8. Thomas, age 55 and the owner of a computer repair shop, has come to you to es

Question

8. Thomas, age 55 and the owner of a computer repair shop, has come to you to establish a qualified plan. The repair shop, which employs mostly young employees, has had steady cash flows over the past few years, but Thomas foresees shaky cash flows in the future as new computer prices decline. Thomas would like to allocate as much of the plan contributions to himself as possible. He is the only employee whose compensation is in excess of $100,000. Which of the following qualified plans would you advise Thomas to establish? a Profit sharing plan b. Defined benefit pension plan. c. Cash balance pension plan. d. Money purchase pension plan (Integrated). 9. Which of the following statements regarding determination letters Cot qualified plans is true a. When a qualified plan is seated, the plan sponsor must request a determination letter from the IRS b. An employer who adopts a prototype plan must request a determination letter from the IRS

Explanation / Answer

8.

Defined benefit pension plan, cash balance pension plan, and money purchase pension plan require mandatory funding. Therefore, any of these plans would not be an appropriate choice for T because unstable cashflows are expected in the future. Thus, the best choice for T in the given situation would be profit sharing plan.

The correct answer is a.

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