Download ChFC Module 4: Lesson 4 - Profit Sharing Plans, Stock Bonus Plans & Employee Stock Ownersh and more Exams Nursing in PDF only on Docsity!
ChFC Module 4: Lesson 4 - Profit
Sharing Plans, Stock Bonus Plans &
Employee Stock Ownership Plans
Question and answers verified to pass
For profit sharing plans, a safe harbor 401(k) plan helps to do what with plan administration? - correct answers Simplify Evelyn, age 51, is employed by Carlisle Company as a marketing consultant. She earns $55,000 per year and always maximizes her contributions to the company 401(k) plan. Rather than matching employee 401(k) deferrals, Carlisle Company profit-sharing plan contributes at the end of the year. What is the maximum profit-sharing contribution that can be made for Evelyn at the end of 2022? - correct answers $34, The maximum combined value of employee and employer contributions is the lower of $61,000 or 100 percent of compensation. For Evelyn, this maximum is thus $55,000 (100% of her compensation). Therefore, the maximum profit- sharing contribution is $34,500, or $55,000 − $20,500. Jeri is a 56-year-old human resources specialist for Preston Foundries. She wants to maximize her contributions to her company's retirement plans. Based on her $80,000 salary, she was allocated $45,000 to her profit-sharing plan for the year. Preston Foundries does not match employee deferrals to their 401(k) plan. What is the maximum amount Jeri can defer into her 401(k) plan in 2022? - correct answers $22, In 2022, her maximum deferral to the 401(k) is $20,500 plus the age 50 or older catch-up deferral of $6,500, for a total of $27,000. However, the deferral is also included in the maximum defined-contribution limit of $61,000 (2022;
not including the catch-up provision). Since Jeri has received an allocation from the profit-sharing plan of $45,000, she is able to defer $16,000 ($61, − $45,000) plus the $6,500 catch-up deferral for participants who are 50 years old and older. Gareth sells stock 6 months after he received it as a distribution from a qualified stock bonus plan. When the stock was distributed, he had a net unrealized appreciation (NUA) of $7,500. He also had ordinary income from the distribution of $29,000. The fair market value (FMV) of the stock at the time of sale was $81,000. How much of the sale price will be subject to long- term capital-gain treatment? - correct answers $7, Appreciation on the stock after the date of distribution is taxed as long-term capital gain or short-term capital gain, depending on the holding period beginning at the date of distribution. In this case, only the net unrealized appreciation of $7,500 is treated as long-term capital gain because the holding period for the sale was only 6 months. The remaining $44,500 of gain is taxed as short-term capital gain. $81,000 FMV − $29,000 ordinary income = $52,000 total capital gain $52,000 − $7,500 NUA long-term capital gain = $44,500 short-term capital gain Heidi has received a qualified stock bonus from her employer, Trinitron. She wants to know what rights this provides her. Which of the following is a feature Trinitron must provide Heidi as a feature in the stock bonus plan? - correct answers Voting rights as a result of owning stock through the plan Fred, aged 45, has just now worked long enough to become eligible to participate in his employer's stock bonus plan. Fred learns that each year his employer will contribute 15 percent of his compensation into his plan account in the form of company stock. Fred will also need to work for his employer for 6 years to be fully vested in these contributions. Because Fred understands
qualified replacement securities within 12 months of the sale to the ESOP, he will not recognize capital gain or ordinary income on the sale to the ESOP. If Laurent dies, the heirs will receive the securities with an adjusted taxable basis equal to the fair market value (FMV) at Laurent's date of death or the alternate valuation date. Robin, who is 55 years old, runs a local restaurant in New Orleans. Several high school kids work for her part-time. Robin's mom, Deirdre, works there full-time. Which of the following plans makes the most sense for Robin if she earns about $120,000 and does not want to spend too much on a retirement plan? - correct answers A 401(k) profit-sharing plan The first three options require annual funding, which generally is not the best choice for a small business. Option (D) permits Robin to save over $50, per year, or almost half of her income, between the salary deferral, the catch- up, and the profit-sharing contribution. In addition, she has no requirement to fund it all, as the plan is discretionary. The Actual Deferral Percentage (ADP) test is one of the tests with which some qualified plans must comply. Which of the following plans must generally comply with the ADP test? I. Profit-sharing plans without a CODA II. Safe harbor 401(k) plans - correct answers Neither I nor II The ADP test generally only applies to non-safe harbor 401(k) plans. It does not apply to profit-sharing plans without a CODA. Jack and Jill own a successful engineering company that sponsors a 401(k) plan that requires standard eligibility. Sam, Tom, and Pat are the only other employees. These employees are between the ages of 25 and 29 and have been with the company for a couple of years. Jack and Jill each have salaries of $200,000, while their employees have salaries ranging between $28, and $30,000. Jack and Jill both defer $10,000 each. Sam, who is Jack and
Jill's son, earns $30,000 and defers $6,000 into the 401(k) plan. Tom, who makes $28,000, defers $2,800, while Pat does not defer anything into the 401(k) plan. Which of the following statements is correct? - correct answers If the company hired a new employee, it would not increase the amount that Jack and Jill can defer during the first year of the employee's employment. Sam is highly compensated through family attribution. The ADP of the NHCEs is 5 percent, not 6.67 percent. Statement (C) is not correct as a QMC would only go to NHCEs. All of the following statements regarding age-based profit-sharing plans are correct EXCEPT: - correct answers An age-based profit-sharing plan provides a greater benefit to those participants whose earnings exceed the Social Security wage base and who are older than 50 years old. Age-based profit-sharing plans provide increased benefits to older participants regardless of whether their wages are above the Social Security wage base. All the other statements are true. Profit-sharing and stock-bonus plans have similarities and differences. Which of the following statements regarding these plans are correct? I. Both plans allow participants to vote their shares that are held by the plan. II. Stock-bonus and profit-sharing plans can make lump-sum distributions of employer securities at the termination of an employee. - correct answers II only Only participants in a stock bonus plan can vote their shares. Both plans can distribute employer stock. Colleen receives a lump-sum distribution of employer securities (1, shares) from her stock bonus plan in Year 1 worth $140,000. The net unrealized appreciation (NUA) for the stock equals $110,000 at the time of the
The ESOP must own at least 30 percent of the stock immediately after the sale.
