Qualified Plans

What is the penalty for not taking the required minimum distribution (RMD) for the year?

50% of the amount short of what should have been taken

At what minimum age can retirement withdrawals be made from an individual retirement account (IRA) without a penalty?

59½ years old

What is the penalty, if any, for overcontribution to an IRA?

6%

Which of the following is an acceptable investment for an IRA?

A mutual fund specializing in speculative bonds

Who can contribute to an IRA?

Anyone with earned income

Contributions to an IRA can be made up to which of the following dates?

April 15 of the year following the year the contribution is for

Which of the following are true of Roth IRAs but not Traditional IRAs?

Distributions are not required after reaching 72.

Which of the following are true of nonqualified plans but not true of qualified plans? I. Contributions are not tax deductible II. Contributions are tax deductible III. Plan needs IRS approval IV. Plan does not need IRS approval

I. Contributions are not tax deductible AND IV. Plan does not need IRS approval

Which of the following are true of traditional IRAs but not of Roth IRAs? I. Contributions may be deductible II. Contributions are always deductible III. There is a 50% penalty for failing to take the required minimum distribution (RMD) IV. There are income limits for making contributions

I. Contributions may be deductible AND III. There is a 50% penalty for failing to take the required minimum distribution (RMD)

Roth IRAs I. have no minimum required distributions at any age. II. have higher contribution limits than those allowed for a traditional IRA. III. allow the withdrawal of earnings tax free as long as the account has been opened for two years. IV. can be contributed to in the same year as a traditional IRA.

I. have no minimum required AND IV. can be contributed to in the same year as a traditional IRA.

Which of the following are true of qualified plans but not true of nonqualified plans? I. Contributions are not tax deductible II. Contributions are tax deductible III. Plan needs IRS approval IV. Plan does not need IRS approval

II. Contributions are tax deductible AND III. Plan needs IRS approval

Which of the following are available to participants in a 401(k) plan that are not available to IRA holders? I. Tax deferral on the earnings II. Hardship withdrawals III. The catch-up provision for those who are age 50 and older IV. Loans against the vested balance

II. Hardship withdrawals AND IV. Loans against the vested balance

What is a big advantage Roth IRAs have over traditional IRAs?

Normally distributions are tax free

Which of the following are true of both qualified plans and nonqualified plans?

The accounts grow tax deferred

Who is responsible for meeting the desired returns on a defined benefit plan?

The sponsor

A 40-year-old individual is not covered by a retirement plan at work. What is the maximum contribution this individual can make to a traditional IRA this year?

The current maximum allowed by the IRS, which will all be deductible.

Which of the following are true of qualified plans but not true of nonqualified plans?

The plan cannot discriminate

Which of the following are true of nonqualified plans but not true of qualified plans?

The plan may discriminate

Who benefits most from a defined contribution plan?

Younger employees

Your customer retired two years ago at age 70. He recently took a job with a retailer greeting customers. He would like to contribute to a retirement plan to accumulate additional money with the view to leave something to his grandchildren. You would most likely advise him to open

a Roth IRA.

All of the following are true of Roth IRAs except

distributions are required after reaching 72.

Required minimum distributions (RMDs) for IRAs must begin by

the year after the participant turns 72.

Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan except

variable annuities

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed?

$8,500 **Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax).

All of the following are true of Roth IRAs except

Contributions may be deductible depending on income limits

In a defined benefit plan I. the benefit amount is fixed. II. the benefit amount is variable. III. the contribution amount is fixed. IV. the contribution amount can vary.

I. the benefit amount is fixed. AND IV. the contribution amount can vary.

In a defined contribution plan I. the benefit amount is fixed. II. the benefit amount is variable. III. the contribution amount is fixed. IV. the contribution amount can vary.

II. the benefit amount is variable. AND III. the contribution amount is fixed.

Which of the following retirement plans does not require minimum distributions once the participant has reached age 72?

Roth IRA

Your client retired from his job three years ago and placed all of the proceeds of his 401(k) distribution into a rollover IRA at his local bank. If the client wishes to transfer the funds to an IRA at your broker-dealer, which of the following statements would be true?

There is no limit to the number of transfers per year between custodians.

Who is responsible for meeting the desired returns on a defined contribution plan?

employee

All of the following are benefits of a traditional IRA except

no penalty is charged for failing to withdraw funds after age 72.

Who benefits most from a defined benefit plan?

older employees

Distributions from IRAs are taxed at.

ordinary income tax rates on the full amount of the distribution.