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65 Cards in this Set

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Social Security
Eligibility for Disability Benefits
5 month elimination period.
< 65 & disabled for >12 months & disability expected to last for an additional >12 months or has disability likely to result in death.
Social Security
Eligibility of a Spouse
Spouse of fully qualified worker/disabled SS recipient qualifies if;
> 62
Has a child in care <16, or
Cares for a child >16 who is disabled.
Surviving spouse of a deceased insured qualifies if widow(er) is > 60.
Social Security
Eligibility for the Spouse of the Deceased
Surviving spouse of a deceased, fully insured worker REGARDLESS of age, qualifies if they look after an entitled child of the deceased <16 OR if caring for disabled child <16 or if disability occurred <22.
Social Security
Eligibility of a Divorced Spouse
Divorced spouse must have been married for >10yrs & divorced for >2yrs & not remarried. Receives benefits based on workers earnings even if the worker continues to be employed.
Social Security
Definition of a Dependent Child
Surviving dependent, unmarried child or a deceased insured worker qualifies if;
- <age 19 & a FT elementary/secondary school student or
- >=18 but with disability that began <22
Definition of Modified Adjusted Gross Income
MAGI is;
+AGI
+1/2 of SS benefit
+Tax-exempt muni-bond interest
+ IRA contributions,
+foreign income
+student loan interest
Social Security
Reduction of Benefits before FRA and in the year of FRA
If you take SS prior to FRA & continue to have earned income, SS benefits are reduced by 50% above $14,160.
Upon reaching FRA, SS benefits are reduced by 33% above 37,680 until month after FRA
Social Security
Taxation of Benefits upon Receiving SS Benefits
If MAGI > $25K single & >$32K MFJ, 50% of SS benefit is taxable.

If MAGI > $34K single & >$44K MFJ, 85% of SS benefit is taxable.
Social Security
Formula for Calculating Reductions in Benefits prior to FRA
Divide number of months by 180.
E.g. Person wants to receive benefits 3yrs prior to FRA, 36/180 = 20%. That's a 20% reduction.
Retirement Plans

Types of Defined Contribution Qualified Plans
Money purchase (set % of salary)
Target benefit
Profit-sharing & PS 401K
Stock bonus/ESOP
Retirement Plans

Types of Retirement Plans (I.e. not qualified type plans subject to ERISA standards)
SEP
SIMPLE
SARSEP
Thrift or Savings plan
403(b)
Retirement Plans

Cross-Testing / Age-weighting
CTing aka 'New Comparability' plan. Makes contribution level for 1 group of emp's higher than that of another. CTing or AWing seeks to maximize benefits to HCE's who tend to be older. Rule for CTing is < of 1/3 OR 5% of the highest allocation of HCE's. i.e HCE allocates 20%, NHCE's get 5% or HCE allocates 10%, NHCE gets 3.3%.
For CTing/AWing to work, avg ages between HCE & NHCE should be >=15yrs.
Retirement Plans

Cash Balance Pension Plan
Type of DB plan.
Guaranteed contribution level & investment return.
Allows for past-service credit in benefit formula
Retirement Plans

Qualified Plan Definitions &
Ratio Percentage Test
To be qualified, plan must have nondiscrimination, age, min # of participants, service reqt's. Additionally, plan must satisfy 'coverage' reqt's.

Ratio coverage test: The plan must cover >70% of the number of NHCE's as HCE's. E.g. If 100% HCE coverage, then min 70% NHCE coverage, or if 90% HCE coverage then (0.9*0.7) = 63% NHCE coverage.
Retirement Plans

Average Benefit Test
Alternate test is Average Benefit Test. Average plan benefit for NHCE's must be >70% of HCE's benefits. Of those excluded NHCE's, they must be a different employee class. If all had same job, then no excl's allowed.
Tip: Remember to subtract wages of excl emp's in calc total plan benefits
Qualified Plans >> Defined Benefit

Minimum participation (DB Only)
In addition to coverage reqt's. A DB plan must benefit at least the lessor of;
1) 50 employees
2) the greater of;
a) 40% of all employees
b) two employees (or if there is only one staff member - then them)
Definition of a Highly Compensated Employee
1) A > 5% owner OR
2) An employee earning > $110K in the preceding year (2010)

Affects ADP/ACP tests
Definition of a Key Employee
Individual is a key employee if at any time during the year, they are;
1) >5% owner OR
2) An officer with comp > $160K
3) >1% owner AND comp >$160K

Affects Top heavy plans
Permitted Vesting Schedules (Faster)

Top Heavy DB plans AND all DC plans
3 year cliff
2 to 6 year graded
100% vested with 2yr eligibility
Permitted Vesting Schedules (Slower)

Non-Top Heavy DB plans
5yr Cliff
3 - 7 year graded
100% vested with 2 yr eligibility
Attribution Rules (Affects Key, or HCE's for the >5% ownership rule)
Individual may be deemed to be >5% owner because of relationship to an actual related >5% owner. If you're an 1) Emp 2) spouse, parent, child or grandparent of a >5% owner, you're deemed to be a 5% owner yourself.
Introduction to Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) Tests
Elective deferrals are subject to non-discrimination testing under the ADP test.
Employer matching and PS contributions are subject to non-discrimination testing under the 'ACP" test.
Actual Deferral Percentage (ADP)
ADP compares the percentages of HCE's to the NHCE's. The HCE rate must be;
1) < 125% of the NHCE rate (ADP is 8% or more)
2) < 200% of the NHCE rate & not more than than 2% more than NHCE rate (ADP is 1% - 8%)
Shorthand is 0 - 2% is x2, and 2 - 8% is +2%
Actual Contribution Percentage (ACP)
ACP compares the percentages of HCE's to the NHCE's. The HCE rate must be;
1) < 125% of the NHCE rate (ACP is 8% or more)
2) < 200% of the NHCE rate & not more than than 2% more than NHCE rate (ACP is 1% - 8%)
Shorthand is 0 - 2% is x2, and 2 - 8% is +2%
Defined Benefit Plans - Social Security Integration Methods - Excess Method
Permitted disparity = < of the base benefit % or 26.25%

E.g. Base % + Permitted disparity = Excess %
30% + 26.25% = 56.25% or
20% + 20% = 40%
Keogh Plans
Keogh contribution is based on net earnings of self-employed and not salary. Self employment tax must be computed & half of the SE tax taken before determining deductible contribution. i.e. (15.3 / 2) = -7.65
Keogh Plan Contribution Formula's and Levels AKA as 'Owner-employee adjusted plan contribution'
Use these figures if you've already deducted SE tax.

If the employee contribution is 15%, then Self-employed contribution is 13.04%

or, if 25% emp contribution = 20% SE-contribution. Else use straight calc figures provided on next card.
Keogh's >> For Profit Sharing or Money Purchase Plan
Take the Net Schedule C income then;

1) Multiply by 12.12% for a 15% contributionor
2) Multiply by 18.59% for a 25% contribution.
Top Heavy Test
A plan is top-heavy if > 60% of accrued benefits go to key employees. Use faster vesting schedule.
Top Heavy Plans >> Effect on contributions or benefits
A TH plan must provide min benefits for non-key employees.
DB Plans: benefit must be > 2% of comp x yrs of service (in which plan was top heavy) - max of 10yrs.
DC Plans: The min employer contribution must be >=3% of each non-key emp's salary. Excld's profit-sharing plans.
Key to IRA Deductibility

(1 of 3)
If neither spouse, nor a single person, is an active participant in a qualified plan, then IRA contributions are deductible without limit. Plans that affect 'active' participation incl; all qualified plans, SIMPLE, SEP, TSA's but not 457's
Key to IRA Deductibility

(2 of 3)
If 1 spouse is an active participant & the other isn't, the NA spouse can do a deductible IRA contribution if their combined AGI is < $169-$179K
Key to IRA Deductibility

(3 of 3)
For active participants, dedictible IRA's phased out between the AGI limits listed;

Single (active): $56-$66K
MFJ (active): $90-$110K
Phaseout Limits for ROTH IRA Eligibility
Individuals: $107-$122K
MFJ: $169-$179K
MFS: $0-$10K
Withdrawal of Earnings from a Roth IRA >> Meets 5yr Withholding Period
a) with Triggering Event (e.g. 59.5, death, disability, 1st home) - No income tax or penalty
b) with special exception (medical, med premiums, higher edu) income tax only
c) No triggering event - Income tax & 10% early withdrawal penalty tax
Withdrawal of Earnings from a Roth IRA >> Doesn't Meet 5yr Withholding Period AND Distribution Order for Withdrawals
a) For either triggering event OR special exception - Income tax only
b) No special purpose - Income tax AND 10% early withdrawal penalty

Distribution order for withdrawals is: 1) contributions, 2) conversions & 3) earnings.
RMD's for Inherited ROTH IRA's
a) Distributed within 5yrs of owners death
b) Life expectancy of beneficiary (beginning EoY following owners death)
c) Spouse may; i) keep bcd IRA seperate & take RMD's when owner would've reached 70.5 ii) or roll into own Roth IRA and no RMD's req'd
Characteristics of SEP's
Alternative to a qualified plan that is easy & inexpensive to install. Good for Emp'r with lots of short-term emp's.
- Limited to <25% of comp ($245K max) or $49K.
- Must cover all emp's <21, who've worked >3/5yrs & who've earnt >$550 (but no annual hourly min limit unlike qualified plans)
- Can be SocSec integrated
- No >50 catch-up
SIMPLE 401K
Traditional 401K that has adopted SIMPLE provisions. Is exempt from ADP/ACP & top-heavy testing. Very restrictive plan design - most emp'rs interested in this plan would do better with SIMPLE IRA. Still ERISA & exempt from creditors.
SIMPLE 401k may not choose the special 1% match election.
403(b) & 457 Special Catch-up Contribution Special Rules
1) 403(b)'s for emp's with >15yrs of service, can defer an additional $3K in addition to catch-up & normal deferral. This allows for max deferral of $16.5K+$5.5K+$3K =$24K
2) 457's - can defer twice normal limit in 3rd & 2nd final yrs but no final year.
Deferred Comp plans >> Withholding Social Security FICA taxes
Amount deferred under NQ aren't subject to SocSec taxes until the year in which constructive receipt takes place or no longer has substantial risk of forfeiture - then the deferred comp is subject to withholding & SocSec taxes.
Insurance in Qualified Plans
Only PSP's can hold 2nd to die policies
Qualified plans are eligible to hold DI.
412(i) Fully funded Insurance Plan
Suitable for participants where LI is req'd (i.e. biz buy/sells). Plan is exempt from min funding standards. Allows for large contributions. Even if client is rated, LI is charged at a standard table rate - taxable. Builds tax-free.
401(k) Plan Hardship Withdrawal Rules from Profit Sharing Plans
Plan doct can allow. Participant must 1st take all allowable loans. 'Immediate & heavy' need only up to 'need' level. Subject to OI & 10% penalty tax (although 10% is waived if participant >59.5 or disabled). Participants ability to defer restricted for 6 months. 'Safe Harbor' hardship withdrawals not free of OI & 10%.
Substantially Equal Payments (Section 72t)
Exception to the 10% penalty tax. SEP's must be;
- paid not less than annually
- paid without changing amount for >5yrs or until payee reaches >59.5
- based on life expectancy of participant
- reasonable rate of interest
- reasonable mortality assumptions. If PMT's modified, then 10% penalty tax applied retroactively. Post 59.5 & 5 yrs, may convert to RMD's
Stretch IRA's >> Owner Dies before RBD
1) Spouse only beneficiary - Can rollover into their own IRA & take RMD's based on their own RBD.
2) Keep in decendent's own IRA and take RMD's starting when owner would've reached RDB.
3) Non-spouse beneficiaries - take RMD's based on their own life expectancy
Stretch IRA's >> Owner Dies at or beyond RBD
1) Spouse only beneficiary - Rollover into their own IRA & take RMD's based on his/her own RDB.
2) Keep assets in decendent's IRA & take RMD's based on the longer of; i) Spouse's single life or ii) No beneficiary - either in 5 yrs following yr of death if non-person beneficiary or over trust-beneficiary's LE
When do QDRO's allow for distributions from qualified plans
No sooner than the soonest date available to the plan.
Plan cannot be forced into making immediate cash payments - however, can establish separate sub-trust for QDRO bene.
Retirement Plan Distributions >> Tax Management Techniques
Distributions subject to ordinary income - except for NUA distributions.
1) Avoid 10% penalty by using Sec 72t
2) Spread distributions out to take advantage of lower tax-bracket during retirement
3) Use after-tax investments for retirement needs
NQ Deferred Comp >> Unfunded (Informally) Vs. Funded
Unfunded (informally funded) may consist of a mere promise to pay or be "informally" funded by LI, annuities, mutual funds etc. Assets are owned by Co. & subject to Co.'s creditors. No tax deduction for Co. until employee is taxed. Emp is taxed when they have constructive receipt &/or substantial risk of forfeiture has disappeared.
NQ Deferred Comp >> Tax Treatment as applies to pass-through entities (S-Corp's, Partnerships, LLC's, LLP's) Vs. Corporations
Only a Corp. structure can effectively implement a NQ Def comp plan & take an immediate tax write-off. Pass-through entities must take tax hit immediately because they are not separate tax entities unlike a C-corp.
Qualifying & Disqualifying Dispositions of ISO's
2 Holding periods must be satisfied to qualify for special LTCG rates on ISO's. 1) Min 1 yr wait from exercise date to sale & 2) Min 2yr wait from grant date to sale. Only recipient can exercise (cannot be transferred-unless death). Disqualifying dispositions result in NSO treatment (but electing 83(b) treatment on NSO's can be good for reducing AMT. Empy'r gets no tax deduction for ISO's.
Types of Stock Plans

(1 of 2)
1) Restricted Stock - actual common stock sold to Emp @ bargain price. No tax if substantial risk of forfeiture exists but subject to performance.
2) Stock Appreciation Rights (SAR's) - Ord income taxable cash payment equal to appreciation of a specified # of stocks over a specified period.
3) Phantom Stock - right to bonus based on performance of Coy stock over a period (PS has dividend rights & not granted in tandem with options)
Types of Stock Plans

(2 of 2)
4) Emp Stock Purchase Plan (ESPP) - aka Sec 432 'Stock Purchase Plan.' Emp'r allowed to discount stock by 15%
5) Junior Class Shares - similar to RS, but a different class of shares convertible into common upon performance of spec'd event.
Maximum Annual Exercise Limit of ISO's
$100K but excess doesn't make entire sale disqualifying, only the excess portion.
What factors are needed to calculate the amount of contribution for an age weighted target benefit program (or defined benefit program)
i) participant's birthday ii) assume investment return iii) years to retirement iv) length of time with Co. v) Annual compensation vi) retirement target benefit
401(k) plans >> Taxation of catch-up provision amounts
Normal 401(k) contributions are subject to FICA & FUTA taxes.
Catch-up 'contributions' aren't included in employer deduction limits (25%) or contribution limits (<$49K or 100% of comp). They're truly additional.
Language Used in Qualified Plans Deferrals/Catch-ups/Contributions
Deferral - refers to $17k annual amount
Catch-up - refers specifically to the catch-up provision amount.
Deferral + Catch-up = "Contribution"
Company Contribution LImits
Some individuals may have >25% Co. contributions but so long as the total Co. contributions <=25% it's ok.
Employers may deduct 25% of payroll in addition to what employees defer.
Social Security Integration with DB Plans >> Offset Method
Plan formula is reduced by a fixed amount or a formula amount that is designed to represent SocSec. There is no integration level. The offset rules provide that <50% of the benefit provided under the formula without offset may be taken away by an offset (OS method pretty much equals a standard reduction amount with a min benefit level for low-paid emp's).
Sec 162 Plan
Key emp owns LI policy (typically VUL), employer pays premium but Emp owes tax on premiums paid (phantom income problem). A Sec 162 double bonus includes money to pay the tax on the bonused premiums.
Sec 83 and Sec 83(b) Elections
Sec 83 treats all appreciation from NSO's as ordinary income.
Sec 83(b) election is the payment for NSO's as ordinary income upon grant. This allows you to treat any upside as LTCG.
What benefits can be funded through a 501(c)9 VEBA plan
1) Death benefits
2) Medical
3) Unemployment
not retirement and not deferred comp
Which plans can be integrated Social Security?
1) Money purchase plan
2) Stock bonus plan
3) Defined benefit plan
Calculate the after tax mortgage calc for first year of payments (assume 30% tax bracket, $100K mortgage, 11% int, 30yr)
1) -$100K PV, 11/12 n, 360n = PMT of $952.32
2) 12 x $952.32 = $11,428
Deductible interest = $11K ($100K x 11%) x 30% = $3,300. $11,428 - $3,300 = $8128