 403(b) plans?

- mostly, employers contribute - sometimes, there's employee elective deferrals (Cash or Deferred Arrangement, CODA), nonelective contributions, after-tax contributions and any combination of the above

What are the applicable rules for employee contributions to 457 plans?

- must not exceed lesser of 100% of employees compensation or limit of the calendar year (2014 it was $17,500 w/$5,500 catchup) - 3-year catchpu provision allows a person who plans to retire but didn't max out contributions within 3 years of the determined reitrement year, they can go back and play catch-up... up to a year's total. So, 2014 you can contribute $17.5 annually, but with the catch-up deferral you could contribute $17.5 + $17.5 = $35K (but cannot simultaneously use the 50yr+ catch up provision!)

True/False 457 plans have a special final three year catch-up provision that allows employees to contribute up to 100% of their compensation in the last three years.

False

True/False Churches may establish 457 plans

False

When does ERISA apply to 403(b) plans?

If the plan is considered to be an "employee benefit pension plan". It doesn't apply to governmental TSAs and church-related TSAs, but it does for 501(c)3 corporations. However, if the plan only provides for salary reduction agreements (no employee contributions/participation is voluntary, etc.) then then ERISA doesn't apply.

What are SIMPLE plans?

SIMPLE plans are retirement plans for small employers as they're easy to establish, administer and have very low admin costs -- they also don't have annual filing requirements nor do they need to meet nondiscrimination rules.

True/False The 457 deferral limit for 2014 is $17,500

True

What are 457 plans and which entities may establish them?

a tax exempt savings vehicle for employees of state/local govt's and nongovt entities (trade associations, religious orgs, private hospitals, farmer co'ops, private schools/foundations, etc.) where they contribute through a payroll reduction, of which their deferrals aren't counted against deferrals into 401k or 403b plans.

How are loans and distributions from a 403(b) plan taxed?

taxable as a traditional IRA. Distributions at 59.5yrs+ are taxed as ordinary income, however their return of adjusted basis is not taxed (such as employee contributions and any life ins protection costs)

Who is eligible for a 403(b) plan?

21yrs + 2 years service vesting or 26yrs old + 1 year service vesting. Cannot be a contractor. Must be a technical employee.

To what extent is ERISA applicable to 457 plans?

457(b) plans sponsored by gov't employers are considered "Public 457b plans", whereas 457(b) plans are considered "Private 457b plans" for tax-exempt entities. Normally, ERISA requires private retirement plans to be funded through a trust or annuity, yet private 457b plans must not be funded to receive tax benefits.... Under private plans, ERISA limits participation to a select group of highly compensated employees/management. Because its funds aren't placed in a trust, only HC employees have plans here.

What are the available investment choices for 403(b) plans?

Can only be invested in either insurance annuity contracts or mutual funds (considered a custodial acct here)

True/False Additional catch-up contributions to a 403(b) plan may be after-tax contributions from the employee

False

True/False Distributions from a 457 plan may be subject to the 10% penalty for early withdrawal prior to age 59.5

False

True/False Employers or individuals can establish a 403(b) plan.

False

True/False For 403(b) plans the "most recent year of service" is always based on a calendar year of service

False

True/False SIMPLE plans may operate on a calendar or fiscal basis

False

What rollover, distribution and minimum distribution rules apply to 403(b) plans?

Rollover: can roll over tax-free to a qualified plan, traditional IRA, or another 403b plan. Can be rolled into a ROTH IRA. Distribution: the exact same as a traditional IRA.

What are 403(b) plans - aka "Tax Sheltered/Deferred Annuities"?

Tax sheltered plans for certain qualified nonprofit orgs, public educational systems, cooperative hospital services organizations and to certain ministers, though it's not technically a qualified plan. Only employers and two types of entities can establish a plan: - 501(c)3 organizations - public schools/educational orgs

True/False Employers who sponsor a SIMPLE IRA must either make matching contributions or nonelective contributions?

True

True/False Funds within a 403(b) plan may only be invested in either annuity contracts or mutual funds

True

True/False SIMPLE IRA plans are permitted for tax-exempt employers and governmental entities

True

True/False SIMPLE plans can only be established for companies who employ 100 or fewer employees

True

True/False For 2014, an employee can contribution an additional $17,500 to a 457 plan in addition to the employee deferral of $17,500/.

True (if heading for retirement)