FINC355 Professor Goohs – Retirement and Estate Planning

1. Which of the following are ways a person can get a tax deduction for health care?

(1) by itemizing deductions

(2) when medical expenses exceed the floor for medical expense deductions

(3) get a dollar-for-dollar credit on Form 1040

(4) get a first-dollar 100% reimbursement on Form 1040

A. (1) only

B. (1) and (2) only

C. (1), (2), and (3) only

D. (2), (3), and (4) only

2. Morgan Bank and Trust Company wants to install executive benefit planning for the bank owners and five top executives that will be more extensive and generous than the employee benefits offered to the tellers and mid-level managers. The financial planner working with Morgan will need information about the executive’s individual financial and estate planning situations and needs.

A. True

B. False

3. Which of the following are good questions to ask about existing benefit plans?

(1) who is covered

(2) what benefits are provided

(3) how is the plan funded

(4) who administers the plan

A. (1) and (3) only

B. (1), (2), and (3) only

C. (2), (3), and (4) only

D. (1), (2), (3), and (4)

4. A profit sharing plan may provide some death benefits.

A. True

B. False

5. Martha Towers, owner of Tower Engineering, wants to utilize life insurance in the employee benefits of the business. She wants a product that will give her a tax deduction for the part that she pays out. Which of the following life insurance tools will not meet her objective?

A. split dollar life

B. bonus insurance

C. insurance in a qualified plan

D. insurance financing of nonqualified deferred compensation plan

E. death benefit only plan

6. Which of the following correctly identifies capitation payment?

A. A flat periodic fee to the provider per plan participant

B. A review by professional colleagues of the provider

C. The negotiated price covers the broadest possible range of services

D. Health services provided to employees meet minimum quality levels

7. To be eligible for the small business health plan tax credit, the

(1) plan must cover at least 50% of health care cost coverage for covered workers

(2) employer must have fewer than 25 full-time workers or equivalent

(3) average wage for employees must be less than $50,000

(4) health savings account option must not have a high deductible

A. (1) and (3) only

B. (2) and (4) only

C. (1), (2) and (3) only

D. (2), (3) and (4) only

8. The owner of Hearth Home Bakery wants to install a health plan that will place greater responsibility for maintaining low health care costs directly on employees. The best way of doing this is for Hearth Home to offer employees

A. traditional health care insurance

B. a managed care health plan

C. a Health Reimbursement Arrangement

D. a Health Savings Account

E. prospective pricing on health care

9. In order for a publicly held company to receive an income tax deduction for executive compensation, what is the maximum allowable amount of cash compensation paid to a CEO?

A. $750,000

B. $1,000,000

C. $5,000,000

D. $10,000,000

10. Zeb Zander is owner and sole shareholder of Zeb Co. This year, Zeb Co. generated $500,000 in income. The IRS disallowed $150,000 of compensation deduction and treated it as nondeductible dividends. Which of the following is true?

A. Zander owes tax and 10% penalty on $150,000

B. Zeb Co. has $350,000 income taxed at corporate rates

C. Zander has $150,000 dividend income taxed at his marginal tax rate

D. Zander has $150,000 dividend income taxed at 15%

E. Zeb Co. has $500,000 income taxed at corporate rates

11. Which of the following is seen as a primary advantage to bonus compensation?

A. tax benefits are greater

B. it does not have to meet the requirement of reasonableness for employer deductibility

C. it allows flexibility to reflect company performance

D. tax deferral is often an added benefit

12. Bonuses are taxable to the employee as ordinary income.

A. True

B. False

13. Bonus plans are formal agreements that must be in writing and negotiated with an attorney.

A. True

B. False

14. Baden Industries has three divisions: planning, manufacturing, and marketing. Tim Jackson, owner of Baden, wants to tie a bonus plan to profit as an employee performance incentive. As his financial advisor, you explain to Tim that profit can be calculated as

A. the net gain shown on corporate financial statements

B. taxable income for federal income tax purposes

C. gains in one specific division to the exclusion of other divisions

D. all of the above

E. only a and b

15. In absence of a written severance pay plan, which of the following might the IRS deem is a severance pay payment?

A. a large gift

B. a dividend

C. a “buy out” payment for the employee’s interest in the business

D. all of the above

E. only b and c

16. Tom Harris, a 57-year-old executive with Ace Broadcasting Co., has a severance pay plan that gives him a severance benefit of 2 year’s salary payable over a 5-year period. When Tom severs employment with Ace or anytime thereafter, he can choose to accelerate the payments. Which of the following is true?

A. tax on the severance pay plan is due the year that Tom and Ace sign the severance agreement

B. Tom will include the payments in his taxable income as they are received

C. Tom’s severance pay benefits are tax free

D. Tom must report the entire amount as income when the first payment is received even though he may receive the payments over a longer period of time

E. Ace Broadcasting must meet ERISA reporting requirements for Tom’s severance pay plan

17. Which of the following are tax sanctions on amounts characterized as parachute payments?

(1) no employer deduction is allowed on excess amounts

(2) the person receiving the payment is subject to a penalty tax equal to 20% of the excess payment

(3) the entire severance payment will be deemed nondeductible by the employer

(4) excess amounts must be repaid within 24 months

A. (1) only

B. (1) and (2) only

C. (2) and (3) only

D. (3) and (4) only

18. A life insurance contract can be used as a “golden handcuffs” offer to an executive.

A. True

B. False

19. Defined contribution health plans shift payment and selection features of health insurance from employers to employees.

A. True

B. False

20. A Health Savings Account (HSA) uses a savings account and insurance to cover health care needs.

A. True

B. False

Finc 430:

Discussion:

· Research a publicly traded company and review their most recent 10K report, or their prior year’s annual report and select one interesting item  on the income statement and lets' discuss. (250 words)

Finc 355:

Discussion:

· Discuss one of the following:  (1) How the Affordable Care Act is impacting/complicating retirement planning; (2) How Medicare (A, B, ...) will fit into your retirement plan;  OR (3)  How to handle a gap in health care coverage if you retire without health care, or postponed health care benefits. (350 words)

· Discuss one of the issues in planning to leave your Traditional IRA,  Roth IRA, 401(k) or other defined contribution plan to your Spouse, unmarried Partner, Child(ren) or Charity.,Keep in mind "ownership", "beneficiary" (primary, alternate), taxes &  RMD (required min disbursements) for both you, your estate, and the one to whom you are leaving it.

Quiz 6- separate attachment