SIE: Retirement Plans (Retirement Plans)

In 2019, a doctor has earned $300,000 from her practice and another $200,000 from investments. Their maximum contribution to an HR 10 plan is:

$56,000 Keogh (HR10) contributions are based only on personal service income - not investment income. $300,000 of personal service income x 20% effective contribution rate = $60,000, however the maximum contribution allowed is $56,000 in 2019.

To avoid penalties, funds cannot be withdrawn from tax qualified retirement plans before age:

59 1/2 Before age 59 1/2, distributions from an IRA are subject to regular income tax plus a 10% penalty tax. Afterwards, withdrawals are subject to regular tax; but not to the 10% penalty tax.

A person, age 55, wishes to withdraw $25,000 from a Keogh plan. The tax will be:

ordinary income tax + 10% penalty tax on the amount withdrawn A Keogh plan is tax qualified, so all contributions are tax deductible. Thus, all of the dollars in the plan, including the tax deferred build-up, have never been taxed. When a distribution is taken, ordinary income tax is due on the entire distribution amount. In addition, if a premature distribution is taken (prior to age 59 1/2), an additional penalty tax of 10% is applied to the amount withdrawn.

A 50-year old becomes disabled and wishes to withdraw money from his IRA. With regard to the withdrawal, how will it be taxed?

The withdrawal is subject to income tax only If an individual becomes disabled before age 59 1/2, distributions can be taken without penalty tax. However, since income tax has never been taken on the withdrawal, it will be subject to regular income tax.

For the year 2019, couples who are age 50 or over are permitted to make a maximum annual IRA contribution of:

$14,000 For the year 2019, the maximum annual contribution for an individual into an IRA is $6,000. However, individuals age 50 or older can make an extra "catch up" contribution of $1,000, for a total permitted contribution of $7,000. For couples where at least 1 person works that are age 50 or older, this amount is doubled to $14,000.

For an Individual Retirement Account contribution to be deductible from that year's tax return, the contribution must be made by no later than:

April 15th of following year IRA contributions must be made by April 15th of the following year - no extensions are permitted.

Individual Retirement Account contributions can be made with:

Cash Contributions to an IRA can only be made with cash. Once the cash is deposited, it can be used to purchase any type of qualified investments (bank certificates of deposit, securities, U.S. minted gold coins, and precious metals).

For a qualified retirement plan contribution to be deductible from that year's tax return, the contribution must be made by no later than:

the tax filing date of the following year Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

Contributions to qualified retirement plans, other than IRAs, must be made by:

The date on which the tax return is filed with the Internal Revenue Service Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

A 40 year old man wishes to remove monies from his IRA to fund his child's summer vacation. The customer has:

both regular income tax liability and 10% penalty tax on the amount withdrawn Premature distributions from an IRA (before age 59 1/2), unless for reason of death, disability, to pay qualified education expenses, or to pay up to $10,000 of first-time home purchase expenses, incur normal income tax plus a 10% penalty tax on the amount withdrawn.

A pension plan maintained by a not-for profit corporation is known as a (n) :

403(b) plan Not-for-profit institutions such as hospitals and universities can sponsor 403(b) (tax deferred annuity) plans for their employees. 401(k) plans, and SEP IRA plans are sponsored by for-profit corporations. HR 10 plans (Keogh) are only available to self-employed individuals, based on their self-employed income.

Which statement is TRUE regarding contributions to, and distributions from, non-tax qualified retirement plans?

Distributions are partially tax free, with the amount above the original cost basis being taxed Contributions to non-tax qualified plans are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital contributions made with after-tax dollars is not taxed - this is the investor's cost basis. Only the tax deferred "build-up" in the account above what was originally contributed is taxed.

A 45-year old man earns $150,000 per year and is covered by his employer's 401(k) Plan. He quits his job and moves to a new company that has no retirement plan, but will also pay him $150,000 per year. He should be advised to:

roll his 401(k) Plan into a Traditional IRA and continue to make annual contributions to the Traditional IRA The 401(k) Plan was at this customer's ex-employer - he can no longer make contributions to it. His new employer does not have a 401(k) plan. He can roll over the 401(k) amount into an IRA account without dollar limit and continue to make annual contributions to the IRA. It must be a Traditional IRA - this guy earns too much to have a Roth IRA (complete phase-out for Roth eligibility occurs if an individual earns over $137,000 in 2019). Any funds rolled-over stay tax deferred. If he requests a distribution and uses the funds to buy a variable annuity, tax will be due, so this is not a good choice.

For the year 2019, the maximum contribution that a married couple, both under age 50, can make to an IRA is:

$12,000 For the year 2019, the maximum contribution to a spousal IRA is the lesser of 100% of income or $6,000 each in 2 accounts; for a total of $12,000.

A married couple, where both individuals work, earns in excess of $123,000 in year 2019. Both individuals are covered by qualified retirement plans. Which statement is TRUE regarding contributions to Individual Retirement Accounts for these persons?

A non-tax deductible contribution of $12,000 ($6,000 each) is permitted Anyone can contribute to an IRA, whether covered by a pension plan or not. If a couple is not covered by a qualified plan, the contribution is tax deductible and the maximum that can be contributed in 2019 is $6,000 each ($12,000 total). However, the contribution is not tax deductible for couples, where both are covered by qualified plans, who earn over $123,000 in year 2019 (the deduction phases out between $103,000 - $123,000 of income).

403(b) Plans are permitted to invest in all of the following EXCEPT:

ADRs 403(b) plans are tax deferred annuity contracts available to non-profit employees who are not covered by qualified retirement plans. The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. Note that these are all "managed" products - where an investment adviser is managing the portfolio. Direct investments in common stocks selected by the plan participant are prohibited. An ADR is equivalent to a common stock.

What are characteristics of Defined Contribution Plans?

Annual contribution amounts are fixed; if the corporation has an unprofitable year, the contribution must still be made Under a defined contribution plan, a fixed percentage or dollar amount is contributed annually for each year that the employee is included in the plan. If the corporation has an unprofitable year, it must still make the contributions.

In an Individual Retirement Account or Keogh Plan, a 10% penalty tax will be imposed for:

premature distributions from an Individual Retirement Account or Keogh Plan Premature distributions (prior to age 59 1/2) are subject to a 10% penalty tax. Do not confuse this penalty with that imposed on excess contributions to these plans. Excess contributions to an Individual Retirement Account or Keogh Plan are subject to a 6% penalty tax.

A couple earning $70,000 in 2019 makes a contribution of $6,000 to a Traditional IRA. Which statement is TRUE?

This couple can contribute a maximum of $6,000 to a Roth IRA The maximum permitted annual contribution to a Traditional IRA or Roth IRA for a couple is $12,000 total in 2019. This can be divided between the 2 types of accounts. In this case, since $6,000 was contributed to the Traditional IRA, another $6,000 can be contributed to a Roth IRA for that tax year. Also note that this couple's income is too low for the Roth IRA phase-out (which occurs between $193,000 and $203,000 for couples in 2019).

Distributions from Section 401(k) plans are:

100% taxable Contributions to tax qualified plans such as corporate 401(k) plans are tax deductible. They are made with "before-tax" dollars, hence those funds were never taxed. Earnings accrue tax deferred. When distributions commence, since no tax was paid on the entire amount, the distribution is 100% taxable.

Which retirement plan is corporate sponsored and permits employees to make the greatest pre-tax contribution?

401(k) 401(k) Plans are corporate-sponsored "salary reduction" plans that allow an individual to contribute a dollar amount annually that is tax deductible. $19,000 can be contributed for tax year 2019). In contrast, 403(b) Plans are salary reduction plans for the not-for-profit sector. Roth IRAs are established by individuals, not corporations, and only allow for a maximum non-deductible contribution of $6,000 for an individual (who is under age 50). SIMPLE IRAs are corporate-sponsored salary reduction plans for small companies, but the maximum contribution in 2019 is $13,000.

Distributions from Roth IRAs are subject to a penalty if withdrawals are made within:

5 years of original contribution Contributions to Roth IRAs are not tax deductible. If the monies remain invested in the Roth IRA for at least 5 years, they can be withdrawn with no tax due (assuming that the beneficiary is at least age 59 1/2 when distributions commence).

The penalty tax applied for not taking required minimum distribution from a qualified retirement plan in a given year is:

50% of the shortfall The penalty applied for not taking required minimum distributions from a qualified plan starting at age 70 1/2 is 50% of the under-distribution. There is an incentive to take the money out and pay tax on it, which is what the Treasury is really looking for!

Which statement is TRUE regarding a Roth IRA?

Roth IRAs allow for tax-free distributions Roth IRAs, introduced in 1998, are an alternate to the Traditional IRA. Both allow the same contribution amount - a maximum of $6,000 per person in 2019 for individuals under age 50. If one contributes the maximum to a Traditional IRA, a contribution cannot be made to a Roth IRA; and vice-versa. Roth IRA contributions are not tax deductible. However, all distributions from a Roth IRA made after age 59 1/2 are 100% excluded from taxation as long as the investment has been held for 5 years. Compared to a Traditional IRA which allows a tax deduction for the contribution, a Roth contribution is not tax deductible. The benefit is that when distributions commence from a Roth IRA, there is no tax due (in contrast, distributions from Traditional IRAs are taxable). Because the IRS is not collecting tax, Roth IRAs are not subject to Required Minimum Distributions after age 70 1/2, which is the case with a Traditional IRA. Roths offer a very good deal, but they are not available to high earning individuals. High earning individuals can still contribute to a Traditional IRA.

All of the following statements about 403(b) Plans are true EXCEPT:

employees of any organization can contribute to this type of plan 403(b) plans are only available to non-profit organization employees, such as school and hospital employees. These are tax qualified annuity plans, where contributions made by employees are tax deductible. Earnings in the plan grow tax deferred. When the employee retires, he or she may take the annuity, which is 100% taxable as ordinary income as taken.

All of the following are characteristics of Defined Benefit Plans EXCEPT:

if the corporation has an unprofitable year, the contribution may be omitted Under a defined benefit plan, contributions are made by the employer on behalf of the employees, to fund a defined "future" benefit. With this plan type, less funds are contributed on behalf of younger employees, and more funds are contributed on behalf of the older employees. However, all of the pooled monies in the fund are used to pay out current benefits, and in effect, younger employees with many years to retirement, are paying for both the retirement benefits of older retired employees, and for the funding of the benefit of those older employees nearing retirement. Once a person retires, the benefit amount is fixed, based upon that person's last year's salary and years of plan participation. Annual contribution amounts are not fixed with this type of plan - the actual annual contribution amount is based upon actuarial assumptions about the plan participants and the performance of the investments in the plan. If the corporation has an unprofitable year, it must still make the contribution amount as determined by the actuary.

Which statement is TRUE regarding contributions to, and distributions from, tax qualified retirement plans?

Contributions are typically made with "before-tax" dollars Contributions to tax qualified retirement plans are tax deductible. They are typically made with "before-tax" dollars, hence those funds were never taxed. When distributions commence, since no tax was paid on the entire amount, the distribution is 100% taxable at ordinary income rates. Another way of saying this is that these plans have a "$0 cost basis," which means the entire distribution is taxable.

Which statements are TRUE when comparing a Roth IRA to a Traditional IRA?

Traditional IRAs are available to anyone who has earned income Roth IRAs allow for the same contribution amounts as Traditional IRAs, but the contribution is never tax-deductible (which is usually the case with a Traditional IRA). Earnings in a Roth IRA build tax deferred and when distributions commence after age 59 1/2, no tax is due. This is a very good deal. Unfortunately, it is not available for high-earners. Individuals who earn over $137,000 and couples who earn over $203,000, in 2019, cannot open Roth IRAs. They can open Traditional IRAs, however.

A self-employed individual purchases variable annuity units with funds contributed to a Keogh Account. Once the contract is annuitized, the payments are:

100% taxable Keogh contributions are tax deductible (up to $56,000 in 2019), so the original investment was made with "before tax" dollars. In addition, earnings on Keogh investments are tax deferred. Once distributions commence from the Keogh, they are 100% taxable at that person's income tax bracket.

All of the following statements are true about Individual Retirement Accounts EXCEPT:

All contributions reduce the individual's taxable income Contributions to IRAs are based solely upon personal service income; other income sources such as interest and dividends do not count. Contributions may be made, even if the individual is covered by another pension plan, however they may not be tax deductible if the person's income is too high. IRA "rollover" rules allow pension plan distributions to be rolled over into an IRA within 60 days to remain tax deferred.

All of the following are allowed investments into an Individual Retirement Account EXCEPT:

Antiques, Art, and Other Collectibles Collectibles are not allowed as an investment in an IRA account. Securities are allowed; so are gold coins minted by the U.S. Government, and precious metals bullion.

Contributions to Individual Retirement Accounts must be made by:

April 15th of the calendar year after which the contribution may be claimed on that person's tax return Contributions to Individual Retirement Accounts must be made by April 15th (tax filing date) of the year after the tax filing year. For example, a contribution for tax year 2019 must be made by April 15th, 2020.

Under Keogh rules, any distributions from a Keogh Plan must start no later than:

April 1st of the year following the year the individual turns 70 1/2 Under the Keogh rules, any distributions from a Keogh Plan must start no later than April 1st of the year following the year that the individual reaches the age of 70 1/2.

Which statement is TRUE about 401(k) Plans?

The cost basis in the plan is "0" 401(k) Plans are corporate-sponsored salary reduction plans allow employees to contribute up to $19,000 in 2019 as a salary reduction, so these are pre-tax dollars going into the plan. The cost basis in retirement plans only consists of after tax dollars. Therefore, the cost basis is "0" and when distributions commence at retirement age, they are 100% taxable at ordinary income tax rates (since none of the dollars were ever taxed). SIMPLE IRAs are corporate-sponsored salary reduction plans for small companies, but the maximum contribution in 2019 is $13,000.

A 50 1/2 year old self-employed individual has a balance of $200,000 in his HR 10 plan. This balance is composed of $140,000 of contributions and $60,000 of earnings. The individual decides to withdraw $100,000 from the plan. Which statement is TRUE?

There will be both regular tax liability and a 10% penalty tax liability Since this individual is younger than age 59 1/2, any distribution from the Keogh plan is subject to both ordinary income tax plus the 10% penalty tax. If the distribution is made after age 59 1/2, it is subject only to ordinary income tax - there is no penalty tax. Please note that 100% of all distributions from Keoghs are taxable - these are tax qualified plans where all of the investment dollars were never taxed. Once distributions commence, both the original investment (that was never taxed), and the tax deferred build-up, are now taxable in full.

A company has decided to terminate its retirement plan and is going to make lump sum distributions to its employees. In order to defer taxation on the distribution, the employee may:

roll over the funds into an Individual Retirement Account within 60 days Lump sum distributions from qualified plans can be "rolled over" into an IRA without dollar limit and remain tax deferred as long as the rollover is performed within 60 days of the distribution date.

All of the following statements are true about SEP IRAs EXCEPT:

the contributions made are not deductible A SEP IRA is a "Simplified Employee Pension" plan that must be set up by the employer, with deductible contributions made by the employer. They are easier to set up and administrate than regular pension plans and allow for a very large annual contribution (25% of income statutory rate; 20% effective rate, capped at $56,000 in 2019). The employer sets the actual contribution percentage, which must be the same for all employees. A major advantage of SEP IRAs is that there is flexibility regarding the annual contribution to be made - the employer can change the contribution percentage each year. So this plan is a good option for a small business that has variable cash flow.

A 55-year old individual has just retired after working for the same employer for 20 years. She will collect an annual pension benefit of $55,000, but is not yet ready to stop working.She has lined up a part-time job that will pay $4,000 this coming year. How much can she contribute to a Traditional Individual Retirement Account for her first year in retirement?

$4,000 Because this individual is not yet age 70 ½, she can still contribute to a Traditional IRA - but only based on earned income - not on her pension income. The maximum contribution in 2019 is 100% of earned income, capped at $6,000. Because she only has $4,000 of earned income, this is the maximum IRA contribution for this year.

An individual earning $60,000 in 2019 makes an annual contribution of $2,000 to a Traditional IRA. Which statement is TRUE?

This person can contribute a maximum of $4,000 to a Roth IRA The maximum permitted annual contribution to a Traditional IRA or Roth IRA for an individual is $6,000 total in 2019. This can be divided between the 2 types of accounts. In this case, since $2,000 was contributed to the Traditional IRA, another $4,000 can be contributed to a Roth IRA for that tax year. Also note that this individual's income is too low for the Roth IRA phase-out (which occurs between $122,000 and $137,000 for individuals in 2019).

Under the provisions of ERISA (Employee Retirement Income Security Act), the use of index options is:

allowed only if the strategies followed are in compliance with the objectives and restrictions of the plan Index options can be a useful tool for portfolio managers to hedge in a declining market (by purchasing index puts) or to enhance income from the portfolio (by writing index calls). ERISA does not prohibit their use in portfolios that fund retirement plans. However, any strategies that are used must be in compliance with any restrictions set in the plan documents.

Under ERISA provisions, a pension fund manager that wishes to write naked call options:

can only do so if explicitly allowed in the plan document ERISA does not specify securities strategies that are prohibited. It does state that all investments must meet both "fiduciary responsibility" tests and "prudent man" rule tests. Selling naked call options exposes the writer to unlimited risk, but is not explicitly prohibited. If the plan document specifically authorizes such a strategy, it would be permitted. However, the plan trustee bears unlimited liability, if this action is deemed to be imprudent.

In 2019, a self-employed individual earns $350,000 for the year. The maximum contribution that can be made to an HR10 plan for this year is:

$56,000 The maximum contribution to a Keogh is effectively 20% of income (prior to taking the Keogh "deduction") or $56,000 in 2019, whichever is less. 20% of $350,000 = $70,000. However, only the $56,000 maximum can be contributed in 2019. (Note that this amount is adjusted each year for inflation.)

A husband and wife both work, earning $150,000 each. Both are age 45 and are covered by employer-sponsored qualified retirement plans. What is the maximum deductible contribution that can be made to an IRA in 2019?

0 Anyone can contribute to an IRA, whether covered by a pension plan or not. If a couple is not covered by a qualified plan, the contribution is tax deductible and the maximum that can be contributed in 2019 is $6,000 each ($12,000 total). However, the contribution is not tax deductible for couples, where both are covered by qualified plans, who earn over $123,000 in year 2019 (the deduction phases out between $103,000 - $123,000 of income). Since this question asks for the maximum "deductible" contribution, the answer is "0."

A smaller company with 75 employees wishes to establish a retirement plan. Some of the employees are highly paid, but most are part-time low wage earners. The company would like to maximize contributions for the highly-paid employees to keep these talented individuals. The company has erratic cash flow but is profitable overall. What type of retirement plan would be the best for the company?

Profit Sharing Plan A Profit Sharing Plan is a type of defined contribution plan under ERISA. It permits contributions to be made based on a formula, and this formula can take into account business conditions. Thus, if there are "no profits," then no contributions are made; and if the business is profitable, contributions are made. Thus, it is good for a company that has variable earnings (as in this example) or years when there are no earnings. The plan must cover both the rank-and-file employees and the owners/managers - but the owners/managers can get much larger contributions since the amount contributed is a percentage of income. The maximum contribution deductible to the employer is 25% of income (statutory rate; 20% effective rate), capped at $56,000 in 2019. 401(k) plans have much lower contribution limits, so they do not "maximize" contributions. Keogh plans can only be established by self-employed individuals. 457 plans, generally, can only be established by government employers.

All of the following statements are true regarding defined benefit plans EXCEPT:

benefits paid to employees consists of a tax-free return of capital and a taxable return of earnings Since a defined benefit plan is a "tax qualified" retirement plan, contributions are tax deductible and earnings "build up" tax deferred. When distributions commence, since none of the funds were ever taxed, the distribution amounts are 100% taxable. The other statements about defined benefit plans are true.

A divorced woman with 2 young children has just re-entered the workforce part time and earns $3,000 from this work. She collects another $2,400 per year in alimony payments. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE?

A contribution can be made based only on the income earned from part-time work IRA contributions can only be made based on earned income - meaning income from one's work. Alimony and child support payments are not classified as "earned income" for purposes of making IRA contributions. Thus, a woman who has both earned income from work and who received alimony payments can only make an IRA contribution based on the $3,000 earned from work. (Of course, the big question here is, "If this person only has total income of $5,400 a year, how would she be able to make an IRA contribution since she doesn't even have enough money to eat!")

An unmarried person, earning $100,000 a year, is not covered by a pension plan and has been contributing to an IRA account annually. If this individual joins a corporation at the same salary, and is included in that company's pension plan, which statement is TRUE?

Annual contributions to the IRA can continue but will not be tax deductible Anyone who has earned income can contribute to an IRA, whether covered by a pension plan or not. However, the contribution is not tax deductible for individual employees covered by a pension plan who earn over $74,000 in year 2019 (the deduction phases out between $64,000 - $74,000 of income).

What is the first age at which distributions must commence from a 401(k) Plan?

April 1st of the year after reaching age 70 1/2 Just like IRA accounts, RMDs (Required Minimum Distributions) from 401(k) accounts must start by April 1st of the year after the beneficiary reaches the age of 70 ½. If the RMD is not taken each year thereafter, a penalty tax of 50% (ouch!) is applied to the under-distributed amount.

A 50 1/2 year old self-employed individual has a balance of $200,000 in his HR 10 plan. This balance is composed of $140,000 of contributions and $60,000 of earnings. The individual decides to withdraw $100,000 from the plan. Which statement is TRUE?

The entire withdrawal is taxed as ordinary income Since this individual is younger than age 59 1/2, any distribution from the Keogh plan is subject to both ordinary income tax plus the 10% penalty tax. If the distribution is made after age 59 1/2, it is subject only to ordinary income tax - there is no penalty tax. Please note that 100% of all distributions from Keoghs are taxable - these are tax qualified plans where all of the investment dollars were never taxed. Once distributions commence, both the original investment (that was never taxed), and the tax deferred build-up, are now taxable in full.

In 2019, a customer earns $400,000 as a self-employed doctor, and contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $40,000 per year. The contribution to be made for the nurse is:

$10,000 If an employer earns $280,000 or more and contributes the maximum of $56,000 to a Keogh in 2019, then 25% of "after Keogh earnings" is used to compute the percentage to be contributed for employees. If the employer earns $400,000 and contributes $56,000 to the Keogh, the "after Keogh earnings" are based on the "cap" income amount of $280,000. $280,000 - $56,000 = $224,000 of "after Keogh deduction" income. $56,000/$224,000 = 25%. Thus, for the nurse, $40,000 of income x 25% = $10,000 contribution.

A 65-year old individual has just retired after working for the same employer for 20 years. He will collect an annual pension benefit of $50,000, but is not yet ready to stop working. He has lined up a part-time job that will pay $3,000 this coming year. How much can he contribute to a Traditional Individual Retirement Account for his first year in retirement?

$3,000 Because this individual is not yet age 70 ½, he can still contribute to a Traditional IRA - but only based on earned income - not on his pension income. The maximum contribution in 2019 is 100% of earned income, capped at $6,000. Because he only has $3,000 of earned income, this is the maximum IRA contribution for this year.

The penalty for making an excess contribution to an Individual Retirement Account is:

6% of the excess contribution Excess contributions to an Individual Retirement Account are subject to a 6% penalty tax. Do not confuse this penalty with that imposed on a premature distributions from an IRA. Premature distributions (prior to age 59 1/2) are subject to a 10% penalty tax.

Distributions from an Individual Retirement Account must commence by age:

70 1/2 Distributions from an Individual Retirement Account must commence by April 1st of the year following that person reaching age 70 1/2.

An individual who maintains a Keogh Plan is approaching the age of 70 1/2. Which statement is TRUE?

Distributions from the plan must commence on April 1st following the year the individual reaches the age of 70 1/2 Under the Keogh rules, any distributions from a Keogh Plan must start no later than the April 1st following the year that the individual reaches the age of 70 1/2.

Retirement plans that must comply with ERISA requirements include all of the following EXCEPT:

Federal Government plans ERISA rules cover private retirement plans to protect employees from employer mismanagement of pension funds. It does not cover public sector retirement plans, such as federal government and state government plans, since these are funded from tax collections and are closely regulated. The listing of plans that must comply with ERISA include: Profit sharing plans Defined contribution plans Defined benefit plans Tax deferred annuity plans Payroll deduction savings plans

Who can establish a SIMPLE IRA?

For-profit employer with 100 employees or less The problem with ERISA (Employee Retirement Income Security Act of 1974) plans is that they are expensive to set up and expensive to administrate. To make it simpler for smaller corporate employers to set up retirement plans, the SEP IRA and SIMPLE IRA were introduced. Because they don't need to comply with ERISA, they are technically IRAs (which are not subject to ERISA), but individuals cannot set these plans up. SEP IRAs are Simplified Employee Pension plans. They can be set up by small employers, but there is no specified limit on the number of employees. The maximum deductible contribution is 20% of each employee's salary (effective rate), capped at $56,000 in 2019. What is nice about the SEP plan is that the employer can vary the contribution percentage each year, so in an unprofitable year, the company does not have to make a contribution. A SIMPLE IRAs is a Savings Incentive Match Plan for Employees IRAs. It can only be set up by an employer with 100 employees or less. The employee makes a salary reduction contribution similar to a 401(k) amount, but the dollar amount that can be contributed is lower ($13,000 in 2019). The employer must make a matching contributing as well. The match is either 2% of employee income; or 3% of employee income if the employer only wants to match those employees who are making salary reduction contributions. The employer must make the annual match - there is no flexibility here, as is the case with a SEP IRA.

If an individual, aged 69, takes a withdrawal from his Keogh Plan, which statement is TRUE?

The amount withdrawn is subject to regular income tax only Before age 59 1/2, distributions from a Keogh Plan are subject to regular income tax plus a 10% penalty tax. Afterwards, withdrawals are subject to regular tax; but not to the 10% penalty tax.

All of the following are true statements about Individual Retirement Accounts EXCEPT:

if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date Annual IRA contributions can be made anytime from January 1st of that year until April 15th of the next tax year. If the taxpayer requests an extension for filing his tax return, he does not get an extension for making the IRA contribution. IRA contributions can be made even if the employee is covered by another qualified pension plan, but may not be tax deductible in that case.

If a corporation has an unfunded pension liability, this means that:

the expected future value of fund assets is less than projected benefit claims An unfunded pension liability means that expected payments from the retirement plan are in excess of the expected future assets in the plan. It is common for defined benefit pension plans to be underfunded, but the plan trustee is responsible to ensure that future funding is adequate as needed.