RMI Exam 2

pam wants to use money from a traditional IRA for a down payment to purchase a first home. how much can she withdraw from her IRA without having to pay the federal early distribution penalty?

$10,000

in 2015, an employee who has earned at least $5,000 in any two preceding years and is expected to earn at least that much in the current year may make a non-catch-up salary reduction contribution of up to how much in a SIMPLE 401(k) plan?

$12,500

for individuals who have attained age 50 before the close of the tax year, what is the maximum dollar amount that may be contributed to a traditional IRA in 2015?

$6,500

which of the following types of contributions into a savings or thrift plan are allowable? (1) after-tax employee (2) matching employer (3) pre-tax employee (4) deductible employee

1 & 2 only

which of the following may be used to help a plan meet the actual contribution percentage (ACP) test for matching contributions under Code section 401(m)? (1) a plan that meets the requirements for a SIMPLE 401(k) plan (2) the average ratio of contributions to income is not less than 125% (3) a safe harbor plan that satisfies certain requirements including the matching contribution limitation, by not making any match on employee deferral sin excess of 6% of compensation (4) highly compensated employees cannot contribute to the plan

1 and 3 only

plans that combine the features of a regular profit sharing plan, a savings plan, and section 401(k) salary reductions may have which of the following features? (1) employee pre-tax salary reductions (2) discretionary employer contributions (3) employee after-tax contributions (4) guaranteed retirement income benefits

1, 2, & 3 only

to which of the following pre-retirement distributions will a 10% tax penalty not apply to any amount subject to ordinary income tax? (1) to purchase a second (vacation) home (2) upon the employee's disability (3) payments that exceed the amount of medical expenses deductible as an itemized deduction for the year (4) upon separation from service after age 55

2 & 4 only

an employer can sponsor an IRA for employees. which of the following types of programs can be used for this purpose? (1) rollover IRA (2) deemed IRA (3) SEP (4) SIMPLE IRA

2, 3, & 4 only

which of the following terms identify a type of employer (not employee) contribution to a 401(k) plan? (1) salary reduction (2) formula matching (3) discretionary matching (4) pure discretionary

2, 3, & 4 only

maxton manufacturing, Inc. uses prior year testing to monitor discrimination in its Section 401(k) plan. last year, the acutal deferral percentage (ADP) for all nonhighly compensated employees at maxton was 4%. tis year, the ADP for highly compensated employees at maxton can be as high as

6%

Which of the following represents both the age after which an individual may no longer establish a non-rollover traditional IRA and the trigger point for beginning required distributions? a. 65 b. 70 1/2 c. 72 1/2 d. 75

B

"pure" savings plans, featuring only after-tax employee contributions, are very common

FALSE

Distributions from a traditional IRA cannot be made before the participant turns 59 1/2 unless the IRA owner dies

FALSE

Employees can elect a salary reduction to fund their 401(k) plan either before or within a month after compensation is earned.

FALSE

IRAs can be invested in a variety of investment vehicles, including mutual funds, stocks, bonds, and life insurance contracts

FALSE

an IRA owner can loan funds to a related person or business

FALSE

older employees nearing retirement are attracted to savings plans

FALSE

tony johnson, an over-the-road trucker, had several out-of-town trips early in the year, so he got an extension for filing his income tax return. tony can make the maximum IRA contribution this year. he has until the last date of his income tax filing extension to make a tax-deductible contribution to his IRA.

FALSE

Employees can make in-service withdrawals from their 401k plans.

TRUE

Employer matching contributions to a savings plan are subject to the same vesting requirements as applied to other defined contribution plans

TRUE

Employers match employee contributions to 401(k) plans to increase participation and help the plan meet nondiscrimination requirements.

TRUE

Employers who are worried about nondiscriminatory requirements can opt for a "safe harbor" plan that guarantees compliance

TRUE

Traditional 401(k) plans can be funded entirely through salary reductions by employees, enabling employers to bear no additional cost for employee compensation.

TRUE

Under current tax law, a nonrefundable tax credit is available for some lower-income taxpayers who make a contribution to a traditional IRA

TRUE

a savings plan is a qualified defined contribution plan that encourages employee after-tax contributions

TRUE

a savings plan is subject to ERISA reporting and disclosure rules

TRUE

harris corporation has a savings plan for employees. last year, harris made non-elective contributions amounting to 4% of compensation to all employee accounts. by doing this, harris has met the contribution requirements for a safe harbor test.

TRUE

if more than the maximum allowable amount is contributed in any year, an excise tax is imposed on the excess contribution

TRUE

a nondeductible traditional IRA a. allows prior nondeductible contributions to be distributed tax free b. provides better tax advantages than investing in tax-deferred non-IRA investments c. is created when someone must make an after-tax contribution to a traditional IRA because of being an active participant in an employer plan d. distributes contributions and earnings tax free e. can be established up to the due date of a participant's tax return, including extensions

a

caribon cruise tours has a traditional 401(k) plan for employees. last year, payroll for employees covered under the plan was $500,000, and employee elective deferrals amounted to $100,000. which of the following is true? a. caribon cruise tours can deduct up to $225,000 for federal income tax purposes b. CCT can deduct no more than $125,000 for federal income tax purposes c. employees paid income and payroll taxes on the amounts they chose to defer d. a and c e. a and b

a

In a traditional 401(k) plan, elective deferrals must meet a special test for nondiscrimination known as the

actual deferral percentage test

the employer match

administrative costs are greater than those for a profit sharing plan

all of the following can be considered disadvantages of savings plans, except: a. the plan cannot be counted on by employees to provide an adequate benefit b. employers bear investment risk c. administrative costs are greater than those for a profit sharing plan d. the annual addition to each employee's account is limited, meaning the relative tax advantage to highly compensated employees may also be limited

b

when can eligible persons establish an IRA account and claim the appropriate tax deduction?

before the due date of their tax returns without extensions

For IRAs, the early distribution penalty applies to all of the following, except a. distributions attributable to the participant's disability b. distributions to unemployed individuals for health insurance premiums under certain conditions c. distributions to the IRA participant's estate prior to the participant's death d. distributions for higher education costs for the taxpayer e. distributions made on or after attainment of age 59 1/2

c

In addition to elective salary reduction contributions, which of the following may be used as an alternative for making contributions into a 401(K) plan? a. employer after-tax matching contributions b. employee pre-tax matching contributions c. annual bonus received in cash or for contribution to the plan d. SEP contributions

c

all of the following are true statements about savings plans, except: a. life insurance can be used in a savings plan b. the employer can make a matching contribution to the savings plan c. employer matching contributions must follow a 3 to 7 year vesting schedule d. employees can select investment vehicles among a set of predetermined options e. employee contributions are not tax deductible

c

a traditional IRA a. allows a couple to set aside money for retirement even if one spouse is not employed b. has higher contribution limits than an employer-sponsored IRA c. is often used as a supplement to employer-sponsored retirement plans d. a and c b. b and c

d

elective deferrals in a 401(k) plan can be distributed upon occurrence of all of the following. except a. retirement b. disability c. severance from employment with the employer d. attainment of age 55 1/2 by the participant e. plan termination (if the employer has no other defined contribution plan other than an ESOP)

d

which of the following employee categories would typically benefit most from a savings or thrift plan? a. low income; nearing retirement b. high income; nearing retirement c. low income; young age d. high income; young age

d

which of the following is (are) true regarding elective deferrals in a Section 401(k)? a. elective deferrals are not subject to social security and federal unemployment payroll taxes b. elective deferrals are always made on an after-tax basis c. if the company elects to have a safe harbor plan, elective deferrals must meet the actual deferral percentage test d. account funds can be withdrawn without a premature distribution penalty if the employee becomes disabled or dies e. since employees elect the amount of funds to defer, nondiscrimination tests do not apply to elective deferrals

d

borrowing from an IRA a. is treated as an early withdrawal b. requires use of a written loan agreement c. reduces the deductible employee contribution amount d. causes an insufficient withdrawal penalty e. is not allowed

e

disadvantages of a 401(k) plan include a. benefits are not an adequate source of retirement income for those entering the plan relatively close to retirement b. employer bears the investment risk c. employer may need to match contributions to avoid having the plan deemed discriminatory d. a and b e. a and c

e

which of the following is (are) true regarding Section 401(k) plans? a. employees decide how much of their compensation is to be deferred b. all types of employers can adopt a Section 401(k) plan c. Section 401(k) plans can allow hardship withdrawals d. a and b e. a and c

e

savings plans and profit sharing plans share which of the following features?

generous provision for employee withdrawal of funds participants can select investment vehicles from a broad range of options

Gary Hinton, age 54, is planning to retire this year. He has $600,000 accumulated in a traditional IRA

he can make penalty-free withdrawals in an amount equal to an annual life annuity payment until age 59 1/2; at that time, he can withdraw the remaining balance in his IRA without penalty

jane tally has a thrift/savings plan with her employer. she knows

her contribution to the plan is voluntary and made with after-tax dollars 100% of her contribution to her account is vested immediately her employer's contributions to her account must comply with internal revenue code requirements for qualified plans

minnie and micky pluck are married, filing jointly in 2013. minnie earns $60,000 a year and takes full advantage of her employer's qualified retirement plan. micky is not employed

micky can receive a full deduction for an IRA contribution

last week while driving to work, Mike Salsbury's car broke down. he called a tow truck and got a ride with a friend to and from work that day. when the auto repair shop called, mike learned repairs would cost $2,000. that was $2,000 more than he had. mike is considering taking money out of his 401(k) plan to cover cost of the repair. if he does

mike must pay income tax and a 10% penalty for an early withdrawal and must satisfy requirements to show it qualifies as a hardship

ken and barbie dahl file a joint tax return in 2013. both are employed. ken is an active participant in his employer's qualified retirement plan. Barbie is not. barbie earns $150,000 and ken earns $75,000. assuming they have no other tax deductions

neither of them can make a deductible contribution to a traditional IRA

last year, the owner of quinton enterprises decided to contribute an additional $4,000 to each employee's 401(k) account. this amount was about four times the average annual contribution of the highly compensated employees. the $4,000 was about double the amount that the owner had contributed to employees' accounts the prior year. the form of employer contribution used at quinton enterprises is

pure discretionary

a savings/match plan works best in a company that has

relatively young employees employees willing to accept investment risk employees who vary widely in their need or desire to save for retirement

last year, employee contributions and employer matching contributions amounted to 4% of compensation for all nonhighly compensated employees at addison corporation, a 400 employee company.

whoop