F TPCP 101 EXAM STUDY GUIDE
irst dollar coverage rule - Answer -for HSAs - insurer is prohibited from covering most
health expenses until the covered individual has paid the deductible amount out of
pocket
exceptions: preventative care
health savings accounts - Answer -participation in HRAs or FSAs will disqualify an
individual from being allowed to contribute
however, limited purpose FSA/HRA (dental/vision) are allowed
Tricare/Medicare disqualifies you as well
they have triple tax benefits
1) deduction for contributions 2) growth is tax deferred 3) distributions are tax & penalty
free if used for qualifying expenses
prioritize contributions to older spouse, expenses from younger spouse
individuals should stop contributions 6-7 months prior to 70th birthday and starting SSA
benefits (which includes enrolling in Medicare Part A)
traditional IRA essentials - Answer -high income & active participation in ER sponsored
plan must both be present to eliminate the deductibility of a Traditional IRA contribution
- no limit on the ability to make the contribution, only the deductibility of it
report non-deductible IRA contributions on form 8606 - counts cumulative nondeductible
contributions - best practice is to always file form each year even when not required
IRA pro rata rule - Answer -in the event an IRA owner has any after-tax amounts in
their IRA, this rule applies
the % of an IRA distribution that is tax-free is the same as the % of the after tax dollars
the IRA owner has in all their IRAs compared to the total amount of dollars in all their
iRAs
potential strategy to roll over existing Traditional IRA $ into an ER plan - by rolling it into
a 401k or similar plan, an individual can effectively clear their iRA balance, allowing
them to take advantage of the backdoor Roth IRA without being impacted by the pro-
rata rule in future years
Roth IRA requirements - Answer -two requirements to contribute: must have
compensation and be subject to the income eligibility requirement that is adjusted for
inflation each year
,if married couples are considering contributions, they should contribute to the older
spouse's first because they will reach age 59 1/2 first and can take tax/penalty free
distributions first
step transaction doctrine - Answer -regarding backdoor roth ira contributions
a legal principle that basically says you cannot use multiple steps to do something that
you can't do directly in one step - however, most experts agree there is no minimum
amount of time to wait until converting funds
some go by the one statement rule - wait until the particular custodian has issued one
statement showing the contribution made inside the traditional IRA
529 to Roth - Answer -"like to like" is the beneficiary of the 529 and the owner of the
Roth IRA
the beneficiary of the 529 must have compensation - earned income of some kind for
them to make this contribution - however, the regular income limits that apply to direct
Roth IRA contributions DO NOT apply to this transfer
two holding periods must be satisfied: the 529 plan must have been in existence for 15
years and no $ contributed in the last 5 years or earnings on those funds can be
transferred
there is a lifetime cap of $35k that can be transferred
Mega backdoor Roth essentials - Answer -some plans offer after-tax plan contributions
(not Roth salary deferrals) - however, many plans do not offer this and the individual al
must have room left to make the contributions under the annual additions limit
1. client must have enough compensation to make these contributions
2. the after-tax contribution must pass testing (the Average Contribution Percentage
test)
safe harbor plans allow individual to make salary deferrals up to the salary deferral limit,
but do NOT provide the same benefit for after-tax contributions - you CANNOT safe
harbor your safe out of ACP testing for after-tax contributions
the plan must allow for periodic in-service distributions - the in service distributions allow
the conversions to take place
coordinating contributions among employer plans - Answer -can defer up to the total
salary deferral limit between multiple plans - even if they are different types of plans
(401(k), 403(b) - cannot exceed
,exception is for governmental 457 deferred compensation plan - the salary deferral
limits are separate
the salary deferral limits for ER plans are coordinated across all plans
a single limit applies to every plan in which an individual participates
the overall limit is looked at separately for each plan as long as the employers are
unrelated
FSA overview - Answer -you should only count on medical expenses that you are likely
to incur
employers may:
1) allow participants to roll over a limited amount of funds to next year
2) or spend amounts that were not used in previous year in the first 2 months of the
year
eligibility typically ends of the individual's last day of employment, not the last day of the
month of their employment
any new medical expenses after date of separation will not be eligible for
reimbursement from a healthcare fsa
individuals who either plan to leave their ER or believe it is possible they may be
terminated may wish to limit contributions even more than normal
for limited purpose fsas, can only consider healthcare expenses that are eligible (dental
or vision)
dependent care fsa - Answer -designed to assist with dependent care - childcare,
preschool, summer camps, non-employer sponsored before and after school programs
also reduces both OI tax and fica taxes
there is NO rollover option - they are truly use it or lose it accounts
excess contributions to IRAs - Answer -excess IRA contributions have a 6% penalty on
the excess contribution for each year it remains in the account
timely removal of excess contributions - removing it and net income attributable (NIA) by
the tax return deadline (including extensions so October 15th)
if you miss the deadline, the 6% penalty will apply to the excess contribution amount -
only the excess has to be removed
there is now a 6 year statute of limitations on most excess contributions penalties
, excess contributions to employer plans - Answer -the deadline to fix an excess salary
deferral is by 4/15 with no extensions (have to fix excess contribution + any earnings or
losses distributed to account_
the excess deferral amount is included in the individuals income in the year they make
the excess deferral AND the excess deferral is taxed again when it is distributed from
the plan
penalty is double taxation!
capital gains netting - Answer -separate gains & losses into ST & LT
net short term gains & losses
net long-term gains & losses (including any carryforward losses)
if one is a gain and the other is a loss, net them against each other
LTCG from sale of collectibles are subject to a different rate, up to a max of 28% -
includes crypto
crypto is not subject to the wash sale rule
qualified dividends - Answer -benefit from lower "capital gains" tax rates if they meet
specific criteria:
must be paid by a US corporation or a qualified foreign corporation, and the stock needs
to be held for more than 60 days within the 121 day period around the ex-dividend date
capital gains distributions - Answer -automatically taxed at LTCG rates, regardless of
how long the individual owned the investment prior to the distribution
can result in an individual paying tax on an investment that has lost value
net investment income tax - Answer -Medicare Unearned Income Tax started in 2013 -
an additional "unearned income Medicare contributions tax" of 3.8% (for individuals and
trusts) on lesser of:
Net Investment income or excess of modified AGI over threshold amounts
investment income includes: gross income from interest, dividends, annuities, royalties,
and rents; other gross income derived from a passive activity (real estate investing_ or a
business of trading in financial instruments or commodities, and net gain attributable to
the disposition of property (capital gains)
investment income is the sum of the above, reduced by deductible investment expenses
(limits that apply for regular tax purposes apply here, too!)
irst dollar coverage rule - Answer -for HSAs - insurer is prohibited from covering most
health expenses until the covered individual has paid the deductible amount out of
exceptions: preventative care
health savings accounts - Answer -participation in HRAs or FSAs will disqualify an
individual from being allowed to contribute
however, limited purpose FSA/HRA (dental/vision) are allowed
Tricare/Medicare disqualifies you as well
they have triple tax benefits
1) deduction for contributions 2) growth is tax deferred 3) distributions are tax & penalty
free if used for qualifying expenses
prioritize contributions to older spouse, expenses from younger spouse
individuals should stop contributions 6-7 months prior to 70th birthday and starting SSA
benefits (which includes enrolling in Medicare Part A)
traditional IRA essentials - Answer -high income & active participation in ER sponsored
plan must both be present to eliminate the deductibility of a Traditional IRA contribution
- no limit on the ability to make the contribution, only the deductibility of it
report non-deductible IRA contributions on form 8606 - counts cumulative nondeductible
contributions - best practice is to always file form each year even when not required
IRA pro rata rule - Answer -in the event an IRA owner has any after-tax amounts in
their IRA, this rule applies
the % of an IRA distribution that is tax-free is the same as the % of the after tax dollars
the IRA owner has in all their IRAs compared to the total amount of dollars in all their
iRAs
potential strategy to roll over existing Traditional IRA $ into an ER plan - by rolling it into
a 401k or similar plan, an individual can effectively clear their iRA balance, allowing
them to take advantage of the backdoor Roth IRA without being impacted by the pro-
rata rule in future years
Roth IRA requirements - Answer -two requirements to contribute: must have
compensation and be subject to the income eligibility requirement that is adjusted for
inflation each year
,if married couples are considering contributions, they should contribute to the older
spouse's first because they will reach age 59 1/2 first and can take tax/penalty free
distributions first
step transaction doctrine - Answer -regarding backdoor roth ira contributions
a legal principle that basically says you cannot use multiple steps to do something that
you can't do directly in one step - however, most experts agree there is no minimum
amount of time to wait until converting funds
some go by the one statement rule - wait until the particular custodian has issued one
statement showing the contribution made inside the traditional IRA
529 to Roth - Answer -"like to like" is the beneficiary of the 529 and the owner of the
Roth IRA
the beneficiary of the 529 must have compensation - earned income of some kind for
them to make this contribution - however, the regular income limits that apply to direct
Roth IRA contributions DO NOT apply to this transfer
two holding periods must be satisfied: the 529 plan must have been in existence for 15
years and no $ contributed in the last 5 years or earnings on those funds can be
transferred
there is a lifetime cap of $35k that can be transferred
Mega backdoor Roth essentials - Answer -some plans offer after-tax plan contributions
(not Roth salary deferrals) - however, many plans do not offer this and the individual al
must have room left to make the contributions under the annual additions limit
1. client must have enough compensation to make these contributions
2. the after-tax contribution must pass testing (the Average Contribution Percentage
test)
safe harbor plans allow individual to make salary deferrals up to the salary deferral limit,
but do NOT provide the same benefit for after-tax contributions - you CANNOT safe
harbor your safe out of ACP testing for after-tax contributions
the plan must allow for periodic in-service distributions - the in service distributions allow
the conversions to take place
coordinating contributions among employer plans - Answer -can defer up to the total
salary deferral limit between multiple plans - even if they are different types of plans
(401(k), 403(b) - cannot exceed
,exception is for governmental 457 deferred compensation plan - the salary deferral
limits are separate
the salary deferral limits for ER plans are coordinated across all plans
a single limit applies to every plan in which an individual participates
the overall limit is looked at separately for each plan as long as the employers are
unrelated
FSA overview - Answer -you should only count on medical expenses that you are likely
to incur
employers may:
1) allow participants to roll over a limited amount of funds to next year
2) or spend amounts that were not used in previous year in the first 2 months of the
year
eligibility typically ends of the individual's last day of employment, not the last day of the
month of their employment
any new medical expenses after date of separation will not be eligible for
reimbursement from a healthcare fsa
individuals who either plan to leave their ER or believe it is possible they may be
terminated may wish to limit contributions even more than normal
for limited purpose fsas, can only consider healthcare expenses that are eligible (dental
or vision)
dependent care fsa - Answer -designed to assist with dependent care - childcare,
preschool, summer camps, non-employer sponsored before and after school programs
also reduces both OI tax and fica taxes
there is NO rollover option - they are truly use it or lose it accounts
excess contributions to IRAs - Answer -excess IRA contributions have a 6% penalty on
the excess contribution for each year it remains in the account
timely removal of excess contributions - removing it and net income attributable (NIA) by
the tax return deadline (including extensions so October 15th)
if you miss the deadline, the 6% penalty will apply to the excess contribution amount -
only the excess has to be removed
there is now a 6 year statute of limitations on most excess contributions penalties
, excess contributions to employer plans - Answer -the deadline to fix an excess salary
deferral is by 4/15 with no extensions (have to fix excess contribution + any earnings or
losses distributed to account_
the excess deferral amount is included in the individuals income in the year they make
the excess deferral AND the excess deferral is taxed again when it is distributed from
the plan
penalty is double taxation!
capital gains netting - Answer -separate gains & losses into ST & LT
net short term gains & losses
net long-term gains & losses (including any carryforward losses)
if one is a gain and the other is a loss, net them against each other
LTCG from sale of collectibles are subject to a different rate, up to a max of 28% -
includes crypto
crypto is not subject to the wash sale rule
qualified dividends - Answer -benefit from lower "capital gains" tax rates if they meet
specific criteria:
must be paid by a US corporation or a qualified foreign corporation, and the stock needs
to be held for more than 60 days within the 121 day period around the ex-dividend date
capital gains distributions - Answer -automatically taxed at LTCG rates, regardless of
how long the individual owned the investment prior to the distribution
can result in an individual paying tax on an investment that has lost value
net investment income tax - Answer -Medicare Unearned Income Tax started in 2013 -
an additional "unearned income Medicare contributions tax" of 3.8% (for individuals and
trusts) on lesser of:
Net Investment income or excess of modified AGI over threshold amounts
investment income includes: gross income from interest, dividends, annuities, royalties,
and rents; other gross income derived from a passive activity (real estate investing_ or a
business of trading in financial instruments or commodities, and net gain attributable to
the disposition of property (capital gains)
investment income is the sum of the above, reduced by deductible investment expenses
(limits that apply for regular tax purposes apply here, too!)
