CTC CTC Retirement & Deferred Compensation 1 — Questions and Answers
Question 1: What is the 2024 annual contribution limit for a solo 401(k) employee elective deferral (under age 50)?
- $22,500
- $23,000 (Correct answer)
- $20,500
- $19,500
Correct answer: $23,000
For 2024, the employee elective deferral limit for a 401(k) plan is $23,000, an increase from $22,500 in 2023.
Question 2: A Defined Benefit (DB) pension plan is most advantageous for a high-income business owner who is:
- Young with a long runway to retirement
- Older with fewer years to fund the plan (Correct answer)
- In a low tax bracket seeking long-term growth
- Primarily seeking Roth tax-free growth
Correct answer: Older with fewer years to fund the plan
Defined benefit plans require funding a promised future benefit; older owners need to fund that benefit over fewer years, requiring larger annual deductible contributions.
Question 3: Under a SIMPLE IRA plan, what is the employer matching contribution requirement?
- Up to 3% of employee compensation (matching) or 2% non-elective (Correct answer)
- Up to 5% of employee compensation
- Up to 25% of total payroll
- A fixed 3% of all eligible employees' compensation
Correct answer: Up to 3% of employee compensation (matching) or 2% non-elective
Employers sponsoring a SIMPLE IRA must either match employee contributions dollar-for-dollar up to 3% of compensation or make a 2% non-elective contribution for all eligible employees.
Question 4: Which retirement plan type requires no employer contribution in years when cash flow is tight, offering maximum flexibility?
- Defined benefit plan
- SIMPLE IRA
- SEP-IRA (Correct answer)
- Money purchase pension plan
Correct answer: SEP-IRA
A SEP-IRA allows employers to vary their contributions from year to year, including making no contribution at all in difficult financial years, providing maximum cash-flow flexibility.
Question 5: The Required Minimum Distribution (RMD) starting age for individuals who turn 73 in 2023 or later is:
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
SECURE 2.0 Act increased the RMD starting age to 73 for individuals who turn 73 in 2023 or later, with a further increase to 75 scheduled for those born in 1960 or later.
Question 6: A tax-free Roth conversion strategy is most beneficial when a client's current tax rate is:
- Higher than their expected future rate
- Equal to their expected future rate
- Lower than their expected future rate (Correct answer)
- Above the 37% top marginal rate
Correct answer: Lower than their expected future rate
Converting pre-tax retirement funds to Roth makes the most sense when the client's current marginal rate is lower than the rate expected at distribution, minimizing the overall tax cost.
CTC CTC Retirement & Deferred Compensation 1
What is the 2024 annual contribution limit for a solo 401(k) employee elective deferral (under age 50)?