Chapter 3 Retirement Quiz

Mildred is age 58. She withdraws a sum of money from her qualified plan. What is the penalty?

10% penalty tax

A nonqualified plan:

Permits discrimination in favor of certain employees.

Which of the following is not a characteristic of qualified plans?

Employee contributions are not tax-deductible.

Special tax advantages of qualified plans include all of the following, EXCEPT: a. Contributions made by the employer are tax-deductible and are not treated as taxable income for the employee. c. Interest on the contributions grows tax-deferred. d. Interest earned is tax-deferred.

Distributions are tax-deferred.

Maggie incurred a 10% penalty to distributions from her qualified plan because they were made before she turned

59 1/2

If Becky wants to take a distribution from her qualified retirement plan, she should know that distributions can be made:

At any time.

What are the two terms used to describe whether or not special federal tax benefits apply to retirement plans?

Qualified; nonqualified

All of the following are characteristics of qualified retirement plans, EXCEPT: Select one: a. Employer's contributions are tax-deductible as a business expense. b. Employee contributions are made with pretax dollars. c. Contributions are not taxed until withdrawn.

There are two types of qualified plans.

All of the following are characteristics of qualified retirement plans, EXCEPT: a. Contributions made by the employer are tax-deductible as a business expense. b. Interest earned on the investment is tax-deferred until funds are withdrawn. d. Plans are non-discriminatory.

Contributions are not tax-deductible for the employee.

What happens if Becky takes her distributions from her qualified plan prior to age 59 1/2?

A 10% penalty tax is assessed.