Retirement Exam 4

esop

- employee stock ownership plan - defined contribution plan that provides employer stock to employees based on income and profits of company

Thrift Plan

A qualified retirement plan that permits employees to make after-tax contributions to the plan. Although the contributions are taxable before being contributed to the plan, the account still benefits from tax-deferred growth on earnings

qualified plan

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment. EXCLUSIONS Part time Under 21 2 Year Eligibility Highly Compensated Employee >$150,000 Maximum Amount $22,500 ALL HAVE TO BE NON-DISCRIMINATORY EVEN THOUGH THERE ARE EXCLUSIONS

True

A stock bonus plan is a Defined Contribution Plan

Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability.

All of the following are advantages of a 401(k) plan except:

Lump sum withdrwal at age 55

All of the following are exceptions to the 10% early withdrawal penalty for distribution prior to age 59½ (qualified plans) EXCEPT? Substantially Equal Periodic Payments Lump sum withdrwal at age 55 Disability Death

1 only

All of the following statements is/are correct regarding tax-sheltered annuities (403(b) plans) except? 1. The non-age-based catch-up provision is available to employees of all 501(c)(3) organization employers that sponsor a TSA. 2. Active employees who take withdrawals from TSAs prior to age 591⁄2 are subject to a 10% penalty tax. 3. TSAs are available to all employees of 501(c)(3) organizations who adopt such a plan. 4. If an employee has had at least 15 years of service with an eligible employer, an additional catch-up contribution may be allow

cliff vesting

An employee becomes fully vested in a retirement plan after a specified period of time.

Andi must establish the plan and make the contribution by May 15 of the following year assuming she filed the appropriate extensions

Andi, the 100 percent owner of Andi's Day Care, a C-corporation, would like to establish a profit-sharing plan. Andi's Day Care's tax year ends July 31 to coincide with the school year. What is the latest day Andi can establish and contribute to the plan?

In-Service Withdrawal

Any withdrawal from a qualified retirement plan other than a loan while the employee is a participant in the plan.

40

Cheque Company has 100 eligible employees and sponsors a defined benefit pension plan. The company is unsure if they are meeting all of their testing requirements. How many employees (the minimum) must be covered by Cheque Company's defined benefit pension plan for the plan to conform with ERISA?

True

ERISA was enacted in part, to protect employees from employers invading retirement and pension assets.

True

First minimum distribution must begin by April 1 of the year following the year in which the participant attains the age of 72 (beginning in tax year 2020 with the SECURE Act). Prior rule was 70 1/2.

Substantially equal periodic payments

Generally, distributions from a retirement plan are subject to income tax as ordinary income. Which of the following tax treatments is not an exception to ordinary income on a distribution from a qualified plan? Pre-74 capital gain treatment. Substantially equal periodic payments Net unrealized appreciation. 10-year forward averaging.

3. only

How are forfeitures allocated in a defined contribution plan? 1. Reduce plan cost. 2. Allocated to plan participants. 3. Reduce plan cost or allocated to plan participants.

55 years of age; completed at least 10 years of participation

In an ESOP, a qualified participant may force investment diversification within his account provided that they are:

True

Lump Sum distribution must meet ALL four of the following: 1. A distribution of the participant's entire account balance or accrued benefit, 1. Within one taxable year, 3. On account of the participant's death, attainment of age 59½, separation from service, or disability, and 4. The employee participated in the plan for at least five years prior to the date of distribution.

2 only

Patrick and Kevin own Irisha Corporation and plan to retire. They would like to leave their assets to their children; therefore, they transfer 70 percent of the stock to a trust for the benefit of their 10 children pro rata. Patrick and Kevin then plan to sell the remaining Irisha shares to a qualified ESOP plan. Which of the following is correct? 1. The stock transfer to the ESOP is not a 50 percent transfer and therefore will not qualify for nonrecognition of capital gains. 2. Any transfer to an ESOP of less than 50 percent ownership may be subject to a minority discount on valuation.

Diversification, which protects the participant.

Pension plan assets may only be invested in 10% of employer securities. This is to ensure_________?

False

Pension plans have In-service withdrawals for employees under the age of 59 1⁄2.

True

Profit-sharing plans allow annual employer contributions up to 25 percent of the employer's covered compensation.

False

Profit-sharing plans are established and maintained by the individual employee.

pension plan

Program established by an employer or a union that is designed to provide income to employees after they retire. for their entire post-retirement life need actuarial assistance

$22,500.

Rex works for New Orleans Museum of Art, which sponsors a 403(b) plan. If Rex is 45 years old and has worked at the museum for the last 20 years, what is his maximum elective deferral for 2023?

1 and 2.

Stevie has a qualified plan with an account balance of $2,000,000. In which of the following circumstances would a third party be able to alienate the assets within Stevie's qualified plan? 1. A QDRO in favor of a former spouse. 2. A federal tax levy. 3. Creditors in a personal bankruptcy.

Forfeitures

The percentage or amount of a participant's accrued benefit that was not vested to the employee at the employee's termination from the plan sponsor. The forfeited amount stays in the plan and may be allocated to the other plan participants (defined contribution plan) or reduce future plan costs (defined contribution plan or defined benefit plan).

Backdoor Roth IRA

This strategy (not to be confused with a similarly named product) allows high-income earners to place their retirement savings into a tax-deferred Roth IRA.

No. Viola waited an unreasonable amount of time before filing the request.

Viola, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial adviser that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial adviser inadvertently moved the funds into a taxable account. Viola did not make the request of the IRS until five years after the mistake was made. Will the IRS permit the waiver?

2,3, and 4. only

Which entity(s) may establish a 401K? 1. Government municipalities 2 Corporations 3. Partnerships 3. LLC's

1 only.

Which of the following are costs of a stock bonus plan? 1. Periodic appraisal costs. 2. Periodic actuarial costs.

Both1 and 2

Which of the following are requirements for a qualified stock bonus plan? 1. Participants must have pass through voting rights for stock held by the plan. 2. Participants must have the right to demand employer securities at a distribution, even if the plan sponsor is a closely-held corporation

1 and 4.

Which of the following distributions from a qualified plan would not be subject to the 10 percent early withdrawal penalty, assuming the participant has not attained age 591⁄2? 1. A distribution made to a spouse under a qualified domestic relations Order (QDRO). 2. A distribution from a qualified plan used to pay the private health insurance premiums of a current employee of Clinical Trials Company. 3. A distribution to pay for costs of higher education. 4. A distribution made immediately after separation from service at age 57.

Excludable amount formula.

Which of the following is not a common defined benefit plan funding formula?

Employee has the risk of a non-diversified portfolio

Which of the following is not an advantage in a Stock Bonus Plan?

ESPP.

Which of the following is not an example of a qualified retirement plan?

1 and 3.

Which of the following is/are correct regarding SIMPLE plans? 1. A SIMPLE plan does not require annual testing. 2. A SIMPLE IRA must follow a 3-year cliff vesting schedule if the plan is top-heavy. 3. A 25% early withdrawal penalty may apply to distributions taken within the first two years of participation in a SIMPLE plan. 4. The maximum elective deferral contribution to a SIMPLE 401(k) plan is $22,500 for 2023 and $30,000 for 2023 for an employee who has attained the age of 50

1, 2, and 4.

Which of the following people would be considered a highly compensated employee for 2023? 1. Tiana, a 1% owner whose salary last year was $160,000. 2. Ariel, a 6% owner whose salary was $42,000 last year. 3. Belle, an officer, who earned $105,000 last year and is the 29th highest paid employee of 96 employees. 4. Jasmine, who earned $152,000 last year and is in the top 20% of paid employees

1 and 4.

Which of the following statements is/are correct regarding TSAs and 457(b) deferred compensation plans? 1. Both plans require contracts between an employer and an employee. 2. Participation in either a TSA or a 457 plan will cause an individual to be considered an "active participant" for purposes of phasing out the deductibility of traditional IRA contributions. 3. Both plans allow a special "final 3-year" catch-up contribution. 4. Both plans must meet minimum distribution requirements that apply to qualified plans

Both 1 and 2.

Which statements are generally correct regarding penalties associated with IRA accounts in 2023? 1. Distributions made prior to age 591⁄2 are subject to the 10% premature distribution penalty. 2. There is a 25% excise tax on a required minimum distribution not made by April 1 of the year following the year in which age 73 is attained.

reduces the employee's risk, but increases the employer's cash requirements.

With an ESOP, an employee can require an employer to repurchase stock (PUT OPTION) at the fair market value on the distribution date within 60 days after distribution, or within a 60 day period during the following plan year.

defined benefit plan

a qualified retirement plan that provides its participants with pre-determined calculated benefits at retirement

pass through voting rights

the voting rights of the stock pass through from the ESOP or the stock bonus plan to the participant

recharacterization of deferrals

to change the nature of any excess employee deferrals from pretax employee contributions to after-tax employee contributions

Key Employee

A 5% owner of the employer's stock A 1% owner of the employer having an annual compensation from the employer of more than $150,000

50/40 coverage test

A coverage test applicable only to a defined benefit pension plans that requires the plan to cover for every day during the plan year the lesser of 50 employees or 40% of all eligible employees

True

A defined benefit plan can use forfeitures to reduce future plan costs.

Lump Sum Distribution

A distribution representing the entire amount of a participant's qualified plan account balance.

All tests, 1,2, and 3.

A qualified plan must be nondiscriminatory: To be considered a qualified retirement the plan must pass which of the following tests? 1. General Safe Harbor Test 2. Ratio Percentage Test 3. Average Benefits Test

top heavy plan

A qualified retirement plan in which more than 60% of plan benefits are attributed to key employees

put option

Right to sell fair market value of the stock BACK TO THE COMPANY

True

CODAs are employee self-reliant plans.

False

She could rollover her traditional IRA to her designated Roth account in her 403(b) plan

2 and 3.

David took a lump-sum distribution from his employer's (XYZ Company) qualified plan at age 56 when he terminated his service. He rolled over his distribution using a direct rollover to an IRA. Assuming David held company stock in the qualified plan, which of the following is/are correct regarding tax treatment of the transaction? 1. If at age 59 he distributes the IRA, he benefits from net unrealized appreciation tax treatment. 2. If he rolls the entire IRA to a new employer's qualified plan, he may be eligible for net unrealized appreciation on the XYZ company stock in the future. 3. If he rolls over all of the qualified plan assets except the XYZ stock to the IRA, he may qualify for NUA treatment on the company stock. 4. If David immediately withdraws the entire amount from his IRA, he may benefit from net unrealized appreciation.

money purchase plan

Defined contribution plan that uses a fixed percentage of employee earnings to defer compensation. It works well for organizations with relatively stable earnings from year to year because the percentage is fixed, and, once established, contributions must be made every year. The contribution limits are the same as for profit-sharing plans.

True

Qualified plan assets can be rolled directly to a Roth IRA or Roth Account

profit sharing plan

qualified plans where a portion of the company's profit is contributed to the plan and shared with employees tax-deferred