Qualified Employer Retirement Plans

Which statement about Section 457 plans is NOT correct?

Earnings and contributions are not taxed when withdrawn.

412(i) plan

is a defined benefit plan that uses whole insurance and deferred annuities in its funding.

Defined benefit plan

is a qualified plan in which the employer makes contributions to provide specific benefits at the participant's retirement.

stock bonus plan

pension funded by stock bonus

Although exceptions exist, distributions from a qualified retirement plan are subject to a penalty tax if taken any earlier than

59 1/2

Profit-sharing plan

A form if defined contribution plan that allows employees to share in the profits of the employer. The employer is the sole contributor to the plan. The contributor are calculated using pre-determined formula

With regard to qualified plans, the term "vesting" refers to which of the following points?

A plan participant achieves a nonforfeitable right to employer contributions made on his or her behalf.

Defined contribution plan

A type of qualified retirement plan that defines contributions that employer makes on an employee's behalf. The benefit the employee finally receives at retirement will be whatever the contribution, plus their interest earnings, grow to.

A husband and wife, ages 49 and 51, jointly earn $175,000 a year. They each participate in a 401(k) plan at work, and each owns a traditional individual IRA. Which of the following statements is correct?

Any contributions they make to their traditional IRAs will not be tax deductibl

Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT:

Cindy can avoid taxation if she can demonstrate to the IRS that the boat was essential to her financial well-being.

Hannah participates in her company's retirement plan, which provides for 100 percent vesting after four years with no vesting prior to that. What is this type of vesting schedule called?

Cliff vesting

Jan and David both work for Acme Motors, have $50,000 of taxable income, and are in the 25 percent tax bracket. If Jan contributes to Acme's 401(k) plan this year and David does not, which of the following statements is true?

Jan's taxable income will be lower than David's.

All the following statements regarding Simplified Employee Pension (SEP) plans are correct EXCEPT

Only large employers use SEP plans.

Paul reached age 72 this year and has a Roth IRA worth $100,000. Which of the following statements best describes his distribution options?

Paul is not required to take any distributions from his Roth IRA.

Jessica's traditional IRA is worth $300,000 and consists only of prior deductible contributions and earnings. What are the tax implications if Jessica converts her IRA to a Roth IRA? She can spread out any income taxes due over four years. The entire $300,000 will be subject to income tax and to the 10 percent early withdrawal penalty. She must pay income taxes on the entire $300,000. Only part of the $300,000 will be subject to income tax.

She must pay income taxes on the entire $300,000.

Which of the following statements is true if a traditional IRA owner is covered by an employer-sponsored qualified plan?

The amount he or she can deduct for IRA contributions may be limited, depending on his or her income level.

Which one of the following statements regarding a Keogh plan for a business partnership is correct?

The plan must comply with the same maximum contribution and benefit limits applicable to other qualified plans.

money purchase plan

a pension plan in which the employer contributes a set percentage of employees' salaries to their retirement plans annually

401 K plan

allows both employer and employee to contribute to the plan