RPA 2, Lesson 3
Which ERISA provision are SIMPLE plans exempt from?
(3.14) SIMPLE plans are relieved of fiduciary liability under ERISA once a participant or beneficiary exercises control over account assets.
Which of the following plans allow loans? I. IRA II. Keogh III. Savings incentive match plan for employees (SIMPLE)
(3.4) II. Keogh
Which two IRC Sections provide general authority for simplified employee pension (SEP) plans?
(3.6) IRC Sections 408(j) and (k)
Does a simplified employee pension (SEP) plan restrict employees from withdrawing funds contributed to their SEP?
(3.6) No. The program must give unrestricted withdrawal rights to employees.
For an IRA funded by employer contributions to be treated as a SEP, what must the employer do?
(3.7) The employer must contribute to the SEP of each eligible employee, provided the employee is eligible for the plan.
Which of the following plans can a self-employed individual participate in? I. SEP II. SIMPLE III. Solo 401(k)
I. SEP II. SIMPLE III. Solo 401(k)
The formula for determining a proprietor's Keogh contribution is: A. Keogh contribution rate X (net income - other employee contributions - one-half self-employment taxes) / 1 + Keogh contribution rate B. Keogh contribution rate X net income / 1 + Keogh contribution rate C. Keogh contribution rate X (net income - other employee contributions) / Keogh contribution rate D. Keogh contribution rate X net income / Keogh contribution rate E. Keogh contribution rate X (net income - other employee contributions)
(3.0) A. Keogh contribution rate X (net income - other employee contributions - one-half self-employment taxes) / 1 + Keogh contribution rate
All the following statements regarding SIMPLE plans are correct EXCEPT: A. The plans may be established by employers with 100 or fewer employees. B. All plan contributions are fully vested and nonforfeitable. C. Employers can only make matching contributions to the plan. D. Employers have certain notification requirements to employees. E. Self-employed individuals may participate in this type of plan.
(3.0) C. Employers can only make matching contributions to the plan. Employers can make matching contributions or elect to make nonelective contributions.
True or False: SIMPLE plans can be established by employers with 100 or less employees, excluding self-employed individuals.
(3.0) False. Self-employed individuals may participate in a SIMPLE plan.
Which of the following statements about the various small business plans is (are) correct? I. SIMPLE-IRA plans can allow loans but not SEP or Keogh plans. II. SEP plans are subject to the same contribution limits as traditional IRAs. III. A SIMPLE account balance may be rolled into an IRA provided certain time limits are met.
(3.0) III. A SIMPLE account balance may be rolled into an IRA provided certain time limits are met. Statements I and II are incorrect because (1) Keogh plans can provide loans but not SIMPLE-IRA and SEP plans and (2) SEP plans are subject to higher contribution limits than traditional IRAs.
Failure of the trustee to file any documentation for a SIMPLE plan results in a $__ a day penalty until the reporting failure is remedied.
(3.15) $50
Under a SIMPLE plan, each individual participant must be supplied what document that details account activity and an account balance?
(3.15) Account statement
Under a SIMPLE plan, each participant must be supplied an account statement within what time frame?
(3.15) Each participant must be supplied an account statement within 30 days following the end of the calendar year.
What is the consequence of a trustee failing to file any documentation for a SIMPLE plan?
(3.15) Failure to file proper SIMPLE plan documentation can result in a $50 a day penalty until the reporting failure is remedied.
Under a SIMPLE plan, the trustee must file a report with what person?
(3.15) Secretary of the Treasury
A SIMPLE plan trustee must provide the employer who maintains the plan with what document that contains certain required information on an annual basis?
(3.15) Summary plan description
Under a SIMPLE plan, each individual participant must be supplied an account statement, detailing account activity and an account balance, within what time period?
(3.15) Within 30 days following the end of the calendar year
A solo 401(k) plan must comply with all of the administrative requirements for 401(k) plans, except the filing of 5500 annual reports, provided the plan's assets are $__ or less.
(3.16) $250,000
What is a solo 401(k) plan?
(3.16) A solo 401(k) plan is a 401(k) plan available to a one-person firm or a two-person firm that often comprises the owner and his or her spouse.
What administrative requirements must a solo 401(k) plan comply with?
(3.16) A solo 401(k) plan must comply with all of the administrative requirements for 401(k) plans, except the filing of 5500 annual reports.
True or False: Solo 401(k) plans, like regular 401(k) plans, must file 5500 annual reports.
(3.16) False. A solo 401(k) plan must comply with all of the administrative requirements for 401(k) plans, except the filing of 5500 annual reports.
Profit-sharing plans used as the underlying base plan in a solo 401(k) plan can receive an employer nonelective contribution of __ percent rather than the prior allowable percentage of __.
(3.17) 25, 15
Employees aged __ and over can make catch-up contributions to a solo 401(k).
(3.17) 50
What entity changed solo 401(k) requirements?
(3.17) EGTRRA
Can employees make catch-up contributions to a solo 401(k)?
(3.17) Yes
Under a solo 401(k), ______ deferrals no longer reduce the payroll base for computing employer nonelective contributions.
(3.17) elective
EGTRRA (decreased/increased) solo 401(k) elective deferral limits.
(3.17) increased
Why would a solo 401(k) plan be viewed as expensive if a one-person firm were to hire additional employees?
(3.18) A solo 401(k) plan would likely be viewed as far too expensive because of its generous employer nonelective contributions.
True or False: Because a 401(k) plan must be nondiscriminatory, a solo 401(k) plan can be offered to the owner even if other employees are not included.
(3.18) False. Because a 401(k) plan must be nondiscriminatory, a solo 401(k) plan could not be offered to the owner and his or her spouse without including the other employees.
If a one-person firm was to hire additional employees, a solo 401(k) plan would likely be viewed as (affordable/expensive).
(3.18) expensive
If a one-person firm was to hire additional employees, a solo 401(k) plan would likely be viewed as far too expensive because of its generous ______ contributions.
(3.18) nonelective
Under EGTRRA provisions, small employers with no more than 100 employees receive a tax credit for costs associated with establishing new retirement plans. What is the amount of this tax credit?
(3.19) The credit equals 50 percent of the costs connected to the creation or maintenance of a new plan, including costs incurred in each of the three years beginning with the tax year in which the plan first becomes effective, up to $500 per year.
Under EGTRRA provisions, small employers with no more than 100 employees receive a tax credit for costs associated with establishing new retirement plans. What is the maximum amount of this credit?
(3.19) The credit is limited to $500 annually.
True or False: The law exempts small employers from paying fees for any determination letter request to the IRS with respect to the qualified status of a pension benefit plan that the employer maintains if the request is made within certain time frames.
(3.19) True
What two incentives for small employers to offer plans does EGTRRA provide in addition to liberalized plan provisions?
(3.19) Under EGTRRA provisions, small employers with no more than 100 employees: 1. Receive a tax credit for costs associated with establishing new retirement plans 2. Are exempt from paying a user fee
To encourage the introduction of small employer plans, EGTRRA enacted provisions that exempt a small employer from paying a ______ fee.
(3.19) user
One of the administrative issues that employers face when offering a SIMPLE plan is that an employer makes contributions on behalf of employees to a designated ______ or issuer.
(3.13) trustee
One of the administrative issues that employers face when offering a SIMPLE plan is that employer matching contributions are due for deposit by what date?
(3.13) By the date that the employer's tax return is due, including extensions.
EGTRRA increased the includable compensation limit to $__ in 2002 for simplified employee pension (SEP) plans, which has since increased to $__ as of 2013.
(3.6) $200,000; $255,000
What entities can establish a simplified employee pension (SEP) plan?
(3.6) An incorporated entity or a self-employed individual
A simplified employee pension (SEP) plan can be defined as which of the following type(s) of plan(s)? A. Defined benefit B. Defined contribution C. Both D. Neither
(3.6) B. Defined contribution
True or False: A simplified employee pension (SEP) plan must specify a definite contribution formula.
(3.6) False. A simplified employee pension (SEP) plan must specify a definite allocation formula.
To which type of plan must an employer make contributions, provided the participant is at least 21 years old, has worked for the employer three of the last five years and has earned at least $550 (indexed)?
(3.6) Simplified employee pension (SEP)
EGTRRA changed the Section 415 limit for employer contributions to the lesser of what two amounts for 2002 for simplified employee pension (SEP) plans?
(3.6) The lesser of 100 percent of compensation or $40,000 for 2002, which has since been increased to $51,000 (as of 2013)
True or False: Contributions to a simplified employee pension (SEP) plan may not discriminate in favor of highly compensated employees.
(3.6) True
True or False: The employer must notify employees of a simplified employee pension (SEP) plan.
(3.6) True
True or False: The total amount an employer allocates or contributes to a simplified employee pension (SEP) plan for employees may not exceed the Section 415 limits.
(3.6) True. The Section 415 limit (as of 2013) is $51,000, and the limit on includable compensation is $255,000.
Employer contributions to a simplified employee pension (SEP) plan may be (discretionary/nondiscretionary) from year to year.
(3.6) discretionary
What is the maximum contribution that employees can make to a SEP?
(3.8) 25 percent of income up to $51,000 (as of 2013)
One of the administrative issues that employers face when offering a SIMPLE plan is that they must provide a copy of the summary plan description, prepared by the plan trustee for the employer. When must the SPD be distributed?
(3.13) Before employees make plan elections
Under a SIMPLE plan, employers must submit employees' elective deferrals to their financial institution no later than what time frame?
(3.13) Employers must submit employees' elective deferrals to their financial institution no later than 30 days after the last day of the month in which the contributions were made.
One of the administrative issues that employers face when offering a SIMPLE plan is that they must submit ______ deferrals to their financial institution no later than 30 days after the last day of the month for which the contributions were made.
(3.13) elective
One of the administrative issues that employers face when offering a SIMPLE plan is that plan participants must be notified that SIMPLE plan account balances may be transferred to another ______ or entity.
(3.13) individual account
One of the administrative issues that employers face when offering a SIMPLE plan is that employer (matching/nonelective) contributions are due for deposit by the date that the employer's tax return is due, including extensions.
(3.13) matching
One of the administrative issues that employers face when offering a SIMPLE plan is that they are required to advise employees of their right to make ______ contributions under the plan and of the contribution alternative if elected by the employer.
(3.13) salary reduction
One of the administrative issues that employers face when offering a SIMPLE plan is that they must provide a copy of the ______, prepared by the plan trustee for the employer, before employees make plan elections.
(3.13) summary plan description
True or False: A SIMPLE IRA plan is not subject to the nondiscrimination and top-heavy rules generally applicable to retirement plans.
(3.14) False. A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules generally applicable to 401(k) plans.
True or False: Under a SIMPLE plan, employers are required to file annual reports.
(3.14) False. Employers are NOT required to file annual reports.
True or False: SIMPLE plans must meet the actual deferral percentage (ADP) and the actual contribution percentage (ACP) tests.
(3.14) False. SIMPLE plans are exempt from the ADP and ACP tests.
How often must a SIMPLE plan trustee provide the employer who maintains the plan with a summary description that contains certain required information?
(3.15) annually
True or False: A Keogh plan can be established as a defined contribution but not a defined benefit plan.
(3.2) False. A Keogh plan can be established as either a defined benefit or defined contribution plan.
If a Keogh plan is established as a defined benefit plan, what is the contribution limit?
(3.2) The limit is the lesser of -100 percent of the average of the participant's highest three consecutive calendar years of earnings -$205,000 (as of 2013), indexed for inflation
If a Keogh plan is established as a defined contribution plan, what is the maximum annual contribution allowed?
(3.2) The maximum annual contribution is the lesser of: -100 percent of the participant's compensation -$51,000 (as of 2013), indexed for inflation
How is a self-employed person's compensation defined under a Keogh plan?
(3.2) The person's earned income minus one-half of the self-employment tax, not to exceed $255,000 (as of 2013)
How is the deduction limit for an owner under a Keogh plan calculated?
(3.3) The owner's deduction for contributions for him- or herself is based on: earned income - 1/2 self-employment tax - contributions.
Which of the following plans allow loans? I. Keogh II.Savings incentive match plan for employees (SIMPLE) III. Simplified employee pension (SEP)
(3.4) I. Keogh
Are loans from Keogh plans available to self-employed individuals?
(3.4) Yes. They are permitted on the same basis as for qualified retirement plans.
Into what five types of plans can Keogh assets be rolled over?
(3.5) 1. Another Keogh plan 2. 403(b) 3. 457(b) 4. Employer-sponsored retirement plan 5. IRA
Are Keogh plan rollovers taxed?
(3.5) No. Keogh plans permit tax-free rollovers
Can Keogh plan assets be rolled over into other tax-deferred retirement savings vehicles?
(3.5) Yes. Keogh plans permit tax-free rollovers.
An employer must make contributions to a simplified employee pension (SEP) plan for any employee who meets what three characteristics?
(3.6) 1. At least 21 years old 2. Has worked for the employer during at least three of the last five years 3. Earned at least $550 in 2013, indexed for cost-of-living expenses
EGTRRA increased the percentage of compensation allowance for simplified employee pension (SEP) plans from __ percent to __ percent of compensation beginning in 2002.
(3.6) 15 to 25
A simplified employee pension (SEP) plan must be set in writing and must specify what three requirements?
(3.6) A SEP must specify: 1. Participation requirements 2. When the employee makes contributions 3. How contributions are calculated
Although a SEP must abide by top-heavy provisions of the law, a special provision exists when calculating the 60 percent limit. What is this provison?
(3.6) Employers can measure aggregate employer contributions, instead of aggregate account balances, to test if the SEP has exceeded the 60 percent limit.
True or False: An employee may make regular contributions to an IRA and a SEP; however, these amounts are aggregated for purposes of the 25 percent or Section 415 limits.
(3.6) False. An employee may make regular contributions to an IRA, and this is NOT aggregated with the SEP contributions for purposes of the 25 percent or Section 415 limits.
True or False: Each employee under a simplified employee pension (SEP) plan must be fully vested after two years of plan participation.
(3.6) False. Each employee must be fully vested in his or her account balance at all times.
True or False: Employees are permitted to take loans from a simplified employee pension (SEP).
(3.6) False. SEPs cannot permit employees to make loans since the plans are IRAs.
True or False: An employer has the right to require that an employee leave some or all contributions to a simplified employee pension (SEP) plan in the plan in order to receive employer contributions.
(3.6) False. The employer may not require that an employee leave some or all contributions in the SEP as a condition for receiving future employer contributions.
A simplified employee pension (SEP) plan is treated under the law the same as what plan but with higher limits?
(3.6) IRA
For an employer, what type of plan utilizes individual retirement accounts or annuities to provide retirement benefits to employees?
(3.6) Simplified employee pension (SEP)
What type of plan can only be established by an incorporated entity or a self-employed individual?
(3.6) Simplified employee pension (SEP)
What type of plan can only be established under the defined contribution approach?
(3.6) Simplified employee pension (SEP)
What are the IRC Section 415 limits?
(3.6) The Section 415 limit (as of 2013) is $51,000, and the limit on includable compensation is $255,000.
Do top-heavy provisions of the law apply to SEP programs?
(3.6) Yes
How is the maximum contribution that self-employed individuals (proprietors and partner) can make to a SEP calculated?
(3.8) Max. contribution = 20% of net income - 1/2 self-employment tax - contributions
If the employer contribution to a SEP in any year is less than the normal IRA limit applicable for that year, the employee may contribute the difference up to the allowable applicable annual limit. To which other type(s) of account(s) can the employee make the additional contribution, besides to the SEP?
(3.8) One or more IRAs
If the employer contribution to a SEP in any year is less than the normal IRA limit applicable for that year, what can the employee do to make up the difference?
(3.8) The employee may contribute the difference up to the allowable applicable annual limit.
If the employer contribution to a SEP in any year is less than the normal IRA limit applicable for that year, the (employee/employer) may contribute the difference up to the allowable applicable annual limit.
(3.8) employee
How much can an employer deduct for contributions to a SEP?
(3.9) The employer' deduction for a SEP contribution may not exceed the actual contribution made to the SEP to the extent that the contributions for each employee do not exceed the 25 percent of employees' income and/or Section 415 limits.
True or False: If an employer contributes more than the amount deductible to a SEP, the employer can carry over the excess deduction to succeeding taxable years.
(3.9) True
A distribution from a SIMPLE account may be rolled into an what types of plans without penalty if the individual has participated in the SIMPLE account for two years?
(3.12) IRA
Are participants in a SIMPLE IRA permitted to make early withdrawals?
(3.12) Yes
A distribution from a SIMPLE account may be rolled into an IRA without penalty if the individual has participated in the SIMPLE account for __ years.
(3.12) two
SIMPLE IRA participants that withdraw a contribution during the __-year period beginning on the date of initial participation are subject to a 25 percent tax.
(3.12) two-year
True or False: Employers that make matching contributions to a SIMPLE plan can match contributions at any rate between 1 and 3 percent if the SIMPLE plan is a 401(k).
(3.11) False. This matching provision is only available to SIMPLE IRAs, not SIMPLE 401(k)s.
SIMPLE IRA participants who take a distribution before age 59.5 are subject to a __ percent tax.
(3.12) 10
SIMPLE plans are available to employers with __ or (fewer/more) employees.
(3.10) 100 or fewer
If an owner/employee wishes to establish and participate in a Keogh plan, he or she must cover which employees?
(3.1) All employee except those who are: -Under 21 years old -Have completed less than one year of service
True or False: A Keogh plan is prohibited from setting waiting periods for vesting.
(3.1) False. A Keogh plan may use a two-year waiting period if the plan provides 100 percent vesting after the two-year period.
Which of the following entities can establish a Keogh plan? I. 5 percent owner of a company II. Corporate employee III. Partnership
(3.1) III. Partnership
What type of plan can only be established by a sole proprietor or partnership?
(3.1) Keogh
What is a Keogh plan also known as?
(3.1) HR-10 plan
If an employer contributes more than the amount deductible to a SEP, the employer can carry over the excess deduction to succeeding taxable years. Is this excess taxed and, if so, how much?
(3.9) Yes. A 10 percent excise tax is applied to nondeductible contributions.
A SIMPLE plan may be established as what type(s) of plan(s)?
(3.10) 401(k) or IRA
True or False: SIMPLE plan participants can make catch-up contributions after attaining the age of 50.
(3.10) True (Note: This is the same for IRAs.)
Are contributions to a SIMPLE plan fully vested and nonforfeitable?
(3.10) Yes. All contributions to a SIMPLE plan are fully vested and nonforfeitable at all times.
Under a SIMPLE plan, employers who make nonelective contributions must contribute how much?
(3.11) Employers must make nonelective contributions of 2 percent of compensation for each eligible employee who earned at least $5,000 during the year.
SIMPLE IRA participants that withdraw a contribution during the two-year period beginning on the date of initial participation are subject to a __ percent tax.
(3.12) 25 percent
SIMPLE IRA participants who take a distribution before age __ are subject to a 10 percent tax.
(3.12) 59.5
True or False: A SIMPLE plan distribution cannot be rolled into any other accounts.
(3.12) False. A distribution from a SIMPLE account may be rolled into an IRA after two years of participation.
Under a SIMPLE plan, the employer must notify employees of the matching rate or nonelective contribution rate within a reasonable time before the __-day election period in which employees determine whether they will participate in the plan.
(3.11) 60-day
Under a SIMPLE plan, employers who make matching contributions can do so using one of which two calculations?
(3.11) Employers must make matching contributions: 1. On a dollar-for-dollar basis up to 3 percent of an employee's compensation for the year or 2. At a rate lower than 3 percent but not lower than 1 percent
True or False: Employers can make matching or nonelective contributions to a SIMPLE plan.
(3.10) True
Which of the following entities can establish a Keogh plan? I. Common-law employee II. Individual partner III. Sole proprietor
(3.1) III. Sole proprietor
What entities can establish a Keogh plan?
(3.1) Sole proprietor or partnership
Must Keogh plans meet the same nondiscrimination coverage and participation requirements as other qualified plans?
(3.1) Yes
A __-year waiting period can be used if a Keogh plan provides 100 percent vesting after.
(3.1) two
A SIMPLE plan may be established as which of the following type(s) of plan(s)? I. 401(k) II. 403(b) III. IRA
(3.10) I. 401(k) III. IRA
SIMPLE plan participants can make elective contributions of up to $__ per year (as of 2013), indexed on a yearly basis.
(3.10) $12,000
Nonelective contributions to a SIMPLE plan are subject to the $__ compensation cap (as of 2013), indexed on an annual basis.
(3.10) $255,000
SIMPLE plans are available to employers with 100 or fewer employees who received at least $__ in compensation from the employer in the preceding year.
(3.10) $5,000
To participate in a SIMPLE plan, an employee must have received $__ in compensation in any two prior years from the employer, and the employee must be reasonably expected to receive $__ in compensation from the employer during the year.
(3.10) $5,000; $5,000
SIMPLE plan participants can make catch-up contributions after attaining the age of __.
(3.10) 50
True or False: Employers are not required to notify employees of SIMPLE plan requirements.
(3.10) False. Employers have certain notification requirements to employees.
True or False: Employer matching contributions to a SIMPLE plan are subject to the $255,000 compensation cap (as of 2013).
(3.10) False. Nonelective contributions are subject to this limit; however, matching contributions are not.
True or False: Self-employed individuals are not eligible to participate in a SIMPLE plan.
(3.10) False. Self-employed individuals may participate in a SIMPLE plan.
True or False: Employers eligible to offer SEP plans are determined on a controlled group basis taking businesses under common control and affiliated service groups into consideration.
(3.10) False. This applies to SIMPLE plans.
Can an employer electing to create a SIMPLE plan maintain another qualified plan in which contributions are made or benefits accrue for service in the period beginning with the year the SIMPLE plan was created?
(3.10) No
What types of employees are excluded from participating in a SIMPLE plan?
(3.10) Nonresident aliens and employees covered under a collective bargaining agreement may be excluded from participation.
How many employees must participate in a SIMPLE plan in order for an employer to offer such a plan?
(3.10) There is no stipulation that a certain number of employees must participate in a SIMPLE plan.
What was the goal of the Small Business Job Protection Act of 1996 when it instituted SIMPLE plans?
(3.10) To create a retirement savings vehicle for small employers that was not subject to the complex rules associated with qualified plans, such as the nondiscrimination requirements and top-heavy rules