ChFC Module 4 - Lesson 8: SIMPLE, 403(b), and 457 Plans

Samuel, aged 47, earns $400,000 annually from Atlas, which sponsors a SIMPLE, and the makes the required 2% non-elective contribution to all eligible employees. What is the maximum total contribution to Samuel's account in 2021, including both employee and employer contributions?

$19,300 Samuel can defer up to $13,500 for 2021. The non-elective contribution equals 2 percent of his salary limited to the 2021 limit of $290,000, which is $5,800. Thus, the total equals $19,200.

Tobias, aged 42, has compensation of $72,000. The normal retirement age for his 457(b) plan is age 62. Tobias has unused deferrals totaling $21,000 as of the beginning of the year. How much can Tobias defer into his 457(b) public plan for 2022?

$20,500 Tobias is not within 3 years of the plan's normal retirement age and therefore can only defer the normal $20,500 (2022). The $6,500 catch up (2022) for those participants who are 50 years old or older is not available because he is only 42 years old.

Catherine, aged 42, earns $300,000 annually as an employee for DUN, Inc. Her employer sponsors a SIMPLE retirement plan and matches all employee contributions made to the plan dollar-for-dollar up to 3 percent of covered compensation. What is the total maximum contribution (employer and employee) that can be made to Catherine's SIMPLE account in 2022?

$23,000 The maximum total contribution is $22,500. The maximum employee contribution for 2022 is $14,000. The employer has chosen to make matching contributions of up to 3 percent of compensation (the SIMPLE maximum). Therefore the employer can make a contribution of up to $9,000, or $300,000 compensation × 3%.

Parker, aged 51, earns $300,000 annually from Infinity, which sponsors a SIMPLE and matches all employee deferrals at 100 percent for up to a 3 percent contribution. What is the maximum total contribution to Parker's account in 2021, including both employee and employer contributions?

$25,500 Parker can defer up to $16,500 (or $13,500 + $3,000) for 2021 because he is over 50. The match for Parker is 3 percent of his compensation, or $9,000 (that is 3% × $300,000). The maximum contribution to Parker's SIMPLE is $25,500 (or $13,500 + $3,000 + $9,000).

Jacques, who is 52 years old, works for NYU and is a participant in NYU's tax-sheltered annuity (TSA) program. How much could he defer in the TSA in 2021 if he has a salary of $121,000?

$26,000 The deferral for a 403(b) plan or TSA is $19,500 for 2021. There is an additional catch-up contribution of $6,500 that is allowed for individuals who have attained age 50.

David has worked as a professor at Top-Notch University for the last 30 years. He has never deferred any money into his 457(b) plan. He has maxed out his 403(b) plan. He will attain his normal retirement age under the 457(b) plan in 2022. How much can David contribute to his 457(b) plan for 2021?

$39,000 Because David has never contributed to his 457(b) plan, he has unused prior deferrals. He may therefore defer the maximum for 2021 ($19,500) plus his maximum unused prior deferrals ($19,500) for a total maximum contribution of $39,000.

3 characteristics of 403(b) plans...

1. 403(b) plans are eligible for rollover treatment to IRAs, qualified plans, and other 403(b) plans 2. Assets in a 403(b) plan are generally 100 percent vested. 3. Typically, 403(b) plans have a lower threshold of entry than do 401(k) plans.

All of the following plans are permitted to offer a Roth account as part of the plan:

A governmental 457(b) plan A 403(b) plan A 401(k) plan Private 457(b) plans cannot offer a Roth account. The other plans are permitted to do so.

If an employee earning $60,000 had access to multiple plans, which combination would allow for the largest contribution, including both employer and employee contributions?

A governmental 457(b) plan and a 403(b) plan The employee could defer $19,500 to both the 457 plan and the 403(b) plan for a total of $39,000 in 2021. That amount, without considering any matching contributions, is larger than the other combinations. The reason for this is that the "one deferral per year rule" that applies to 401(k) plans and 403(b) plans does not apply to 457 plans.

All of the following steps are included in the Taxonomy of Qualified Plan Selection

A) Confirm that the plan sponsor willing to meet Qualified Plan requirements(B) Prepare an Employee Census B) Prepare an Employee Census C) Choose between mandatory funded pension plan and discretionary funded profit sharing plans The 4th step in the Taxonomy of Plan Selection is to choose the plan that best meets the objectives of the OWNER of the organization.

Dr. Durr contributes $85,000 to one of his university's retirement-type plans. The HR employee who helped him set up this plan told him it was a non-qualified plan only available to highly compensated and top management employees. To what type of plan did he contribute the funds?

An ineligible 457 plan The ineligible 457(f) plan is a non-qualified deferred-compensation plan only offered to highly compensated or top management employees.

Which of the following are correct regarding 403(b) plans? I. Employee elective deferrals may be contributed to a Roth account within a 403(b) plan.II. 403(b) plans must comply with the ADP and ACP tests.III. An employee of the New Orleans Museum of Art (a not-for-profit) could defer more than $27,500 into the Museum's 403(b) plan.

I only Statement II is incorrect as 403(b) plans do not have to comply with the ADP test.Statement III is not correct as the only way to exceed $26,000 (2021) would be to make use of the additional catch-up contribution, which would not be available to an employee of a museum — only to employees of health care, education, or religious organizations.

SEPs and SIMPLEs are tax-advantaged retirement plans that are less complex than qualified plans and easier to implement. Which of the following statements is (are) true regarding SEPs and SIMPLEs? I. For an employee with a salary of $30,000, more money can be contributed (from both employee and employer) to a SEP than a SIMPLE. II. The vesting and distribution rules for both plans are almost identical.

II only Statement I is not correct as the deferral into a SIMPLE is greater than 25 percent of the $30,000 salary, without regard to a catch-up and/or a match by the employer, while the deferral to the SEP would be 25 percent of the employee's salary. Statement II is correct. SIMPLEs do have the extra penalty for 2 years, but other than that they are the same.

Fred, age 30, has a small but promising business with 5 current employees. He wishes to adopt an easily managed workplace plan that would allow himself and his employees to defer modest amounts of their salary into the plan. Fred isn't interested in maximizing his own deferrals because he is plowing most of the earnings back into the business. But he is concerned about maintaining plan choice flexibility in case his business suddenly expands in size. Which of the following plans would Fred prefer to adopt?

SIMPLE IRA A SIMPLE IRA would be ideal for Fred's business. A SEP IRA is incorrect because SEP IRA's don't allow employee salary deferrals. A Profit-sharing plan with a 401(k) is incorrect because the additional complexity to maintain a qualified plan and higher deferral limits don't match Fred's requirements. A target benefit pension plan is incorrect because target benefit pensions don't depend on employee salary deferrals.

What are the only investment options for 403(b) plans?

insurance annuities and mutual funds