Retirement Planning Final Exam
Which of the following are correct? 1. SIMPLEs provide incentives to small employers to adopt retirement plans for employees with less administrative costs and fewer set-up procedures than qualified plans. 2. SIMPLE IRAs can permit loans to employees. 3. SIMPLE IRAs require the employer either to match the employee contributions of those who participate or to provide nonelective contributions to all eligible employees. A) 3 only. B) 1 and 2. C) 1 and 3. D) All of the above.
C) 1 and 3. Rationale Statement 2 is false. Loans are not permitted from any IRA. Statements 1 and 2 are correct.
The early distribution penalty of 10 percent does not apply to IRA distributions: 1. Made after attainment of the age of 55 and separated from service. 2. Made for the purpose of paying qualified higher education costs. 3. Paid to a designated beneficiary after the death of the account owner who had not begun receiving minimum distributions. A) 1 only. B) 1 and 3. C) 2 and 3. D) 1, 2, and 3.
C) 2 and 3. Rationale The first statement is incorrect because it is an exception to the 10% penalty for qualified plan distributions, not from IRAs. The second and third statements are correct exceptions for IRAs.
Which term or phrase best completes the following sentence: "Employee contributions in 403(b) plans are ______." A) Never matched. B) Never fully vested. C) Always fully vested. D) Vested based on age and years of service.
C) Always fully vested.
Which statements are generally correct regarding penalties associated with IRA accounts? 1. Distributions made prior to 59½ are subject to the 10% premature distribution penalty. 2. There is a 50% excise tax on a required minimum distribution not made by April 1 of the year following the year in which age 70½ is attained. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.
C) Both 1 and 2. Rationale Statements 1 and 2 are both correct.
Ah and Ha, both age 33, are married, not covered by a qualified plan, and file a joint tax return. They have AGI of $164,000. Ah's mother contributed $2,000 to a Coverdell Education Savings Account for each of their two children. What is the most that Ah and Ha can contribute in total together to a Traditional IRA for 2016? A) $0. B) $1,000. C) $5,500. D) $11,000.
D) $11,000. Rationale The maximum contribution to Traditional and Roth IRAs is a total of $5,500 per person (who has not attained age 50) for 2016
Age 52, works for NYU, participates in tax-sheltered annuity. How much can he defer in 2017? a. $12,500 b. $15,500 c. $18,000 d. $24,000
d. $24,000 18,000 + 6,000(catch-up) = 24,000
Age 51, earns $300,000, SIMPLE, employer matches all deferrals 100% up to a 3% contribution. What is the maximum total contribution to account, including both employee and employer contributions? a. $20,600 b. $23,600 c. $21,500 d. $24,500
d. $24,500 3% • 300,000 = 9,000 --> 9,000 + 15,500 = 24,500 (15,500 is SIMPLE contribution + catch-up)
Worked for university for 30 years. Never deferred money into 457 plan. Will attain normal retirement age in 2018. How much can be contributed into plan for 2017? a. $0 b. $18,000 c. $24,000 d. $36,000
d. $36,000 $18,000 + 18,000(3 year catch-up) = 36,000
A SEP can be established by which of the following? 1. S Corporation 2. LLC taxed as partnership 3. C Corporation a. 1 only b. 1 and 2 c. 2 and 3 d. 1, 2, and 3
d. 1, 2, and 3 Eligible entities include: Sole Proprietorship, Partnership, Corporation, S-Corporation
Which of the following statements is/are correct regarding the early distribution 10 percent penalty tax from a qualified plan? 1. Retirement at age 55 or older exempts the distributions from the early withdrawal penalty tax. 2. Distributions used to pay medical expenses in excess of the 10% of AGI for a tax filer who itemizes are exempt from the early withdrawal penalty. 3. Distributions that are part of a series of equal periodic payments paid over the life or life expectancy of the participant are exempt from the early withdrawal penalty. a. 3 only. b. 1and3. c. 2and3. d. 1,2,and3.
d. 1,2,and3.
Which of the following types of 457 plans permit employees to defer recognition of income without a risk of forfeiture? 1. Public 457(b) plans. 2. 457(f ) plans. 3. Private 457(b) plans. A) 1 only. B) 2 only. C) 1 and 3. D) 1, 2, and 3.
A) 1 only. Rationale Assets in 457(f ) plans and private 457(b) plans must be subject to a substantial risk of forfeiture.
Which of the following entities cannot establish 457(b) plans? A) Churches. B) Private Hospitals. C) Farmers' Cooperatives. D) Labor Unions.
A) Churches.
Roger converted all $100,000 in his traditional IRA to his Roth IRA on December 1, 2012. His Form 8606 from prior years shows that $20,000 of the amount converted is his basis. Roger included $80,000 ($100,000 - $20,000) in his gross income on his Form 1040 for the year. On April 5th, 2016, Roger made a regular contribution of $5,000 to a Roth IRA for the 2015 year. Roger took a $10,000 distribution from his Roth IRA on July 31st of 2016 to purchase a ticket for a trip on a cruise ship for his 61st birthday present to himself. How is the distribution taxed if the value of the account just before the distribution equals $120,000? A) The distribution is tax free and penalty free. B) The distribution is not subject to tax, but he will have to pay a penalty of $500. C) $1,250 of the distribution is taxable but there is no penalty. D) $1,250 of the distribution is taxable and there is a penalty of $500.
A) The distribution is tax free and penalty free. Rationale The question first requires a determination of whether the distribution is a qualified distribution or not. It is not a qualified distribution. Roger is over the age of 59½ but does not meet the five year rule. Therefore, the distribution first comes out of contributions, then conversions, then earnings. Since he is over the age of 59½, there is no penalty assessed. The entire distribution is tax free and not subject to a penalty.
Kim Cat, age 42, earns $300,000 annually as an employee for CTM, Inc. Her employer sponsors a SIMPLE retirement plan and matches all employee contributions made to the plan dollar-for-dollar up to 3% of covered compensation. What is the maximum contribution (employer and employee) that can be made to Kim's SIMPLE account in 2016? A) $20,450. B) $21,500. C) $25,000. D) $28,000
B) $21,500. Rationale The maximum total contribution is $21,500. ($12,500 maximum employee contribution for 2016 + $9,000 employer match). The maximum employee contribution for 2016 is $12,500. The employer has chosen to make matching contributions up to 3% of compensation (the SIMPLE maximum). Therefore, the employer can make a contribution of up to $9,000 ($300,000 compensation x 3%).
Dr. Means has taught accounting at FAU for the last 30 years and is expected to retire next year, at age 65. FAU sponsors a 403(b) plan and a 457(b) governmental plan. She has been diligent and has always contributed the maximum amounts to each of the plans. If her salary is $100,000, how much can she contribute in total to both plans in 2016? A) $24,000. B) $48,000. C) $60,000. D) $63,000.
B) $48,000. Rationale She can defer the maximum of $18,000 to each plan and the additional over the age of 50 catch up of $6,000 for both plans, which totals $48,000. She cannot use the other catch up provisions for 403(b) plans or 457 plans since she has maximized her deferrals in the past.
Antoine immigrated from Italy last century, became a citizen and has worked the better part of his life in the United States, for which he is truly thankful. His full retirement age (normal retirement age) for Social Security benefits is age 66, but after a hard life working he wants to retire at age 63 and travel throughout America and back to his homeland. If his benefit at age 66 is $1,000 per month, how much will he receive in Social Security retirement benefits if he begins receiving benefits at age 63? A) $700.00. B) $800.00. C) $812.50. D) $1,000.00. The same benefit, he will simply not receive it for as long.
B) $800.00. Rationale The benefit reduction for early retirement is 5/9ths of 1% for the first 36 months. If Antoine retires 3 years early at age 63, then his retirement benefit will be reduced by 20% to $800 per month.
A SEP is not a qualified plan and is not subject to all of the qualified plan rules. However, it is subject to many of the same rules. Which of the following are true statements? 1. SEPs and qualified plans have the same funding deadlines. 2. The contribution limit for SEPs and qualified plans (defined contribution) is $53,000 for the year 2016. 3. SEPs and qualified plans have the same ERISA protection from creditors. 4. SEPs and qualified plans have different nondiscriminatory and top-heavy rules. A) 1 only. B) 1 and 2. C) 2 and 4. D) 1, 2, 3, and 4.
B) 1 and 2. Rationale SEPs and qualified plans can be funded as late as the due date of the return plus extensions. The maximum contribution for an individual to a SEP is $53,000 for 2016 ($265,000 maximum compensation x 25%, limited to $53,000). Thus, statements 1 and 2 are correct. Qualified plans are protected under ERISA. IRAs and SEPs do not share this protection. Both types of plans have the same nondiscriminatory and top-heavy rules.
Which of the following statements is/are correct regarding TSAs and 457 deferred compensation plans? 1. Both plans require contracts between an employer and an employee. 2. Participation in either a TSA or a 457 plan will cause an individual to be considered an "active participant for purposes of phasing out the deductibility of Traditional IRA contributions. 3. Both plans allow 10-year forward averaging tax treatment for lump-sum distributions. 4. Both plans must meet minimum distribution requirements that apply to qualified plans. A) 1 only. B) 1 and 4. C) 2, 3, and 4. D) 1, 2, and 4.
B) 1 and 4. Rationale Statements 1 and 4 are correct. Statement 2 is incorrect because a 457 plan is a deferred compensation arrangement that will not cause a participant to be considered an "active participant." Statement 3 is incorrect because 10-year forward averaging is not permitted from either plan, since neither is a qualified plan.
Taylor, age 25, works for Swim America. Swim America adopted a SIMPLE plan 6 months ago. Taylor made an elective deferral contribution to the plan of $8,000, and Swim America made a matching contribution of $2,400. Which of the following statements is/are correct? 1. Taylor can withdraw his entire account balance without terminating employment. 2. Taylor can roll his SIMPLE IRA into his Traditional IRA. 3. Taylor will be subject to ordinary income taxes on withdrawals from the SIMPLE. 4. Taylor may be subject to a 25% early withdrawal penalty on amounts withdrawn from the SIMPLE. A) 1 and 2. B) 1 and 3. C) 2, 3, and 4. D) 1, 3, and 4.
D) 1, 3, and 4. Rationale Statement 2 is incorrect. A SIMPLE IRA cannot be rolled in to a traditional IRA until the participant has been in the SIMPLE IRA for two years. Tyler has only been in the SIMPLE for 6 months.
Joe Bob receives stock options (ISOs) with an exercise price of $18 when the stock is trading at $18. Joe Bob exercises these options two years after the date of the grant when the stock price is $39 per share. Which of the following statements is correct? a. Upon exercise Joe Bob will have no regular income for tax purposes. b. Joe Bob will have W-2 income of $21 per share upon exercise. c. Joe Bob will have $18 of AMT income
The correct answer is a. Joe Bob does not have income at the date of exercise. Joe Bob's adjusted basis will be $18. The AMT will be the difference between the fair market value and the exercise
Mary Jane received 1,000 NQSOs with an exercise price of $25 per share when the stock was $25 on the market. Two years from the date of grant Mary Jane exercises when the stock price is $102. Mary Jane: a. Has W-2 income of $25,000. b. Has an AMT adjustment of $77,000. c. Has W-2 income of $
The correct answer is c. Mary Jane will have W-2 income of the difference between the market price and the exercise price ($102 - $25 x $1,000 = $77,000). She will not have an AMT adjustment f
Ricky receives stock options for 12,000 shares of XYZ Corporation with an exercise price of $10 when the stock is trading on the national exchange for $10 per share. The XYZ company plan is an Incentive Stock Option Plan. Which of the following statements are true regarding the options? 1. Ricky will be required to hold any ISOs for more than a year after exercise and more than two years from the grant date to have long-term capital gains. 2. 2,000 of the options are NQS
The correct answer is c. To the extent the fair market value of the stock for which the ISO is exerciseable for the first time during any calendar year exceeds $100,000, the excess is treated as a nonstatutory stock option. Therefore, 2,000 of the options ar
Seth converts $100,000 in his traditional IRA to a Roth IRA in October of this year. The value of the converted assets in the Roth IRA drops by 40% due to a significant decline in the stock market that occurs 1 month after the October conversion. How much income does Seth report in the current year from the conversion and what is the tax treatment of the conversion? a. $100,000 ordinary income b. $100,000 capital gain income c. $60,000 ordinary income d. $60,000 capital gain income e. $100,000 ordinary income and a $40,000 capital loss
a. $100,000 ordinary income
Colin receives a lump-sum distribution of employer securities (1,000 shares) from his stock bonus plan in Year 1 worth $140,000 ($140 per share). The total value of his employer contributions over the years was $30,000. Colin sells all of his distributed shares 3 months after he received it as a distribution from the qualified plan. He received proceeds of $150,000 from the sale. How much is Colin's long-term capital gain upon sale? a. $110,000 b. $120,000 c. $30,000 d. $40,000
a. $110,000
Which of the following are benefits of converting assets in a qualified plan to a Roth account through an in-plan Roth rollover? 1. The conversion may result in a reduction in income tax in future years. 2. The conversion will result in increasing after-tax deferred assets and reducing the gross estate. 3. The conversion will eliminate the need for minimum distributions during the life of the participant. a. 1and2. b. 2and3. c. 1and3. d. 1,2and3.
a. 1and2.
Kay turned 70½ on March 17th of this year. Her profit-sharing year-end account balance was $500,000 for last year. Assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, and 72, is 27.4, 26.5, and 25.6, respectively. what is the deadline for Kay to take her first RMD? a. By 4/1 of next year. b. By 4/15 of next year. c. By 12/31 of next year. d. By 12/31 this year.
a. By 4/1 of next year.
In June 2014, Cody converts $100,000 in his 401(k) plan to a Roth account through a in-plan Roth rollover. The value of the assets in the Roth account drops by 40 percent due to a significant decline in the stock market that occurs in August 2014. The in-plan Roth rollover results in Cody incurring $100,000 of taxable income, when he could have waited and converted only $60,000 (after the 40 percent drop). Which of the following statements is correct? a. Cody cannot recharacterize the conversion, but he will have a larger after-tax basis, which could be helpful in the event of a nonqualified distribution. b. Cody can recharacterize as long as it is done within six months from the conversion. c. Cody can recharacterize after December 31, 2014. d. Cody cannot recharacterize, but can take a deduction on Schedule D for the loss when he files his Form 1040.
a. Cody cannot recharacterize the conversion, but he will have a larger after-tax basis, which could be helpful in the event of a nonqualified distribution.
Which can be excluded from SEP partnership? a. Employees covered by collective bargaining agreement b. Part time employees c. Employees over 65 d. Owner employees
a. Employees covered by collective bargaining agreement
All of the following are considered earned income except: a. K-1 income from an S corporation b. W-2 income c. Self-employment income d. Alimony
a. K-1 income from an S corporation
Roger and Robin were happily married until Roger fell in love with Sam. As a result, Roger and Robin have agreed they need to get a divorce. As part of the process, the court has provided a domestic relations order that calls for Robin's profit-sharing plan to be divided into equal portions such that Roger will have his own account with half of the value of the retirement account. What type of approach has been taken? a. The separate interest approach. b. The split payment approach. c. The shared payment approach. d. The divided account approach.
a. The separate interest approach.
In January, Donna's dad, who is 75 years old, agreed in an email with his financial advisor that he wanted to take a distribution of $50,000 from his IRA and roll it over into a new IRA. His financial advisor inadvertently moved the funds into a taxable account. This mistake was discovered by the advisor at the end of the year. The IRS would likely grant a waiver to the 60-day rollover requirement, thereby permitting additional time for Donna's dad to roll the money into a new IRA. a. True b. False
a. True
Emily recently retired from Fox, Inc., a national retail store. When Emily retired her stock bonus plan had 5,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $10 per share for the contributions made on Emily's behalf throughout the course of her career. At retirement, Emily took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $25 per share. Sixteen months after distribution, Emily sold the stock for $30 per share. What amount is considered to be ordinary income on Emily's tax return at the date the stock was distributed? a) $0 b) $50,000 c) $75,000 d) $125,000
b) $50,000
Kay turned 70½ on March 17th of this year. Her profit-sharing year-end account balance was $500,000 for last year. Assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, and 72, is 27.4, 26.5, and 25.6, respectively. What is Kay's required minimum distribution (RMD) for this year? a. $18,248 b. $18,868 c. $20,073 d. $20,755
b. $18,868
Jim, a participant in the Zappa retirement plan, has requested a second plan loan. Jim's vested account balance is $80,000. He borrowed $27,000 eight months ago and still owes $18,000 on that loan. How much can he borrow as a second loan? a. $13,000. b. $22,000. c. $23,000. d. $31,000.
b. $22,000.
The early distribution penalty of 10 percent does not apply to qualified plan distributions: 1. Made after attainment of the age of 55 and separation from service. 2. Made for the purpose of paying qualified higher education costs. 3. Paid to a designated beneficiary after the death of the account owner who had not begun receiving minimum distributions. a. 1 only. b. 1and3. c. 2and3. d. 1,2,and3.
b. 1and3.
Steve, age 69, is an employee of X2, Inc. He plans to work until age 75. He currently contributes 6 percent of his pay to his 401(k) plan, and his employer matches with 3 percent. Which one of the following statements is true? a. Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he attains age 701⁄2. b. Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he retires. c. Steve is required to take minimum distributions from his Traditional IRA beginning April 1 of the year after he retires. d. Steve cannot contribute to his 401(k) plan after age 701⁄2 in any case.
b. Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he retires.
MaryAnn, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently moved the funds into a taxable account. MaryAnn did not make the request of the IRS until six months after the mistake was made. Will the IRS permit the waiver? a. No. The IRS never waives this requirement, except under the most extreme of circumstances. b. Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances. c. No. MaryAnn waited beyond 90-days for filing such a request. d. No. MaryAnn waited an unreasonable amount of time before filing the request.
b. Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances.
Donna turned 72 on January 7th; this is her 3rd year of taking RMDs. Her profit-sharing account balance was $100,000 at the end of Year 1; $150,000 at the end of Year 2; and $175,000 at the end of Year 3. Assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, 72, and 73 is 27.4, 26.5, 25.6 and 24.7, respectively. If Donna only takes a distribution of $2,000 for Year 3, then how much is her required minimum distribution penalty? a. $953 b. $1,024 c. $1,930 d. $2,036
c. $1,930
On January 5, Cindy, age 39, withdrew $42,000 from her qualified plan. Cindy had an account balance of $180,000 and an adjusted basis in the account of $30,000. Calculate any early withdrawal penalty. a. $0. b. $1,200. c. $3,500. d. $4,200.
c. $3,500.
Kathy has an account balance in her employer's cash profit sharing plan of $100,000 (there is no CODA as part of the plan). The plan has a 2-6 graded vesting policy. She has been a participant for three and a half years and has worked for the company for five years. Assuming the plan permits loans, what is the maximum loan that Kathy could take from the plan? a. $20,000 b. $30,000 c. $40,000 d. $50,000
c. $40,000
Gerry is 701⁄2 on April 1 of the current year and must receive a minimum distribution from his qualified plan. The account balance had a value of $423,598 at the end of last year. The distribution period for a 70 year old is 27.4, and for a 71 year old it is 26.5. If Gerry takes a $15,000 distribution next April 1st, what is the amount of the minimum distribution tax penalty associated with his first year's distribution? a. $0. b. $230. c. $492. d. $985.
c. $492.
Which of the following distributions from a qualified plan would not be subject to the 10 percent early withdrawal penalty, assuming the participant has not attained age 591⁄2? 1. A distribution made to a spouse under a Qualified Domestic Relations Order (QDRO). 2. A distribution from a qualified plan used to pay the private health insurance premiums of a current employee of Clinical Trials Company. 3. A distribution to pay for costs of higher education. 4. A distribution made immediately after separation from service at age 57. a. 1and2. b. 1and3. c. 1and4. d. 2and3.
c. 1and4.
Which of the following is/are elements of an effective waiver for a pre-retirement survivor annuity? 1. Both spouses must sign the waiver. 2. The waiver must be notarized or signed by a plan official. 3. The waiver must indicate that the person(s) waiving understand the consequences of the waiver. a. 2 only. b. 1and3. c. 2and3. d. 1,2,and3.
c. 2and3.
Which of the following distributions from a profit-sharing plan would be subject to the 10% early withdrawal penalty, assuming the participant has not attained age 59½? a. A distribution for a 50-year old spouse under a Qualified Domestic Relations Order (QDRO) pursuant to a divorce from the participant in the profit-sharing plan. b. A distribution from the plan to pay income taxes due to a federal tax levy. c. A distribution to pay for costs of higher education for a participant's 18-year-old daughter. d. A distribution made to the participant after he/she separated from service at age 57.
c. A distribution to pay for costs of higher education for a participant's 18-year-old daughter.
Decatur 401(k) Plan maintains a loan program for its participants. The plan has 50 participants, three of whom had participant loans. Decatur conducted a year- end review of its loan program and found the following: • Bob received a loan from the plan one year ago for $60,000 over a five-year term, amortized monthly using a reasonable interest rate. Bob timely made the required payments. Bob's vested account balance is $180,000. • Sandi received a loan of $10,000 to help her mother move to Florida this year, amortized over 72 months. Payments are timely and the interest rate is reason- able. MULTIPLE CHOICE PROBLEMS 117 Which of the following individuals have loans that do not comply with the IRC? a. Bob. b. Sandi. c. Both Bob and Sandi. d. Neither Bob or Sandi.
c. Both Bob and Sandi.
In May 2014, Seth converts $100,000 in his traditional IRA to a Roth IRA. The value of the assets in the Roth IRA drops by 40 percent due to a significant decline in the stock market that occurs in October 2014. The Roth conversion results in Seth incurring $100,000 of taxable income, when he could have waited and converted only $60,000 (after the 40 percent drop). Which of the following statements is correct? a. Seth cannot recharacterize the conversion, but he will have a larger after-tax basis, which could be helpful in the event of a nonqualified distribution. b. Seth can recharacterize as long as it is done within six months from the date of the conversion. c. Seth can recharacterize after December 31, 2014. d. Seth cannot recharacterize, but can take a deduction on Schedule D for the loss when he files his form 1040.
c. Seth can recharacterize after December 31, 2014.
One approach that is used in some domestic relations orders is to "split" the actual benefit payments made with respect to a participant under the plan to give the alternate payee part of each payment. Under this approach, the alternate payee will not receive any payments unless the participant receives a payment or is already in pay status. This approach is often used when a support order is being drafted after a participant has already begun to receive a stream of payments from the plan (such as a life annuity). This approach to dividing retirement benefits is often called what? a. The separate interest approach. b. The split payment approach. c. The shared payment approach. d. The divided annuity approach.
c. The shared payment approach.
Tim, a participant in the Zappa retirement plan, has requested a second plan loan. Tim's vested account balance is $70,000. He borrowed $30,000 ten months ago and still owes $20,000 on that loan. Could he increase his maximum permissible loan if he repaid the outstanding loan before taking the new loan? a. No. Paying off the loan will not increase an available loan. b. Yes. Paying off the loan will increase the loan available by $15,000. c. Yes. Paying off the loan will increase the loan available by $5,000. d. No. He is not permitted to pay off the loan.
c. Yes. Paying off the loan will increase the loan available by $5,000.
Emily recently retired from Fox, Inc., a national retail store. When Emily retired her stock bonus plan had 5,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $10 per share for the contributions made on Emily's behalf throughout the course of her career. At retirement, Emily took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $25 per share. Sixteen months after distribution, Emily sold the stock for $30 per share. what are Emily's income tax consequences upon sale sixteen months after distribution? a. $0, should would not have an income tax consequence. b. $150,000 long term capital gain. c. $75,000 long term capital gain; $25,000 short term capital gain. d. $100,000 long term capital gain.
d. $100,000 long term capital gain.
Which of the following is true regarding QDROs? a. The court determines how the retirement plan will satisfy the QDRO. (i.e. split accounts, separate interest). b. In order for a QDRO to be valid, the order must be filed on Form 2932-QDRO provided by ERISA. c. All QDRO distributions are charged a 10% early withdrawal penalty. d. A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's qualified plan.
d. A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's qualified plan.
Bobby Brown would not listen to his financial advisor and decided to rollover his qualified plan assets to a traditional IRA. Which of the following is correct? a. Bobby is entitled to the same alternative tax options in an IRA that are available in a qualified plan. b. Bobby has the same or more investment options in his IRA as compared to his qualified plan. c. Bobby can now convert the funds to a Roth IRA, where before he could not. d. Bobby has lost some of his creditor protection by moving the funds from a qualified plan to an IRA.
d. Bobby has lost some of his creditor protection by moving the funds from a qualified plan to an IRA.
Josh recently died at the age of 63, leaving a qualified plan account with a balance of $1,000,000. Josh was married to Kay, age 53, who is the designated beneficiary of the qualified plan. Which of the following is correct? a. Kay must distribute the entire account balance within five years of Josh's death. b. Kay must begin taking distributions over Josh's remaining single-life expectancy. c. Any distribution from the plan to Kay will be subject to a 10 percent early withdrawal penalty until she is 591⁄2. d. Kay can receive annual distributions over her remaining single-life expectancy, recalculated each year.
d. Kay can receive annual distributions over her remaining single-life expectancy, recalculated each year.
Brenda, age 53 and a recent widow, is deciding between taking a lump-sum distribution from her husband's pension plan of $263,500 now or selecting a life annuity starting when she is age 65 (life expectancy at 65 is 21 years) of $2,479 per month. Current 30-year treasuries are yielding 6 percent annually. Which of the statements below are true? 1. If she takes the lump-sum distribution, she will receive $263,500 in cash now and be able to reinvest for 34 years, creating an annuity of $4,570 per month. 2. If she takes the lump-sum distribution she will be subject to the 10% early withdrawal penalty. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.
d. Neither 1 nor 2.
Tom, age 39, is an employee of Star, Inc., which has a profit sharing plan with a CODA feature. His total account balance is $412,000, $82,000 of which represents employee elective deferrals and earnings on those deferrals. The balance is profit sharing contributions made by the employer and earnings on those contributions. Tom is 100 percent vested. Which of the following statements is/are correct? 1. Tom may take a loan from the plan, but the maximum loan is $41,000 and the normal repayment period will be 5 years. 2. If Tom takes a distribution (plan permitting) to pay health care premiums (no coverage by employer) he will be subject to income tax, but not the 10% penalty. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.
d. Neither 1 nor 2.
Ginger, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently moved the funds into a taxable account. Ginger did not make the request of the IRS until five years after the mistake was made. Will the IRS permit the waiver? a. No. The IRS never waives this requirement, except under the most extreme of circumstances. b. Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances. c. No. Ginger waited beyond the one-year period for filing such a request. d. No. Ginger waited an unreasonable amount of time before filing the request.
d. No. Ginger waited an unreasonable amount of time before filing the request.
Andrea recently died at age 77, leaving behind a qualified plan worth $200,000. Andrea began taking minimum distributions from the account after attaining age 701⁄2 and correctly reported the minimum distributions on her federal income tax returns. Before her death, Andrea named her granddaughter, Reese age 22, as the designated beneficiary of the account. Now that Andrea has died, Reese has come to you for advice with respect to the account. Which of the following is correct? a. Reese must distribute the entire account balance within five years of Andrea's death. b. In the year following Andrea's death, Reese may begin taking distributions from the account based on Reese's remaining life expectancy, recalculated each year. c. In the year following Andrea's death, Reese must begin taking distributions over Andrea's remaining single-life expectancy. d. Reese can roll the account over to an IRA and name a new beneficiary.
d. Reese can roll the account over to an IRA and name a new beneficiary.
Laura, age 43, has several retirement accounts and wants to know what accounts can be rolled over to other accounts. Which of the following statements regarding rollovers is not correct? a. She could take a distribution from her SEP IRA and roll it over to a qualified plan without incurring a 20% withholding. b. She could rollover her government 457(b) plan to her new employer's qualified plan. c. She could rollover the funds from her old employer's qualified plan to her new employer, who sponsors a 401(k) plan with a Roth account, and be able convert the funds in an in-plan Roth rollover. d. She could rollover her traditional IRA to her SIMPLE IRA.
d. She could rollover her traditional IRA to her SIMPLE IRA.
Reese has assets both in her Roth IRA and in her Roth account that is part of her employer's 403(b) plan. However, she is not sure about the differences between the two types of accounts. Which of the following statements would you tell her is correct? a. Both Roth IRAs and Roth accounts have a five-year holding period requirement, but the establishment of the first Roth IRA or Roth account starts the five-year holding period for all Roth IRAs and Roth accounts. b. Both Roth IRAs and Roth accounts have the same rules regarding the definition of a qualified distribution. c. The minimum distribution rules for Roth IRAs and Roth accounts are the same. d. The nature of the income received by beneficiaries in a qualified distribution is the same for distributions from both Roth IRAs and Roth accounts.
d. The nature of the income received by beneficiaries in a qualified distribution is the same for distributions from both Roth IRAs and Roth accounts.
