11.1 Retirement Plans
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Which of the following statements regarding qualified retirement plans are TRUE? -Contributions are made with pretax dollars. -Distributions are 100% taxable. With qualified plans, participants receive a tax deduction for contributions to their plan. As earnings accumulate tax-deferred, distributions, which consist of tax-deferred earnings and contributions for which the participant received a tax deduction, are 100% taxable.
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A customer has invested a total of $10,000 in a nonqualified deferred annuity through a payroll deduction plan offered by the school system where he works. The annuity contract is currently valued at $16,000, and he plans to retire. On what amount will the customer be taxed if he chooses a lump-sum withdrawal? - 6,000. Payments into a nonqualified deferred annuity are made with after-tax money; taxes must only be paid on the earnings of $6,000.
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All of the following are true regarding nonqualified deferred compensation plans EXCEPT: --employees may use accumulated funds as collateral for a bank loan. --Deferred compensation is a promise made by an employer to defer a certain amount of an employee's salary upon retirement. The employee has no rights to the money until retirement, death, or disability, and thus cannot use it as collateral.
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A nonqualified deferred compensation plan: - does not guarantee that the employer will fulfill the obligation. -Nonqualified deferred compensation plans are agreements between an employer and an employee in which the employee agrees to defer receipt of part of their salary. -Nonqualified deferred compensation plans do not require IRS approval and may discriminate (need not be offered to all employees). In fact, they are generally offered only to officers and other high-ranking executives. In the event of a business failure, there is no guarantee that deferred amounts will be paid.
11.1.1
Each of the following is an example of a qualified retirement plan :: - Keogh plan. - profit-sharing plan. - defined benefit plan.
11.1
Each of the following is an example of a qualified retirement plan EXCEPT a: -- deferred compensation plan. A deferred compensation plan is considered a nonqualified plan because IRS approval is not required to initiate such a plan for employees.
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Which of the following plans is NOT required to meet the nondiscrimination provisions of ERISA? - Deferred compensation plans. Deferred compensation plans, by design, are nonqualified and not subject to ERISA. Therefore, they may discriminate as to which persons may participate.
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Which of the following retirement plans is legally required to establish vesting, funding, and eligibility requirements? - Profit-sharing plan. - Defined benefit pension plan. - Keogh plan. - Profit-sharing, pension, and Keogh plans must have established standards.
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One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is TRUE? -The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. All earnings, whether from deductible or nondeductible contributions, are tax deferred. Therefore, all earnings are taxable as ordinary income on withdrawal. Only the nondeductible contribution is returned tax free.
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Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements? -- Payroll deduction plan. -A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.
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An investment adviser representative recommending investments for an IRA should give primary consideration to: --risk. -Risk is the key consideration in an IRA or other retirement plan -These accounts seek to preserve capital first and then to achieve a reasonable rate of return.
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All of the following are true regarding nonqualified deferred compensation plans : -IRS approval is not needed for deferred compensation plans. - the plans need not be offered to all employees. - income taxes on compensation are not due until constructive receipt. Deferred compensation is a promise made by an employer to defer a certain amount of an employee's salary upon retirement. The employee has no rights to the money until retirement, death, or disability, and thus cannot use it as collateral.
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If a corporation begins a nonqualified retirement plan, which of the following statements is TRUE? -- Employee contributions grow tax deferred if they are invested in an annuity. Earnings accumulate tax deferred if the plan is funded by an investment vehicle that offers tax deferral, such as an annuity contract. Tax has been paid on all amounts the employees and the employer contribute to the plan. Nonqualified plans need not comply with all ERISA requirements.
