1.Seth, who is about 55 years old, runs a local Po-Boy shop in New Orleans. He has several high school kids who work for him part time. Seths mom, Robin, helps make the best meatballs in the universe and works there full time. Which of the following plans makes the most sense for Seth if he earns about $120,000 and does not want to spend too much on a retirement plan?
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Money purchase plan. |
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Tandem plan. |
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Cash balance plan. |
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401(k) / profit sharing plan. |
2.Steve owns Barb, Inc. and has grown the business over the last 15 years and is the sole owner. He decides to sell 40 percent of the corporate stock (all outstanding stock) on July 1, Year 1 to an ESOP for $8 million. His adjusted basis for his entire interest in the stock was $3 million. On February 4th, Year 2, Steve uses all $8 million to buy shares of Apple Stock. Which of the following statements is correct?
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He will have a capital gain of $5.0 million in Year 1 for tax purposes. |
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He will have a capital gain of $6.8 million in Year 1 for tax purposes. |
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Steve will not have a capital gain in Year 1 for tax purposes. |
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Steves transaction does not qualify for non-recognition of gain treatment. |
3.There are additional tax advantages, beyond mismatch of income and deduction, for the establishment of an ESOP. One of these is non-recognition of gain treatment. To obtain non-recognition of gain treatment, qualified replacement property must be purchased. Which of the following investments would qualify as qualified replacement securities?
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DIA – The Dow Jones Industrial Average ETF Trust. |
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Porsche Automobile Holding ADR. |
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UPS (United Parcel Service) Debentures. |
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Louisiana general obligation bonds |
4.Sydney has worked for WillCo for the last 20 years. She just had her 60th birthday and is thinking about retirement. WillCo sponsors an ESOP in which Sydney is a participant and has been since the plans inception 18 years ago. WillCo stock has increased significantly and Sydney is considering diversifying her WillCo stock in the ESOP. Which of following statements is correct?
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Sydney cannot diversify until three years prior to retirement. |
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Sydney can diversify all of her WillCo stock because she has more than three years of service. |
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Sydney can diversify 50% of her WillCo stock. |
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Sydney can diversify 25% of her WillCo stock. 5.Which of the following statements are correct regarding qualifying for non-recognition of gain treatment upon the sale of a business interest to an ESOP? 1. The corporation establishing the ESOP must have no class of stock that is tradable on an established securities market. 2. After the transaction, the ESOP must own more than 35% of the outstanding corporate stock. 6.Jack and Jill own a successful engineering company, which sponsors a 401(k) plan that requires standard eligibility. Sam, Tom and Pat are the only other employees, who 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 $28,000 and $30,000. Jack and Jill both defer $10,000 each. Sam, who is Jack and Jills 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?
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