On what basis is a partial withdrawal from a non-qualified annuity taxed?
LIFO
To get the safe harbor, the employer must
agree to make annual matching payments into the plan of either:
4% of salary of participating employees
OR
3% of salary of all eligible employees
(it is not mandatory that each eligible employee participate)
A Supplemental Executive Retirement Plan (SERP)…
is a non-qualified plan designed to provide additional retirement benefits limited to a select group of management or highly compensated employees
In order to qualify for the safe harbor under 404(c)…
the portfolio selections must include at least 3 different asset classes (equity, debt, cash equivalent)
What would you expect to see in the investment policy statement (IPS) of a qualified plan?
- how the investment performance of the plan is measured
- investment parameters and limitations to be followed by the portfolio managers
All funds within a Coverdell ESA must be used before the student reaches __ years of age
30
LIFO means
Last money (the earnings) In is the First Out (withdrawn)
Defined-contribution plan
A retirement plan that’s typically tax-deferred in which employee’s contribute a fixed amount or a % of their paychecks to an account that is intended to fund their retirement
Examples of a defined-contribution plan?
- 401(k)
- 403(b)
- 457(b)
A 61 year old wanting to take a lump-sum distribution from his Keogh will…
be taxed at ordinary income rates
Keogh plan
- a tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes
- can be set up as a defined-benefit or defined-contribution plan (most set up as DC)
defined-benefit plan
- an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as:
- length of employment
- salary history
- the company is responsible for managing the plans investments & risk
- typically employees cannot just withdraw funds
- pays a specific benefit to participants at their normal retirement age
Qualified expenses under 529 plans include…
tuition for attendance at a foreign university
Examples of defined benefit plans?
- Pension Plans
- Cash balance plans
Required minimum distributions (RMDs) from a traditional IRA must begin by…
April 1 the year after the owner turns 70 and a half
Section 529 plans & taxes
- after tax going in
- tax deferred while in
- tax free on the way out
Donors contributing to a 529 plan can…
- Make a 1 time lump sum contribution to a 529 plan equal to 5 years of contributions based on the annual gift tax exclusion
- Each parent may contribute 5x the annual maximum ($15,000 x 5 or $75,000); a couple could double that amount ($150,000) without gift tax consequences
IPS is generally found…
in corporate qualified plans, such as the defined benefit or contribution plan
When an employer makes a contribution to a SEP IRA…
the employer gets the tax deduction & the employee’s account is enriched by that contribution
401(k) plans are…
- defined contribution plans
- primarily funded by salary reduction employee contributions
3 features of a Safe Harbor 401(k) plan?
- mandatory annual employer matching contributions
- no annual “top heavy” benefits testing
- immediate 100% vesting of employer-paid benefits
Max amount of loans for 401(k) plans?
Max amount to be borrowed from a 401(k) plan:
$10,000 or 50% of the account asset value, whichever is greater
Loans capped at $50,000
IR for loans of 401(k) plans?
the loan must have an IR that is based on current market rates & must be repaid within 5 years
401(k) & loan repayment?
loan repayment must be made in quarterly installments of “substantially equal amounts”
if a portion is not repaid, the unpaid amount becomes taxable income; if the account owner is under 59 and a half, the 10% penalty tax applies
