Term
True or False
A post-ERISA money purchase plan may allow for elective deferrals |
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Definition
False
Elective deferrals are permitted in profit sharing, stock bonus plans and pre ERISA money purchase plans |
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Term
True or False
A 401k Plan may require 2 yrs of service for eligibility in the profit sharing component of the plan |
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Definition
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Term
True or False
Elective deferrals may be eligible for hardship withdrawal |
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Definition
True
A plan is required to permit hardship from elective deferrals, even if it permits it from profit sharing non-elective contributions |
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Term
True or False
Excess deferrals must be distributed from the plan within 2 1/2 months after the plan year end |
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Definition
False
Excess deferrals occur when the ppt exceeds the IRC 402(g) dollar limit.
The limit is determined each calendar yr (tax yr of the individual) and is not affected by the plan yr. Excess deferrals should be refunded no later than April 15 following the yr of excess |
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Term
True or False
Catch up contributions are included in the participant's annualE |
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Definition
False
Catch-up contributions are not included in determining whether a ppt has exceeded the annual addition limit IRC 415 |
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Term
True or False
An employer may elect to make matching contributions on catch-up contributions |
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Definition
True
They are subject to ACP nondiscrimination test under IRC 401(m) even though they are not subject to ADP test under IRC 401(k) |
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Term
True or False
Designated Roth contributions are elective deferrals that are made on an after-tax basis |
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Definition
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Term
| Name the two requirements a participant must meet to qualify for a distribution from Roth |
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Definition
1) Roth contributions in the 401(k) must be in the plan at least 5 yrs, based on the first designated contribution.
2) The distribution must be on account of death, disability or age 59 1/2
NO loans, corrective distributions or life insurance distributions |
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Term
True or False
Elective deferrals are available for distribution after a ppt completes 2 yrs of service |
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Definition
False
Elective deferrals are ONLY allowed for:
Employment Termination Death
Disability Age 59 1/2
Hurricane relief Hardship
Military Service
EACA (eligible automatic contribution arrangement) |
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Term
True or False
Elective deferrals can be re-characterized as catch-up contributions due to a failed ADP test |
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Definition
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Term
| Corrective Distribution Deadline to return excess deferrals under IRC 402(g) |
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Definition
April 15th of the year following the excess
-Regardless of the plan year
-Can be done anytime beforehand
-Taxable in the year that the distribution was made
-Could cause plan disqualification if not timely |
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Term
True or False
A participant must be age 50 to make designated Roth contributions |
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Definition
False
Elective Roth deferrals can be made at any age. If the participant has exceeded their limit on contributions and they are 50 or over, then they could classify them as catch-up |
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Term
True or False
An EACA (eligible automatic contribution arrangement requires an annual notice to ppts |
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Definition
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Term
True or False
Ppts must be given the option to elect to receive cash compensation or have the amounts contributed to the 401(k) plan as elective deferrals |
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Definition
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Term
True or False
Elective deferrals may be distributed based on the passage of a fixed # of yrs of plan participation |
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Definition
False
Only bona fide distribution reasons are allowed: employment term, death, disability, age 59 1/2, hardship, plan term, EACA, military service or hurricane relief |
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Term
True or False
Plan benefits, other than employer matching contributions, may not be dependent on the participant making elective deferrals |
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Definition
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Term
True or False
Elective deferrals are subject to a vesting schedule |
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Definition
False
Elective deferrals are always 100% vested |
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Term
True or False
In a 401(k) plan, participants must be given the right to direct investments of their elective deferrals |
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Definition
False
Where it is common to allow the ppts to direct their investments, it is not a requirement to be a qualified plan |
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Term
True or False
A stock bonus plan may include a 401(k) feature |
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Definition
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Term
True or False
Tax-exempt organizations may establish a 401(k) plan |
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Definition
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Term
True or False
A 401(k) plan may require up to two yrs of service for the elective deferral component of the plan |
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Definition
False
It may require no more than one yr of service for eligibility purposes |
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Term
True or False
In a 401(k) plan, elective deferrals are subject to Social Security taxes |
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Definition
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Term
True or False
Self employed individuals may not participate in a 401k plan |
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Definition
False
A sole proprietor or partner of a partnership can be an eligible participant under the employers 401k plan |
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Term
| Name 3 types of qualified plans that may include a CODA (cash or deferred arrangement) |
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Definition
1) Profit sharing
2) Stock bonus
3) Pre-ERISA money purchase plan |
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Term
True or False
CODAs are allowed in pension plans |
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Definition
False
Pension plans (defined benefit, [post-ERISA]money purchase plans and target benefit plans) will be disqualified if they have a CODA |
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Term
| When must an EACA notice be given to a participant? |
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Definition
| No later than 30 days or earlier than 90 days before the beginning of the plan yr (or date of hire, if later). |
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Term
| Name what must be included on the EACA notice to participants |
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Definition
1) Explanation of their rights to elect not to contribute or how to change their %
2) Explanation of how the contributions will be invested if the ppt doesn't choose elections |
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Term
True or False
Nonelective contributions are made by the employer and are related to the participant's elective deferrals |
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Definition
False
They are not related. The employer makes a nonelective contribution regardless of whether or not the employee makes a salary reduction contribution to the plan |
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Term
True or False
Matching contributions are based on the amount of a participant's elective deferrals |
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Definition
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Term
True or False
QMACs are subject to a vesting schedule |
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Definition
False
QMACs are a corrective match contribution by the employer and are always 100% vested |
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Term
True or False
A 401k plan must provide for either matching or nonelective contributions |
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Definition
False
It is common to see matching or nonelective contributions in a 401k plan, but this is not a requirement |
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Term
True or False
QNECs are nonelective contributions |
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Definition
True
QNECs are a corrective elective deferral contribution made by the EMPLOYER to help a plan pass ADP/ACP nondiscrimination testing and are always 100% vested |
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Term
Figure the tax consequences to JoAnne:
- She has $325 in excess deferrals for 2010
- The plan did not distribute by 4/15
- She receives the distribution of $370 ($325+earnings) on June 1, 2012
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Definition
- For 2010 (ie. the deferral yr):she must include $325 in gross income due to excess deferrals
- For 2011: nothing
- For 2012 (ie. the distribution yr): she must include $370 in gross income which is the total distribution made to her, even though $325 was already reported to her income in 2010
Note: only one 1099R is issued for the 2012 distribution. She should have reported the excess on her W-2 in 2010 (she is responsible)
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Term
Determine the participant's excess deferral for 2010:
- Calendar plan yr
- Employer made no contributions to participants in 2010
- Participant made no elec deferrals to other plans during the yr
- Participant is age 30 & not an HCE
- The IRC 402(g) dollar limit is $16,500 & catch-up is $5,500
- The ppt made pre-tax elective deferrals of $17,500
- The ppt made designated Roth contributions of $2,000
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Definition
Total elective deferrals:
Reg $17,500
Pre-tax + 2,000
$19,500
The ppt is not catch up eligle based on his age (must be 50) so the $16,500 limit applies.
Total elective deferrals: $19,500
minus limit: -16,500
Total excess = $ 3,000
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Term
When is this pariticipant eligible for catch-up contributions?
- The 401k plan is a calendar yr plan
- Her DOB is March 15, 1960
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Definition
1960 + 50 = 2010
March 15, 2010 is her 50th birthday, but she becomes eligible for catch-up in the plan year in which she turns 50.
Calendar plan yr = January 1, 2010 |
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Term
True or False
Excess deferrals that are not timely distributed will not cause plan disqualification |
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Definition
False
Corrective distributions not made on or before April 15th of the following year when the excess occured could disqualify the plan |
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Term
True or False
Earnings distributed on excess deferrals are taxable in the year of distribution |
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Definition
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Term
True or False
Excess deferrals are determined with respect to the plan year |
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Definition
False
They will always be determined with respect to a CALENDAR year because it is based on an individual person's tax year |
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Term
True or False
Excess deferrals that are timely distributed are taxable in the year of deferral |
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Definition
True
If the distribution year is different from the deferral year, the allocable earnings are taxed in a tax year that is different from the year in which the excess deferrals were taxed |
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Term
True or False
Excess deferrals that are not timely distributed are subject to a 10% excise tax |
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Definition
False
No excise tax is assesed, however if the corrective distribution is made past the 4/15 deadline, the employee will be subject to double taxation on the excess deferral even if EPCRS applies |
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Term
Determine the timing of taxation on this excess deferral:
- 2010 excess deferrals are $500 (including catch-up)
- Allocable earnings are $60
- The corrective distribution was made on 3/1/11
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Definition
2010: report $500 as income due to the excess deferrals
2010: report $60 as income due to the earnings
Note: If the distribution had been made in 2010, the entire distribution amount, including earnings, would have been reported as income |
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Term
Determine the timing of taxation on this excess deferral:
- 2010 excess deferrals are $750 (including catch-up)
- Allocable earnings are a net loss of $100
- The corrective distribution was made on 4/1/11
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Definition
The corrective distribution is for $650 but
2010: the ppt will report $750 as income due to the excess deferrals
2010: the ppt will report $100 as loss on tax return due to the lost earnings
Note: The loss may only be taken for 2010 only if the distribution was made during that year
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Term
Determine Ruth's excess contributions:
- non-calendar plan year ending 6/30/10
- Ruth's compensation is $100,000
- plan-imposed limit of 10% compensation
- her DOB is 3/11/58
- her deferrals for 2009-2010 were $13,500
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Definition
We know that:
a) she is allowed to make only $10,000 in elective deferrals per the plan-imposed limit so she is over by $3,500
b) but, she is over 50 so these can be reclassified as catch-up
So...she does not have excess contributions.
However! She only has $2,000 left to use as catch-up ($5,500-$3,500) until the end of the year. Remember - this is determined by calendar year, not plan year! |
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