1
Q
Pension plans can be categorized as one of two things
A
defined benefit plans or defined contribution plans
2
Q
What is a Defined Benefit pension?
A
A Defined Benefit pension plan is an employer-sponsored retirement plan in which the benefits are calculated using a specified formula.
This formula typically includes the employee’s salary, years of service, and age at retirement. It provides a predictable income for retirees.
3
Q
What Is a Defined Contribution Plan?
A
A defined contribution plan is an employer-sponsored retirement savings program designed for the employee (and often the employer as well) to contribute money into an individual account set up in the employee’s name.
doesn’t promise a fixed income
4
Q
What Is a Profit-Sharing Plan?
A
A profit-sharing plan is a defined contribution plan to which a company agrees to make substantial and recurring contributions, although they may be discretionary to some degree.
5
Q
Deferred compensation plans come in two varieties
A
qualified and nonqualified plans.
6
Q
Annual Compensation Limit for 2025
A
$350,000
7
Q
Total of all employer and employee pre-tax, after-tax, and Roth contributions for 2025
A
Contributions (EE+ER) to a qualified defined contribution plan cannot exceed the lesser of $70,000 in 2025 (indexed annually) or 100% of the employee’s compensation for that year.
8
Q
2 types of qualified retirement plans:
A
Qualified retirement plans are either defined benefit
plans (benefits based on a formula) or defined
contribution plans (benefits based on employer and/or
employee contributions).
9
Q
401(k) annual compensation limit:
A
The amount of compensation that can be taken into
account when determining the maximum contributions
to an employee’s defined contribution plan account in
2025 is $350,000.
10
Q
401(k) annual contribution limit:
A
The 2025 annual contribution limit is the lesser of
$70,000 or 100% of the employee’s compensation for
the year. It is the maximum amount an employer and
employee may make to a 401(k) plan.
11
Q
401(k) contributions can beheld or transferred:
A
401(k) contributions must be transferred to the plan as
soon as they can be reasonably segregated from the
company’s assets but no later than the 15th business
day of the following month. Smaller employers have a
shorter time frame.
12
Q
403(b) catch-up contributions:
A
403(b) catch-up contributions of $7,500 can be made by employees at least 50 years old by December 31st of the calendar year. In addition, employees with 15 years of service can make additional catch-up contributions.
13
Q
403(b) plans arefor:
A
403(b) plans are for public schools and tax exempt
charitable, religious, and educational organizations.
Only plan to offer tax-sheltered annuites.
Pre Tax deferrals are reported in Box 12 E
Roth deferrals are reported in Box 12 BB
14
Q
457(b) catch-up contributions:
A
457(b) catch-up contributions of $7,500 can be made
by employees at least 50 years old. Employees in their
final three years before normal retirement age can
make additional catch-up contributions.
15
Q
The401(k) deferral limit is:
A
The 2025 annual deferral limit for 401(k) plans is
$23,500. Employees age 50 or older may make
additional catch-up contributions of up to $7,500.
16
Q
457(b) plans arefor:
A
457(b) plans are for public sector employers (state and
local governments and tax-exempt organizations other
than churches).
Treated in many ways as a nonqualified deferred compensation plan
17
Q
A highlycompensated employee per the IRS is:
A
Received compensation of at least $160,000 for 2025 ($155,000 for 2024); or
Was an owner of 5% of the company’s stock during the preceding year.
18
Q
Dependent careFSA special rules:
A
A dependent care FSA is not subject to the uniform coverage rule. An employer will only reimburse expenses up to the amount of the employee’s contributions to date.
19
Q
Employee401(k) contributions are reported:
A
An employee’s 401(k) contributions are reported on Form W-2 in Box 12 with Code D.
20
Q
How are§125 benefits taxed?
A
Qualified benefits provided through a §125 plan, including benefits purchased through a Flexible Spending Arrangement or in a premium-only plan, are not taxable. Benefits taken in cash are taxable.
21
Q
How are§125 plan benefits reported?
A
Nontaxable §125 plan benefits are not reported on Forms W-2 or 941. Contributions are included on an employer’s annual Form 940.
22
Q
How is theADP test calculated?
A
By determining the average deferral percentage of the highly compensated employee group and the non-highly compensated employee group. Then running calculations to determine if the HCE group’s ADP exceeds the NHCE ADP by more than a certain percent.
23
Q
Medical FSA contribution limit:
A
An employee’s Medical FSA salary reduction contributions cannot exceed $3,300 in a plan year.
24
Q
Name2 types of retirement plans:
A
Retirement plans are either qualified (those that meet the requirements of the Internal Revenue Code (limits, nondiscrimination, etc.)) or nonqualified plans.
25
Nonqualified plans are taxable:
Nonqualified plans are subject to FIT when they fail to meet §409A or when a distribution is made. NQDC is taxable for social security and Medicare when services are performed or vesting requirements have been met.
26
Nonqualified retirement plans can:
Nonqualified plans can discriminate in favor of highly compensated employees and have no compensation or contribution limits.
27
Qualified retirement plans must:
Qualified retirement plans must be in writing, must be for the benefit of employees, meet eligibility and vesting requirements, and not discriminate in favor of highly compensated employees.
28
Roth 401(k) contributions aresubject to:
Roth 401(k) contributions are subject to federal income, social security and Medicare taxes and are reported on Form W-2 in Box 12 with Code AA.
29
Taxes on qualified retirement plans:
Employee contributions to qualified retirement plans are not subject to federal income tax but are subject to social security and Medicare taxes. Employer contributions are not taxable.
30
What do§125 plans allow?
§125 cafeteria plans give employers the ability to provide selected nontaxable or taxable benefits to employees allowing them the ability to choose the benefits they desire.
31
What does a§125 plan not allow?
A §125 plan does not allow the deferral of compensation from one plan year to another plan year.
An exception to this disallowance is when a 401(k) plan is part of the §125 plan.
32
What does taken intoaccount mean?
Taken into account is the point in time when contributions into a nonqualified deferred compensation plan become taxable for social security and Medicare taxes.
33
What does §409A require?
§409A restricts distributions from nonqualified deferred compensation plans in certain circumstances and requires deferral elections to be made before the beginning of the calendar year.
34
What is FSA’s use-it-or-lose-it rule?
An employee’s reimbursement for contributions to an
FSA during the plan year must be eligible, substantiated expenses during the plan year.
Contributions that are unused or not substantiated are lost.
35
What is a cafeteria plan?
A cafeteria plan meeting IRC §125 requirements allows employers to select a menu of generally nontaxable benefits offered to employees.
36
What is an FSA’s uniform coverage?
To meet the FSA’s uniform coverage rule, an employer must reimburse an employee for eligible expenses up to the employee’s election, even though the employee’s contributions have yet to be made.
37
What is deferred compensation?
A deferral of compensation is a postponement of taxable wage payments to a future date. Deferrals meeting certain requirements are pre-tax for federal income tax for qualified or nonqualified plans.
38
What is the401(k) catch-up?
401(k) plans can allow employees age 50 or older to defer up to $7,500 of additional funds beyond the $23,500 deferred compensation limit in 2025.
39
What is the ADP test?
The ADP (Actual Deferral Percentage) test defines if employee deferrals to a 401(k) plan discriminate in favor of highly compensated employees.
40
What occurs when an ADP test fails?
When an actual deferral percentage (ADP) test fails, all participants will be taxed on their elective deferrals unless the plan takes corrective action, such as distributing contributions back to highly compensated employees.
41
What can describe a §125 plan?
A §125 plan may be called a flexible benefit plan or a flex plan. Flexible Spending Arrangements (Flexible Spending Accounts) are often included in §125 plans.
42
When can §125 plan benefits change?
§125 plan benefits may be changed by employees before the beginning of the plan year, when there is an IRS-approved status change, or a cost or coverage change.
43
§125 discrimination tests:
The §125 plan must meet the eligibility, contribution and benefits, and concentration tests to demonstrate it does not discriminate in favor of highly compensated or key employees.
44
What is CODA?
Cash Or Deferred Arrangement (CODA), allows eligible employees to have their employer contribute part of their salary to a plan rather than receiving the salary in cash.
401(k) plans Pretax, reduces taxable income
45
401(k) Contributions Maximum Holding Period
DOL allows the maximum holding period to be the 15th business day of the month following the month during which the amount deferred would have been paid to the employee.
46
Tax Treatment of §401(k) Plans
not subject to FIT withholding until funds are distributed are subject to SS, Medicare, and FUTA taxes ER matching contributions are not subject to SS, Medicare, and FUTA taxes
47
What W-2 boxes are EE elective deferrals to a §401(k) plan included in?
Box 3 - SS Wages
Box 5 - Medicare Wages
Amounts withheld for SS tax (Box 4) and Medicare tax (Box 6)
Amounts for deferrals, including catch-up are in Box 12 D
ER must mark box 13 Retirement Plan
48
Does an ER include the 401(k) elective deferrals or ER matching contributions on Line 2 of its quarterly Forms 941 as taxable wages?
No
49
Where does the ER include 401(k) elective deferrals on the quarterly 941?
Lines 5a column 1 and 5c column 1 as taxable SS and Medicare wages.
If applicable, elective deferrals must also be recorded on Line 5d as taxable additional Medicare wages. The deferrals must also be included in Part 2, Line 3 of the employer’s annual Form 940.
50
What W-2 boxes are EE Roth deferrals to a §401(k) plan included in?
Box 1 - FIT Wages
Box 3 - SS Wages
Box 5 - Medicare Wages
51
Special catch-up contributions for §457 (b) plans
EEs in their final three years before normal retirement age may make catch-up contributions that are up to twice the amount of the deferral limit (in 2025—$23,500) which allows a maximum deferral of $47,000 in 2025 for eligible employees.
52
§457 (b) deferrals
Generally, no distributions to participants can be made before one of the following occurs:
a. The year the employee reaches age 70½;
b. Separation from employment (e.g., retirement); or
c. The employee faces an unforeseeable emergency.
53
What W-2 boxes are EE elective deferrals AND ER nonelective contributions to a §457(b) plan included in?
Box 3 - SS Wages
Box 5 - Medicare Wages
Amounts withheld for SS tax (Box 4) and Medicare tax (Box 6)
Amounts for deferrals, including catch-up are in Box 12 G
ER must mark box 13 Retirement Plan
54
Does an ER include the 457(b) EE elective deferrals or the ER nonelective contributions on Line 2 of its quarterly Forms 941 as taxable wages?
No
55
Where does the ER include 457(b) EE elective deferrals AND ER nonelective contributions on the quarterly 941?
As applicable, on Lines 5a column 1, 5c column 1 and 5d column 1 as taxable social security, Medicare and additional Medicare wages
56
Where are Roth 457(b) deferrals reported on the W-2?
Box 12 EE
57
An employer's 401(k) plan meets the nondiscrimination testing:
by matching 100% of elective deferrals to 3% of compensation and 50% of deferrals over 3% to 5% of compensation.
Under IRS rules, an employer's 401(k) plan may meet the ADP nondiscrimination testing requirements by matching 100% of elective deferrals to 3% of compensation and 50% of deferrals over 3% to 5% of compensation.
58
If an employer's 401(k) plan fails the ADP test, what action must the employer take to keep the plan qualified?
Distribute certain elective deferrals to highly compensated employees
59
Which of the following relationships would attribute ownership for purposes of determining 5% ownership?
a. spouse to spouse
b. sister to brother
c. mother to son
d. granddaughter to grandma
e. daughter to father
f. grandpa to grandson
a, c, d, e
60
Formula to determine each eligible employee’s ADP for the applicable plan year
employee's annual elective deferral
divided by
employee's total annual compensation
61
The average ADP for eligible highly compensated employees may not be greater than:
1 - 1.25 x the average ADP for eligible non-highly compensated employees, or
2 - the lesser of:
a - 2 x the average ADP for eligible non-highly compensated employees or
b - 2% more than the average ADP for eligible non-highly compensated employees.
62
What is Universal Availability?
if any plan of an employer provides for catch-up contributions, all plans that provide elective deferrals must provide eligible participants with the same “effective opportunity” to make catch-up contributions.
63
A Roth IRA is different from a traditional IRA in that contributions to a Roth IRA are not excludable from income.
True / False
True
64
Calculating includible amount under §409A
Subtract previously taxed or nonvested amounts from the total deferred; the remainder is taxable.
65
3 steps to calculating includible amount under §409A
1) Total amount deferred,
2) Subtract nonvested or previously taxed amounts,
3) Result is taxable income.
66
Premium interest tax under §409A
An additional tax on underpayments as if the income was taxed when first deferred or vested.
67
Initial year of deferral determination
The first year the compensation was vested or earned and not yet paid.
68
Hypothetical underpayment calculation for premium interest
As if the amount had been paid in the original deferral year, using original tax return data.
69
NQDC plans
Plans that are subject to Medicare tax, including Additional Medicare Tax for wages above $200,000, since Medicare has no wage cap.
70
Establishment of an NQDC plan
An NQDC plan must be in writing, with material terms adopted or effective, whichever is later.
71
Account balance NQDC plan
A plan where compensation and earnings are credited to an individual account for the employee.
72
Nonaccount balance NQDC plan
A plan where benefits are not tied to an account balance, but to a formula or promise.
73
Deferred compensation for FICA/FUTA
Deferred compensation is taken into account when services are performed or the compensation vests, whichever is later.
74
Calculation of deferred amount under an account balance plan
The amount deferred is calculated as principal credited plus/minus investment returns through the valuation date.
75
Reasonably ascertainable deferred amount
A deferred amount is reasonably ascertainable when only interest, mortality, or COLA assumptions are needed for calculation.
76
Estimated method for withholding
Employers use a reasonable estimate to calculate and deposit FICA/FUTA within 3 months.
77
Lag method for withholding
Employers can calculate the actual deferred amount up to 3 months later and pay taxes accordingly.
78
W-2 Box 1 inclusion
Deferred amounts must be included in W-2 Box 1 if they are vested and funded or the plan fails §409A compliance.
79
W-2 Box 12 (Code Y)
Amounts are reported in W-2 Box 12 (Code Y) for voluntary reporting of §409A-compliant deferred compensation in unfunded plans.
80
W-2 Box 12 (Code Z)
Deferred amounts are reported in W-2 Box 12 (Code Z) when deferred compensation is taxable due to failure to meet §409A.
81
W-2 Box 11 for NQDC
W-2 Box 11 includes deferred compensation distributions or prior-year service deferrals (but not both in the same year).
82
NQDC distributions reporting for FICA
NQDC distributions do not get reported in Box 3 or 5 for FICA if FICA was already applied when the amounts vested.
83
Form SSA-131
Form SSA-131 is used to report special wage payments (like NQDCs) to the Social Security Administration.
84
Reporting taxable NQDC amounts on Form 941
Taxable NQDC amounts are reported in Box 1 for wages, Lines 5a/5c/5d for FICA wages, and Line 3 on Form 940 for FUTA.
85
Income taxes withheld on deferred comp under §409A
Income taxes are withheld when it is included in gross income due to failure to meet requirements.
86
Taxation of deferred amounts under §409A
The same deferred amount cannot be taxed more than once under §409A; once included in income, it is not re-taxed in later years.
87
Practical effect of the special timing rule for FICA
Most executives already exceed the Social Security wage base, so only Medicare applies.
88
For a nonqualified deferred compensation plan to exclude deferrals from income, distributions can be allowed:
A. at a specified time when the deferral was made.
B. at the end of the calendar year.
C. at the employee's election before termination of employment.
D. at the end of the plan year.
A. at a specified time when the deferral was made.
89
For a nonqualified deferred compensation plan to exclude deferrals from income, distributions can be allowed:
A. when the employee’s spouse dies.
B. when a natural disaster occurs.
C. at the employee's election before termination of employment.
D. when there is an occurrence of an unforeseen emergency.
D. when there is an occurrence of an unforeseen emergency.
90
The annual contribution limit to a nonqualified deferred compensation plan is:
A. $31,000.
B. $70,000.
C. unlimited.
D. $23,500.
C. unlimited.
91
What must be specified at the time of the employee's election to defer into a nonqualified plan?
A. The time and form of distributions
B. The amount of catch-up deferrals allowed
C. The ability to make changes to the election
D. The maximum amount of the deferral
A. The time and form of distributions
92
§125 Key Employees
Key employees include:
1. corporate officers whose annual compensation is greater than $230,000 for 2025
2. 5% owners
3. 1% owners whose annual earnings are greater than $160,000
Employees who meet this definition for the preceding plan year are key employees.
93
A cafeteria plan's benefit menu must include both cash and qualified nontaxable benefits.
True/False
True
94
An exempt employee paid biweekly has regular wages of $1,275.00 and a holiday bonus of $90.00. The employee’s year-to-date wages are $74,000.00 and is claiming married and 2 allowances on a 2019 Form W-4. Using the Wage Bracket Method for Manual Payroll Systems, calculate the employee’s net pay with the following deductions:
§125 pre-tax medical: $55.00
§401(k) contribution: $50.00
Charitable contribution: $20.00
A. $1,131.78
B. $1,111.78
C. $1,186.78
D. $1,236.78
B. $1,111.78
The taxable wages for federal income tax should be the regular wages of $1,275.00, plus the holiday bonus of $90.00, less the Plan 125 deduction of $55.00, and the 401(k) contribution of $50.00, but not less the charitable contribution of $20.00. The social security and Medicare wages are reduced by the Sec. 125 deduction, but not the 401(k) contribution or the charitable contribution. The net pay is the gross pay of $1,365.00, less total tax of $128.22, less all of the voluntary deductions of $55.00, $50.00, and $20.00, which should be $1,111.78.
95
How much can two employees married to one another and working for the same employer contribute to an employer’s medical FSA?
A. $6,600 divided between the employees as they choose
B. $3,300 combined
C. The plan's limit
D. $3,300 each
D. $3,300 each
If an employee and spouse work for the same employer, both employees are each allowed the annual contribution limit ($3,300 in 2025) to a medical flexible spending account.
96
Generally, an employee can receive distributions from a 403(b) account without incurring penalty when the employee attains:
A. Twenty years of service with the employer
B. Age 59 1/2
C. Age 73 beginning in 2025
D. The employee's normal social security retirement age
B. Age 59 1/2
A distribution cannot be made from a 403(b) account until the employee reaches age 59 1/2, has a severance from employment, dies, becomes disabled, or encounters financial hardship.
97
For a nonqualified deferred compensation plan to exclude deferrals from income, distributions can be allowed:
A. at the end of the first quarter of the next year.
B. on the date of the employee’s deferral election.
C. at the employee's election before termination of employment.
D. at the employee's death.
D. at the employee's death.
IRC Section 409A allows distributions after an employee’s death. Distributions on the date of the employee’s deferral election, at the end of the first quarter after the end of the next near, and at the employee’s election before termination of employment violate IRC Section 409A and require immediate inclusion of the plan’s value in the employee’s income.
98
An employer contributes $550 per month to an employee's cafeteria benefit plan. Since her husband has medical/dental coverage through his employer, she wants to take the $550 per month in cash. Which of the following statements is true?
A. This option is not available; if the amount is not spent, it is lost
B. Only social security tax and Medicare tax are withheld from the $550 per month
C. The $550 becomes taxable income
C. The $550 becomes taxable income
Any benefits converted to cash (for example, selling vacation days) become taxable income to the employee at the time the cash is received.
99
Highly compensated employees for purposes of benefit plans
Corporate officers
Shareholders owning more than 5% of the voting power or value of the employer's stock
Highly compensated employees (based on facts and circumstances of the situation)
Spouse or dependent of one of the above
100
What percentage of non-highly compensated employees must be eligible to participate in §401(k) plan?
A. At least 50% of the highly compensated employees are eligible to participate
B. At least 70% of the non-highly compensated employees are eligible to participate
C. At least 75% of the highly compensated employees are eligible to participate
D. Incorrect
At least 90% of the non-highly compensated employees are eligible to participate
B. At least 70% of the non-highly compensated employees are eligible to participate
Deferred arrangements under §401(k) must not discriminate in terms of eligibility. Such plans qualify if at least 70% of non-highly compensated employees are eligible to make elective deferrals or the percentage of non-highly compensated employees eligible to make deferrals is at least 70% of the percentage of highly compensated employees who are eligible.
101
Generally, an employee can receive distributions from a 403(b) account without incurring penalty when the employee attains:
A. Age 59 1/2
B. The employee's normal social security retirement age
C. Age 73 beginning in 2025
D. Twenty years of service with the employer
A. Age 59 1/2
A distribution cannot be made from a 403(b) account until the employee reaches age 59 1/2, has a severance from employment, dies, becomes disabled, or encounters financial hardship.
102
What must be specified at the time of the employee's election to defer into a nonqualified plan?
A. The maximum amount of the deferral
B. The amount of catch-up deferrals allowed
C. The time and form of distributions
D. The ability to make changes to the election
C. The time and form of distributions
Under IRS rules, the time and form of distributions must be specified at the time of the employee's election to defer into a nonqualified plan.
CPP Bootcamp 2025
flashcards
Decks in class (22)
# Cards
-
Module 192
-
Module 3130
-
Module 291
-
W-2 Box 12 Codes31
-
Taxable or Nontaxable Wages34
-
Tips, Rates, Formulas81
-
Module 4102
-
Module 549
-
Module 697
-
Module 748
-
Module 834
-
Module 913
-
Module 1015
-
Forms143
-
Calculating Pay13
-
Calculating Federal Income Tax18
-
Calculating Social Security and Medicare Taxes3
-
IRS Publication 15-T7
-
W-2 Copies & Boxes34
-
941 Reporting29
-
Payroll Source Book Questions595
-
Combined Notes392
