CRPC - Module #7

The optimal withdrawal rate when taking systematic withdrawals depends on all of the following except

historic inflation rates. (The optimal withdrawal rate when taking systematic withdrawals depends on the inflation adjustments that will be made going forward, not on historic rates of inflation. It also is impacted by the participant's age, risk tolerance and asset allocation.)

Alicia has contributed $8,000 to a Roth IRA over the past four years. The account has grown to $10,000 with investment earnings. She is facing a financial bind and needs to withdraw $9,000. She will have to pay income tax and a 10% penalty on

$1,000. (Since the Roth contributions were made with after-tax dollars, Alicia can withdraw her contributions first. She could withdraw the entire $8,000 that she has contributed without any tax or penalty. Only $1,000 of her withdrawal will be subject to income tax or penalty.)

Periodic distributions from a qualified plan that take place over _____ years may not be rolled over into an IRA.

10 (Periodic distributions from a qualified plan that take place over nine years or less may be rolled over into an IRA. However, periodic distributions from a qualified plan that take place over a period of 10 years or more cannot be rolled over into an IRA.)

A ____ penalty is imposed for failing to take the required minimum distribution (RMD).

50% (The penalty for failing to take the RMD is 50% of the difference between what should have been taken and what was taken.)

Before rolling assets from an employer sponsored plan to an IRA one should consider which of the following?

All of the above. (the difference in creditor protection between the two savings vehicles the difference in when the 10% penalty will apply to distributions the difference in RMD rules that apply to the two savings vehicles) (Prior to doing a rollover of assets from an employer plan to IRA there are number of factors need to be considered and compared. These include an examination of fees, services offered, investment options, when penalty free withdrawals are available, when required minimum distributions may be required and protection of assets from creditors.)

Distributions from qualified plans, 403(b) plans, SEPs, SIMPLEs, and IRAs are assessed a 10% penalty if they are taken before age 59½. Which of the following is not an exception to this penalty?

The distribution is made to pay homeowners insurance. (The distribution is made to pay homeowners insurance.)

Which of the following events would result in income taxation to a plan participant?

The participant takes a distribution from a qualified plan and rolls it over into an IRA 75 days later. (A participant who waits more than 60 days to roll over a distribution will be subject to a 10% penalty (assuming the participant is under age 59½) and income taxation. Use of a conduit IRA or direct transfer to transfer money between qualified plans does not result in income taxation to the plan participant. Also, accepting a check made out to an IRA trustee and delivering the check is a permissible way to affect a direct transfer without imposing income tax upon the plan participant.)

When using the floor-and-upside strategy, all of the following are ideal for establishing the floor except

a municipal bond portfolio. (Municipal bonds are not ideal for creating an income floor because they have default risk. All of the other options would be suitable.)

The funds from a 403(b) plan may be rolled over into all of the following except

a nongovernmental 457 plan. (Funds from a 403(b) may not be rolled over into a nongovernmental 457 plan. They may be rolled into another 403(b) plan, an IRA, qualified plan, SEP, 457 plan that accounts for rollovers separately, or a conduit IRA.)

The 10% penalty on early distributions from a qualified plan can be avoided if

a plan loan is repaid on a timely basis. (A loan is not considered a distribution subject to taxation and possibly a 10% early withdrawal penalty if it is repaid on a timely basis and does not go into default. To avoid the 10% early withdrawal penalty, payments would need to be taken as substantially equal periodic payments over one's life expectancy. The exemption applies to certain medical expenses that are not reimbursed by insurance and exceed 10% (7.5% if over age 65) of the participant's AGI. The first-time home purchase exclusion applies only to IRAs.)

Which of the following statements is correct about qualified joint survivor annuities (QJSAs)

all pension plans must offer QJSAs. (All pension plans which include defined benefit, cash balance, money purchase, and target benefit plans must offer QJSAs.)

Once selected, beneficiaries of a qualified profit sharing plan can be changed

at any time. (Beneficiaries of a qualified profit sharing plan, normally, can be changed at any time.)

The increase in value in the shares of stock distributed from a qualified stock bonus plan is known as

net unrealized appreciation. (The increase in value in the shares of stock distributed from a qualified stock bonus plan is known as net unrealized appreciation.)

Participant loans are permitted from

qualified plans and 403(b)s. (Participant loans are permitted from qualified plans and 403(b)s but they are not permitted from IRAs, including SEPS.)

The distribution strategy that strives to mitigate sequence of returns risk by segmenting a portfolio according to when the funds will be needed is referred to as

the bucket strategy. (The bucket strategy strives to mitigate sequence of returns risk by segmenting a portfolio according to when the funds will be needed.)

A qualified plan must withhold 20% of any distribution that is

A qualified plan must withhold 20% of any distribution that is (The 20% withholding rule does not apply to direct rollover distributions or trustee-to-trustee transfers; the 20% withholding rule does apply to indirect rollover distributions, such as a 60-day rollover.)

When must the designated beneficiary be determined in order to avoid having to distribute the full IRA balance under the 5-year rule?

September 30 of the year following the participant's death. (The designated beneficiary must be determined by September 30 of the year following the participant's death in order to avoid having to distribute the full IRA balance under the 5-year rule.)

Jeffrey died after beginning his required minimum distribution payments. He has named his daughter as the sole beneficiary of his IRA. Which one of the following statements is correct regarding her options for this IRA?

She must calculate her annual minimum distribution requirement using the fixed-term method. (She must calculate her annual minimum distribution requirement using the fixed-term, or unrecalculated, method. The Uniform Table is only available to the original participant and spouse beneficiaries who choose to roll inherited IRAs to their own name. Non-spouse beneficiaries do not have the option of rolling inherited IRAs to their own name. The requirement that an IRA's balance be distributed within five years of the participant's death does not apply when there is a named beneficiary.)

Distributions from IRAs and SEPs must begin

by April 1 of the year following the year in which participants attain age 70½. (Distributions from IRAs and SEPs must begin by April 1 of the year following the year in which participants attain age 70½, regardless of employment status. Distributions from qualified plans, TSAs, and 457 plans must begin by this date or April 1 of the year following the year of retirement, whichever is later. Roth IRAs are exempt from the minimum distribution rule.)

In-service withdrawals prior to age 62 are not permitted from which of the following?

cash balance plans (In-service withdrawals at any age may be permitted from profit sharing plans (including ESOPs and stock bonus plans), assuming certain other requirements are met. In-service withdrawals prior to age 62 are not permitted from any pension plan, including cash balance plans.)

Which of the following is not a step in determining the best plan distribution option?

compare the options to what the plan may offer in the future (Reviewing the distribution options is the first step in determining the best plan distribution option. In order, the other steps are (2) project cash needs and sources of income, (3) calculate plan payments and tax implications, and (4) determine which option is most suitable. Comparing options that may be available in the future is not one of the steps.)

A trustee-to-trustee transfer is an example of a

direct rollover. (A trustee-to-trustee transfer is an example of a direct rollover. A 60-day rollover would be an example of an indirect rollover. A conduit IRA is used to shift assets from the qualified plan of one employer to the qualified plan of another employer using the conduit IRA as an intermediate step.)

The IRS permits hardship withdrawals from 401(k) plans in cases of "immediate and heavy financial need." Which of the following is not considered immediate and heavy?

payments to prevent defaulting on a mortgage for a second home (Although payments to prevent eviction from a primary residence are considered immediate and heavy, payments for a second home are not. The other options are considered immediate and heavy expenses.)

Ted died in a car accident on January 31st of this year shortly after celebrating his 67th birthday. He had not started taking distributions from his IRA. His 37-year-old wife, Heather, is the sole beneficiary. She does not need income from this IRA. Her best distribution option would be to

roll the funds into an IRA in her name and begin distributions when she reaches age 70½. (If Heather elected to roll over to an IRA in her own name she would achieve tax deferral until she reached age 70½ and would have the option of using the uniform table rather than the single life table (which will further stretch out the payments and allow increased tax deferral). The other options are available but are not the best options available to Heather.)

All of the following are disadvantages to performing an indirect rollover from a qualified plan to an existing IRA except

the entire distribution will be subject to immediate taxation. (By rolling over assets to an existing IRA, the plan assets less the amount withheld escape immediate taxation. Taxes are deferred until the participant begins withdrawing money. A mandatory 20% withholding is imposed on a qualified plan distribution if the plan issues a check to the participant. Finally, if an indirect rollover is not completed within 60-days the full distribution amount will be taxed.)

All of the following are characteristics of a qualified longevity annuity contracts (QLACs) except

the participant can elect either a fixed or variable annuity. (QLACs must be fixed (not variable) annuities. The other statements are true regarding QLACs)

Taxes may be deferred on a qualified plan distribution if it is rolled over to an IRA, TSA, SEP, governmental 457 plan, or to another qualified plan. All are true regarding rollovers except

they generally result in less money for retirement. (Rollovers generally result in more money for retirement. Tax deferral enables the entire distribution to continue to earn tax-deferred money. Taking a lump-sum distribution results in immediate taxation. Amounts distributed from qualified plans must be transferred to a new account within 60 days of receipt to avoid taxation. All distributions from the named tax-deferred plans result in taxation as ordinary income, capital gains treatment is not available.)

To remain qualified, pension plans must prohibit in-service withdrawals until employees reach age

62. (Pension plans cannot keep qualified status if they permit in-service withdrawals to employees younger than age 62. Once employees reach age 62, pension plans can allow withdrawals)

A direct rollover is a transaction in which benefits from a qualified plan are rolled over directly to

another eligible retirement plan. (another eligible retirement plan. A direct rollover may be accomplished by any reasonable means of direct payment to an eligible retirement plan, including a wire transfer or mailing of a check negotiable only by the plan's trustee. Using a conduit IRA is a means of an indirect rollover.)

Not all distributions from a qualified plan may be rolled over into a traditional IRA. Which one of the following distributions is an "eligible rollover distribution"?

the vested cash balance in the plan (The participant's vested cash balance in the plan may be rolled over to an existing IRA. Distributions that are part of a series of substantially equal payments for the life of the participant or the joint lives of the participant and the participant's designated beneficiary are not eligible to be rolled over. Hence, such distributions are not eligible rollover distributions. Neither are dividends on employer securities held by the plan that are distributed in cash to participants or the taxable cost of life insurance provided by the plan.)