Life Insurance Chapter 7 Qualified Plans

If a company has a Simplified Employee Pension plan, what type of plan is it? A An undefined contribution plan for large businesses B A qualified plan for a small business C The same as a 401(k) plan D The same as an IRA, with the same contribution limits

A qualified plan for a small business - A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

Which type of retirement account allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½? A Traditional IRA B Roth IRA C Flexible IRA D Standard IRA

Roth IRA - A Roth IRA allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½.

SIMPLE Plans require all of the following EXCEPT A No more than 100 employees. B Employees must receive a minimum of $5,000 in annual compensation. C At least 1,000 employees. D No other qualified plan can be used.

At least 1,000 employees. - A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.

Which of the following is NOT true regarding a non-qualified retirement plan A. it can discriminate in benefits and selecting participants B. Earning grow tax differed C it needs IRA approval D Contribution are not currently tax deductible.

it needs IRA approval

Under the 401(k) bonus or thrift plan, the employer will contribute A All of the money to the plan. B 30% of what the employee contributes. C 75% of what the employee contributes. D An undetermined percentage for each dollar contributed by the employee.

An undetermined percentage for each dollar contributed by the employee. - Under the bonus or thrift plan, the employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute.

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A SEP. B 403(b) Plan (TSA). C Keogh Plan. D Roth IRA.

403(b) Plan (TSA). - a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious and other 501c(3) organizations, including teachers in public schools systems. Such plans generally are not available to other kinds of employees.

A tax-sheltered annuity is a special tax-favored retirement plan available to A Certain age groups only. B Certain groups depending on factors such as race, gender, and age. C Certain groups of employees only. D Anyone.

Certain groups of employees only. - A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

Which of the following is TRUE of a qualified plan? A It may allow unlimited contributions. B It has a tax benefit for both employer and employee. C It does not need to have a vesting schedule. D It may discriminate in favor of highly paid employees.

It has a tax benefit for both employer and employee -A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

What is the primary purpose of a 401(k) plan? A To receive dividends over a certain period B Life insurance distribution C Retirement D Education funds

Retirement - Profit-sharing plans are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees. A 401(k) qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also somehow match the employee's contribution, whether it is dollar for dollar or on a percentage basis.

If a retirement plan or annuity is "qualified," this means A It has a penalty for early withdrawal. B It accepts after-tax contributions. C It is noncancellable. D It is approved by the IRS.

It is approved by the IRS. - A qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Which of the following is NOT true regarding a nonqualified retirement plan? A Contributions are not currently tax deductible. B It can discriminate in benefits and selecting participants. C Earnings grow tax deferred. D It needs IRS approval.

It needs IRS approval. - Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? A SEPs have a higher tax deductible contribution limit than an IRA. B Employer contributions are not included in the employee's gross income. C SEPs are suitable for large companies. D SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income.

SEPs are suitable for large companies. - An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

All of the following employees may use a 403(b) plan for their retirement EXCEPT A The vice president of a charitable organization. B The CEO of a private corporation. C A school bus driver. D A part-time classroom aide.

The CEO of a private corporation. - Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

How are contributions to a tax-sheltered annuity treated with regards to taxation? A They are taxed as income for the employee. B They are taxed as income for the employee, but are tax free upon withdrawal. C They are not included as income for the employee, but are taxable upon distribution. D They are never taxed.

They are not included as income for the employee, but are taxable upon distribution. - Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after age 70½. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it? A 403(b) plan B Simplified Employee Pension Plan C Traditional IRA D Roth IRA

Roth IRA - Roth IRAs have several distinguishing features. Unlike traditional IRAs, the account owner can continue beyond age 70½, and distributions do not have to begin at age 70½. The contributions are not tax-deductible.

All of the following are general requirements of a qualified plan EXCEPT A The plan must be permanent, written and legally binding. B The plan must provide an offset for social security benefits. C The plan must be communicated to all employees. D The plan must be for the exclusive benefits of the employees and their beneficiaries.

The plan must provide an offset for social security benefits. - Plans must meet the general requirements established by IRS.