485 Quiz 3

The cost of employer-provided life insurance coverage up to ______ on dependents is excludible from income as a de minims fringe benefit. The cost of the coverage over the threshold is fully taxable to the employee.

$2,000

In a DB plan, if a participant's expected pension benefit is $2,000 per month, how much life insurance on the participant's life can the plan trustee apply for?

$200,000

All but which of the following groups are covered under social security? (1) Clergy (2) Federal employees hired before 1984 (3) Railroad employees (4) Newspaper delivery persons under age 18

(2), (3), and (4) only

Pete would like to save $80,000 for his son's college education. His son will begin college in 13 years. Assume Pete can invest $10,000 now, and $600 at the end of each 3-month period. What annual rate of return is required for Pete to achieve his goal?

7.73%

Which of the following are qualified expenses to be paid from a 529 plan? (1) Books (2) Tuition (3) Supplies (4) Room and board

All of the above

All but which of the following are correct regarding Federal Supplemental Educational Opportunity Grants (SEOGs)? A. Funded by the federal government, but administered by individual schools B. Available to undergraduate students only C. Available to full-time students only D. Distributed on the basis of financial need

Available to full-time students only

All but which of the following are correct regarding non qualified deferred compensation plan? A. Provides executives with "customized" retirement plans B. Avoids qualified plan nondiscrimination rules C. Can provide retirement benefits in excess of qualified plan limits D. Deferred amounts are subject to income tax when the benefit is promised

Deferred amounts are subject to income tax when the benefit is promised

All qualified retirement plans must satisfy the reporting and disclosure requirements as specified by ___

ERISA

Stafford loans are administered by the:

Federal Family Education Loan Program (FFELP)

Which of the following will result if money distributed from a 529 plan is not used to pay for qualifying education expenses?

Gains are taxed as ordinary income, and a 10% penalty is applied

Which of the following government agencies are responsible for monitoring qualified retirement plan rules and eligibility?

IRS and the Department of Labor

Jim, John, and Jerry would each like to contribute money to their nephew's Coverdell Education Savings Account (ESA). Which of the following is correct regarding the maximum contribution that can be made on behalf of the nephew?

Jim, John, and Jerry are permitted to contribute a combined amount not to exceed $2,000 into their nephew's ESA in the current year.

Which of the following is/are correct regarding COBRA continuation coverage? (1) There is a penalty of $10/day/qualified beneficiary for failure to notify of the right to COBRA continuation coverage after a qualifying event such as termination of employment, change in work status, or death (2) COBRA continuation coverage may be conditioned upon evidence of insurability for a limited period of time

None of the above

Which of the following is/are correct regarding investment risk in a qualified retirement plan? (1) In a DC plan, the employer bears the investment risk (2) In a DB plan, the employee bears the investment risk

None of the above

Which of the following is granted to an employee at no cost or at a bargain price with restrictions, such as the stock cannot be sold or disposed of before a specified period of time?

Restricted stock

If a fully insured worker elects to receive social security retirement benefits early, which of the following is correct?

The benefit will be permanently reduced

Which of the following is the tax consequence if an employer provides group prepaid legal services as a fringe benefit to an employee? Assume the employer pays for the entire benefit.

The fair market value of the benefit is included in the employee's gross income as W-2 income

All but which of the following are characteristics of an employee stock purchase plan (ESPP)? A. The maximum discount permitted is 15% of the greater of the market price on the date the option is granted or the dates the shares were purchased B. The plan must be offered to employees on a nondiscriminatory basis C. The maximum fair market value of stock an employee has the right to purchase cannot exceed $50,000 in any calendar year. D. An ESPP allows a company to sell stock to employees at a discount from the market price

The maximum fair market value of stock an employee has the right to purchase cannot exceed $50,000 in any calendar year

Hardship withdrawals from a 401k plan can only occur after a participant has demonstrated to the plan administrator which of the following?

The participant has an immediate and heavy financial need

Which of the following describes the tax treatment of premiums paid for group disability coverage?

The premiums paid are deductible by the employer as an ordinary and necessary business expense if benefits are paid to the employee

Premiums paid for business overhead insurance are ___ to the owner and benefits received are ___.

deductible, taxable

The two board categories of defined contribution plans are:

profit sharing plans and pension plans

A benefit plan is considered to be ___ if an employee has only the employer's promise to pay an amount sometime in the future out of future cash flow

unfunded

What is the maximum contribution a donor can make in a single year to a 529 plan if the gift tax annual exclusion is $15,000? Assume the donor has not made previous contributions to a 529 plan.

$75,000

Amounts transferred from a qualified retirement plan to an IRA of a spouse or former spouse pursuant to a divorce decree are subject to which of the following penalties?

0%

Money in a Coverdell Education Savings Account (ESA) must be used by the time the beneficiary is ______ years of age.

30

For the substantially equal periodic payment (SEPP) exception to apply for premature distributions from a retirement plan, payments must continue for ___ or until the participant is ___, whichever is longer.

5 years, age 59.5

For a dependent group life insurance, the coverage on any dependent cannot exceed ___ of the coverage on the employee.

50%

There is an excise tax of ___ on the amount that should have been distributed from a retirement plan according to required minimum distribution rules but was not

50%

Employees must be eligible to participate in a 401k plan within ___ after the later of attaining age 21 or completing 1 year of service.

6 months

Which of the following are characteristics of a SARSEP? (1) A SARSEP allows for salary deferral contributions (2) A new SARSEP can be established if it is integrated with a 401k plan (3) A SARSEP may still be used in some businesses if it has been "grandfathered" (4) SARSEPs must have been established prior to 1/1/2002 to be effective

(1) and (3) only

Which of the following is/are correct regarding executive group carve-out plans? (1) Executive group carve-out plans provide individual, discriminatory benefits to selected employees (2) The cost of coverage is excluded from the executive's gross income

(1) only

Which of the following is/are correct regarding loans from a 401k plan? (1) A loan from a 401k plan cannot exceed $50,000 or 50% of the participant's vested benefit (2) If a participant's vested amount is $15,00 or less, the entire amount can be made available for loan without regard to the 50% restriction

(1) only

Which of the following are characteristics of Perkins loans? (1) Repayment may be extended to 10 years (2) Available to undergraduate students only (3) Both full-time and part-time students are eligible (4) Distributed on the basis of financial need

(1), (3), and (4) only

Which of the following are characteristics of group term life insurance? (1) Relatively low cost to the employer (2) Requires a medical exam for employees to qualify for coverage (3) Possible loss of coverage when the employee terminates employment (4) Possible restriction on the amount of coverage that may be obtained by the employee

(1), (3), and (4) only

Which of the following applies when a hardship withdrawal is taken from a 401k plan? (1) A one-year blackout period exists on elective deferrals after a hardship withdrawal has been taken (2) The participant pays a 10% premature distribution penalty (3) The full distribution is taxed as ordinary income (4) The participant can recoup penalties and taxes paid by submitting a letter to the IRS showing the distribution qualified as a hardship withdrawal

(2) and (3) only

Which of the following are characteristics of Pell Grants? (1) Only full-time students are eligible (2) Distributed on the basis of financial need and availability of federal funds (3) Receipt of other grants and loans is contingent upon applying for or receiving Pell funds (4) Available to undergraduate and graduate students

(2) and (3) only.

Which of the following is/are correct regarding business overhead insurance? (1) Business overhead insurance covers all ongoing business expenses during the time of an owner's disability, and may reimburse the owner/employee for his/her salary during that time (2) Business overhead insurance is designed to cover the ongoing expenses of a business if the owner becomes disabled

(2) only

Which of the following is/are correct regarding the exercise price of incentive stock options (ISOs) and non qualified stock options (NQSOs)? (1) The exercise of an ISO must be at least 50% of the stock's fair market value on the date the option is granted (2) NQSOs may be exercised at a discount to the stock's market price

(2) only

Incentive stock options (ISOs) cannot be exercised more than___ from the date of grant.

10 years

Hardship withdrawals taken from a 401k plan are subject to a ___ premature distribution penalty.

10%

Which of the following is the penalty for a premature distribution from a qualified plan, 403b plan, IRA, or SEP?

10%

In order to maintain a SIMPLE plan, an employer may not have more than ___ employees

100

For COBRA continuation coverage, a terminating employee must pay the employer's share of insurance premiums, but the total cost may not exceed ___ of the overall cost of providing coverage to employees

102%

In regards to the "21-and-1 rule", one year of service is defined as a calendar year, a plan year, or other consecutive ___ period during which ___ of service were completed by the employee.

12 month, 1,000 hours

When a qualified retirement plan is established, the summary plan description (SPD) must be provided to all plan participants within ___ days. For existing plans, the SPD must be provided to new plan participants within ___ days of becoming eligible for the plan.

120, 90

To establish a Coverdell Education Savings Account (ESA), the beneficiary must be under age ___ unless the individual is designated as a special needs beneficiary.

18

For a SIMPLE plan, if an employer exceeds the maximum employee limit they are permitted to sponsor the plan for an additional ___ grace period.

2 year

Hardship withdrawals taken from a 401k plan before age 59.5 typically require ___ of plan participation.

2 years

Early withdrawals from a SIMPLE IRA are subject to a ___ penalty if the withdrawals are made during the first two years of plan participation

25%

If an individual contributes more to an IRA than is permitted, the excess contribution is subject to a:

6% excise tax

Which of the following are characteristics of stock bonus plans? (1) Protects company stock from hostile takeovers (2) Provides a market for the owner's closely held shares of stock (3) Provides a tax advantage to employees through net unrealized appreciation (4) Provides tax deductions while having no effect on cash flow

All of the above

Which of the following are considered fiduciaries? (1) A plan administrator, including any third-party administrator that is used by the employer (2) A plan sponsor/employer, including its officers and/or directors (3) An investment advisor that renders advice to the plan for a fee or other compensation (4) A plan trustee

All of the above

Which of the following are qualified expenses to be paid from a Coverdell Education Savings Account (ESA)? (1) Computers and laptops (2) Transportation (3) Books and supplies (4) Tuition, room, and board

All of the above

Which of the following groups may be excluded from participating in an employee stock purchase plan (ESPP)? A. Employees working less than twenty hours per week B. Employees with less than two years of service C. Officers of the employer D. All of the above may be excluded

All of the above may be excluded

All but which of the following are correct regarding Parent Loans to Undergraduate Students (PLUS)? A.Both full-time and part-time students are eligible B.Loans are not based on financial need C.Available to parents of undergraduate students up to the cost of attendance at the institution minus additional financial support D. All of the above are correct

Both full-time and part-time students are eligible

The rules for a qualified domestic relations order (QDRO) apply to all but which of the following plans?

Nonqualified plan

All but which of the following tests must be met in order for a retirement plan to receive favorable tax treatment as a qualified plan? A. Percentage test B. Ratio test C. Participation test D. Average benefit test

Participation test

All but which of the following are characteristics of a SEP IRA? A. A SERP IRA is 100% owned by the participant B. A SEP IRA is 100% vested at all times C. Plan loans are permitted D. The contribution deadline to a SEP IRA is April 15 including extensions

Plan loans are not permitted

Defined benefit plans tend to favor older employees for which of the following reasons?

The present value of the participant's promised benefit is greater the less time remaining until retirement

An accounting firm has 125 employees. All employees are covered by the firm's DB plan except for 70 junior associates. Has the minimum participation requirement been met for the DB plan?

Yes, both parts of the 50/40 test have been met