Qualified Plans

In a defined contribution plan,

(A) The contribution and the benefit are known (B) The contribution is know and the benefit is unknown * (C) The benefit is known and the contribution is unknown (D) The contribution and the benefit are unknown

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 * - The employer will contribute a certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute.

Which of the following is NOT true regarding a non qualified retirement plan?

(A) Earnings grow tax deferred (B) 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 the IRS. (C) Contributions are not currently tax deductible (D) It can discriminate in benefits and selecting participants

What is the primary purpose of a 401(k) plan?

(A) Education funds (B) To receive dividends over a certain period (C) Life insurance distribution (D) 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 company has a Simplified Employee Pension Plan, what type of plan is it?

(A) The same as an IRA, with the same contribution limits (B) An undefined contribution plan for large businesses (C) A qualified plan for small businesses * - SEP is a type of qualified plan suited for the smaller employer or for the self-employee. A SEP in an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount. (D) The same as a 401(k) plan

Pretax Contribution

The contribution made before federal and/or state taxes are deducted from earnings

Vesting

The right of a participant in a retirement plan to retain part or all of the benefits

Rollover

Withdrawal of the money from one qualified plan and placing it into another plan

Earned Income

Salary, wages, or commissions; but not income from investments, unemployment benefits, and similar

Under a defined benefit retirement plan, who determines what benefits a retired employee will receive?

(A) Employee (B) Beneficiary (C) Federal Government (D) Employer * - The employer defines the benefits by the use of a formula that applies to all employees

For a retirement plan to be qualified, it must be designed for the benefit of:

(A) IRS (B) Employees * (C) Key employee (D) Employer

If a retirement plan or annuity is "qualified," this means:

(A) It is approved by the IRS * - This then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth. (B) It has a penalty for early withdrawal (C) It accepts after-tax contributions (D) It is noncancellable

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 * - This plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth. (C) It does not need to have a vesting schedule (D) It may discriminate in favor of highly paid employees

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)

(A) Keogh Plan (B) Roth IRA (C) SEP (D) 403(b) Plan (TSA) * - Tax-sheltered annuities may be established for the employees for specific non-profit 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.

Who may contribute to a Keogh (HR-10) plan?

(A) Manager of a store (B) Corporate executive (C) Partner with at least 5% ownership (D) Self-employed plumber * - Self-employed persons may contribute to an HR-10 plan.

SIMPLE Plans require all of the following EXCEPT:

(A) No other qualified plan can be used (B) No more than 100 employees (C) Employees must receive a minimum of $5,000 in annual compensation (D) At least 1,000 employees * - This plan is available to small business that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.

All of the following apply to defined benefit plans EXCEPT:

(A) The employer is responsible for providing promised retirement benefits (B) They are qualified plans and cannot discriminate (C) Contributions are tied to the company profits * - Defined benefit plans are not tied to the employing company's profit; however, the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service. (D) Benefits are based on a specified formula that incorporates years of service, salary, and age of retirement

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 * - Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public educations, as well as employees of charitable organizations. (C) A school bus driver (D) A part-time classroom aide

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 * - Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal (D) They are never taxed

Gross Income

A person's income before taxes or other deductions

Nonprofit Organization

An organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members