Retirement module 6
Charles was an employee of the ABC Corporation for 20 years. He received a lump sum distribution from his qualified retirement plan this year. The distribution was comprised entirely of ABC stock valued at $100,000 on the date of distribution. The value of the stock contributed to Charles's individual account in the plan over the years was $70,000. If Charles does not sell the stock this year, what amount is included in his gross income this year as a result of the distribution?
$30000
Mike participates in a Section 401(k) plan maintained by his employer. His vested account balance is $18,000, and he has not taken any plan loans. What is the maximum loan amount Mike can take from his Section 401(k) plan?
$9000
Rudy attained age 72 in March of this year. His distribution period is 27.4 years for age 72 and 26.5 years for age 73. If Rudy's IRA balance is $500,000 on December 31st of last year, what is his required minimum distribution (RMD) for this year?
18,248
Shawn, age 32, needs $10,000 for the purchase of a primary residence. She has no other source of funds at her disposal. Her Section 401(k) plan allows participant loans. The current value of Shawn's deferral account is $14,000, of which $9,500 is her aggregate vested balance. What is the maximum loan Shawn can take from the Section 401(k) plan?
9500
Which of the following statements regarding distributions from retirement plans where death has occurred before the required beginning date (RBD) of required minimum distributions is NOT correct?
A spouse must take distributions over the spouse's remaining single life expectancy, beginning in the year following the year of death.
Cindy attains age 72 on February 1st this year. If Cindy no longer works for the employer-sponsor of the plan, when must she begin taking required minimum distributions (RMDs) from her Section 401(k) plan?
April 1st of next yea
If the owner's death occurs before the required beginning date, nonspouse eligible designated beneficiaries of qualified plans or IRAs may take distributions from the inherited plan accounts over the longer of which of the following? The beneficiary's life expectancy, beginning in the year following the participant-owner's death, reduced by 1 for each subsequent year The 5-year rule, if the plan allows
Both I and II
Which statement regarding qualified joint and survivor annuities (QJSA) is CORRECT? A QJSA is an optional benefit that must be elected by the plan participant in a defined benefit pension plan in order for the survivor to receive the benefit. A QJSA may apply to a money purchase pension plan under certain circumstances.
Both I and II
Harry has an IRA that he wishes to leave to his children, Mary (age 15), John (age 10), and Abigail (age 2). Harry would like to designate the beneficiaries in such a way as to provide as much tax-free wealth accumulation as possible. Assuming all the children are alive at the time of Harry's death, which beneficiary designation will provide the greatest benefit?
Designating 100% of the IRA assets to Mary
Which one of the following statements correctly describes the tax implications of a distribution from a Section 401(k), governmental 457, or Section 403(b) plan?
Distributions from a 401(k), governmental 457, or 403(b) plan could be transferred into another qualified plan, a 403(b) plan, SEP, IRA, or governmental 457 plan that accounts for such rollovers separately, or directly rolled to a Roth IRA.
The 20% mandatory withholding requirement applies to distributions from all of the following except
IRAs
Jane, 54, has retired and taken a full distribution from her employee stock ownership plan (ESOP). Over the years, her employer made a total of $40,000 in contributions into the plan for her, and the stock is currently valued at $110,000. Which one of the following statements best describes the tax implications of the distribution that Jane has taken?
Jane will owe ordinary income taxes and a 10% penalty tax on $40,000.
Which of the following people would NOT be an eligible designated beneficiary for Tom?
Julie, Tom's child, age 30
Which one of the following statements is correct about the repayment of a loan to a qualified plan or 403(b) plan?
Loans from a qualified plan or tax-sheltered annuity (TSA) must be repaid over a period not to exceed 5 years, unless the loan was for the purchase of a primary residence. Loan payments must be made at least quarterly.
John died this year leaving an IRA account balance of $5 million. Which of the following beneficiary designations is the least favorable to the beneficiary of the IRA?
Name the estate as beneficiary
Under the minimum distribution regulations, in cases in which the eligible designated beneficiary is not the surviving spouse, over what time span must benefits from a qualified retirement plan or IRA generally be distributed subsequent to the death of a participant who has not yet begun receiving required minimum distributions?
Over the non-spouse eligible designated beneficiary's life expectancy as of the requisite beginning date, reduced by 1 each subsequent year
A client, age 60, is electing to take early retirement this year. She participates in a profit-sharing plan sponsored by her employer that will provide her with a lump-sum distribution. She has been a participant in the plan for the past 12 years and has always invested her account 100% in stock mutual funds. If the distribution is made in a lump sum this year, what is an available option for the client?
Roll over the lump-sum distribution to an IRA.
Jerry died on July 17th of this year. He owned a traditional IRA. The designated beneficiaries for his IRA will be determined as of what date?
September 30th of the next year
Which of the following beneficiaries is entitled to move a post-death distribution from a qualified plan into an IRA?
all 3
Pat, age 45, is Joan's only child. She is the primary beneficiary of Joan's IRA. Joan died at 70. Pat does not need the money. How long can she stretch Joan's IRA?
o December 31 of the year containing the tenth anniversary of Joan's death
Using the Uniform Lifetime Table to calculate the required minimum distributions (RMDs) from a qualified plan is mandatory unless
the beneficiary is the participant's spouse and the spouse is more than 10 years younger than the participant.
Sam recently died at age 63, leaving an IRA with a fair market value (FMV) of $200,000 to his wife, Susan, 55, who was the only designated beneficiary. Susan has no IRA of her own. Which of these statements regarding Sam's IRA is CORRECT?
Susan can receive distributions over her remaining single-life expectancy, recalculated each year.
When she retired at age 64, Lauren received a lump-sum distribution from her employer's qualified stock bonus plan. The fair market value of the employer stock contributed to her account was $200,000. At the time of the distribution, Lauren received $300,000 of her employer's stock. Six months later, Lauren sold the stock for $310,000. Which of the following statements regarding the sale of Lauren's stock is NOT correct?
The $300,000 distribution is taxed at the long-term capital gain rate.
In the calculation of required minimum distributions (RMDs) from an IRA or qualified plan, which of these is assumed in the application of the Uniform Lifetime Table (Table III)?
The divisor amounts appearing in the Uniform Lifetime Table are calculated on the assumption that every retired taxpayer has a beneficiary who is 10 years younger, regardless of the actual age of any beneficiary.
Tom is age 52. His daughter Angela is attending college. Tom has been contributing to his 401(k) plan at work for the past seven years and is considered a key employee. The current balance of his 401(k) is $21,500, which includes $3,500 account earnings. The plan provides for both hardship withdrawals and plan loans, and loans are available to all plan participants on an equal basis. In fact, Tom has just finished repaying a plan loan. Two years ago he owed $4,300 on the loan; 12 months ago he owed exactly $2,100. He needs to use some of his plan assets to pay college tuition. Which of the following is a correct statement about how Tom could meet Angela's college expenses?
The maximum plan loan Tom could take is $8,650.
Which of the following statements regarding a nonspouse eligible designated beneficiary of an IRA is CORRECT?
The nonspouse eligible designated beneficiary may elect to distribute the IRA over the remaining life expectancy of the beneficiary commencing the year following the year of death, reduced by one for each subsequent year.
Which of the following is the most favorable as a choice for the beneficiary of a qualified plan participant if stretching benefits is desired?
The participant's spouse
Which of the following statements regarding the Section 72(t) early distribution penalty is NOT correct?
The tax does not apply to any distribution from a Roth IRA
After his divorce, Fred, age 52, changed the beneficiary of his IRA to his estate. If Fred died in a car crash on April 1, 2022, how long would his beneficiaries be able to stretch his IRA? Fred has two adult children.
Their full IRA accounts would need to be distributed by December 31, 2027
Tony, age 65, is a nonowner employee of Widget, Inc. He wants to defer his retirement from Widget, Inc., until age 75 and continue to work. Tony contributes 6% of his pay to the Section 401(k) plan, and his employer matches 100%. Which of the following statements regarding Tony's distribution options is CORRECT?
Tony will be required to take minimum distributions from his Section 401(k) plan beginning April 1 of the year after he retires if he does retire after age 72.
Shockler Consolidated just established a simplified employee pension (SEP) plan for its employees. The company has over 500 employees, 60% of whom are highly compensated. This year, Shockler contributed 6% of each eligible employee's salary to the SEP plan. Which of the following statements regarding SEP plans are CORRECT? Employees can roll money that is distributed from a SEP plan into an IRA within 60 days without withholding or penalty. Employees can make direct trustee-to-trustee transfers as often as desired. Rollovers can occur only once every 12 months. A SEP plan can be integrated with Social Security.
all
Thomas received a lump sum distribution of 10,000 shares of stock from his employer's stock bonus plan valued at $1,000,000 when he separated from his employer at age 60. The value of the stock at the time of contribution to the plan was $250,000. What are the tax consequences of this distribution? $750,000 is treated as net unrealized appreciation (NUA). The NUA amount is not taxed upon distribution from the plan. Thomas's adjusted basis in the shares is $250,000. The $250,000 is taxable as ordinary income in the year of the lump sum distribution.
all
Which of the following statements regarding qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs) is(are) CORRECT? QPSAs and QJSAs must be offered to participants in target benefit pension plans. Section 401(k) plans are not required to offer QJSAs and QPSAs if certain provisions are met. Section 403(b) plans that match employee deferrals must meet the automatic survivor benefit rules. Automatic survivor benefit requirements may be waived by the plan participant with the written, notarized consent of the spouse.
all
Which of the following statements regarding required minimum distributions (RMDs) from IRAs and qualified retirement plans are CORRECT? For lifetime distributions, all single participants will use a uniform life expectancy table. The amount is determined by dividing the participant's aggregate account balances as of December 31 of the preceding year by his life expectancy. RMDs for most original retirement account owners are calculated using Table III (the Uniform Table). To calculate RMD, divide the participant's aggregate account balance as of December 31 of the preceding year by the joint life expectancy of the participant and spouse beneficiary if the spouse is more than 10 years younger that the participant.
all
Claudia's vested Section 401(k) plan balance is $60,000. She wants to know her options for taking a loan from her plan to pay some college expenses for her daughter, Caroline. Which of these statements is CORRECT? Claudia may borrow up to $30,000 from her Section 401(k) plan to pay for Caroline's college expenses. A plan loan is generally limited to half of the vested account balance of the plan participant, not to exceed $50,000. All loan repayments for any loan must be in level installments payable at least quarterly. If the rules for a plan loan are not followed, a plan loan may be deemed a taxable plan distribution and may also be subject to the 10% early withdrawal penalty.
all of them
Jim expects to begin distributions from his IRA at age 75. Which of these statements are accurate as implications of a distribution made at that time? Recalculation of life expectancy is automatic when using the Uniform Lifetime Table because the table is reentered each year at the attained age for that year. If Jim dies after the required beginning date without a designated beneficiary, the required minimum distribution (RMD) for the year of death is determined by entering the RMD Single Life Table at his attained age in the year of death. Life expectancy is reduced by one year for each subsequent year. Assuming Jim is married and his wife is his beneficiary, if Jim dies after beginning RMDs, remaining benefits may be paid over his wife's life expectancy, beginning in the year following the year of his death, determined by reentering the RMD Single Life Table each year with her attained age for that year. A distribution penalty of 50% will apply on amounts that were not distributed but should have been.
all of them
All of the following statements regarding qualified domestic relations orders (QDROs) are correct except
distributions made to an alternate payee under a QDRO are subject to the 10% premature distribution penalty.
Which of the following are exceptions to the imposition of the 10% early distribution penalty for IRA withdrawals?
owners death
A preretirement distribution from a qualified retirement plan can escape the 10% penalty in each of the following situations except
the distributions must be made after a separation from service for early retirement at any age.
Bernie is a participant in his employer's noncontributory employee stock ownership plan (ESOP). Two years ago, his employer contributed stock with a fair market value of $30,000 into Bernie's account. Bernie retired one year later and took distribution of the stock when its fair market value was $40,000. Two years after his retirement, Bernie sold the stock for $50,000. What is the appropriate tax treatment available to Bernie upon sale of the stock?
$20,000 long-term capital gain
David, who turned age 72 on June 30th this year, owns 10% of BCB Company. He has accumulated $5 million in BCB's stock bonus plan as of December 31st of last year, and $5.5 million as of December 31st of this year. The uniform lifetime table distribution factor for age 72 is 27.4. If David receives a distribution of $160,000 during this year, how much in penalties will he be required to pay on this year's income tax return?
0
Carl, 73, has been receiving required minimum distributions (RMDs) from his qualified plan. His RMD for this year is $8,000. Carl has only taken $6,000 in distributions this year. If he fails to take the full RMD by December 31 of this year, what is the amount of the penalty he must pay?
1000
Mark participates in a Section 401(k) plan maintained by his employer. His vested account balance is $25,000, and he has never before taken a loan from the plan. What is the maximum loan amount he can take from his Section 401(k) plan?
12500
Charles and Lucy Brown each had $100,000 in their respective IRAs on December 31 of last year. Each has named the other as beneficiary. They need to determine the amount each must withdraw once withdrawals are required. This year, Charles turned age 72 on January 2 and Lucy turned age 72 on March 4. What is the required minimum distribution (RMD) for each? (Assume the IRS RMD Joint Life Table expected return for two individuals age 72 is 19.1. The Uniform Table factor is 27.4 at age 72 and 26.5 at age 73.)
3650
harles and Lucy Brown each had $100,000 in their respective IRAs on December 31 of last year. Each has named the other as beneficiary. They need to determine the amount each must withdraw once withdrawals are required. This year, Charles turned age 72 on January 2 and Lucy turned age 72 on March 4. What is the required minimum distribution (RMD) for each? (Assume the IRS RMD Joint Life Table expected return for two individuals age 72 is 19.1. The Uniform Table factor is 27.4 at age 72 and 26.5 at age 73.)
3650
Under the required minimum distribution (RMD) rules for IRAs, a penalty tax of
50% is assessed on the amount of required minimum distribution not taken before the required date.
After the required beginning date (RBD), what is the amount of penalty that applies to a required minimum distribution (RMD) from a qualified plan or an IRA that is insufficient in amount?
50% of the difference between the required minimum distribution and the amount actually distributed
In July of this year, George Moore, who will be age 56, plans to retire from Metro College. He will then have in excess of 20 years of service with the college. He wants to know what the consequences will be if he begins to make withdrawals from his 403(b) account. Which of the following statements would be an accurate response?
A 403(b) plan participant is subject to the 10% early distribution tax, but an exception applies if the participant is at least age 55 and separates from service.
Which one of the following would not be exempt from the 10% early withdrawal penalty that applies to qualified plans?
A distribution for educational expenses
Which of the following reasons for an early distribution from an IRA is NOT an exception to the 10% penalty?
A distribution made after age 55 and separation from service with an employer
The qualified joint and survivor annuity (QJSA) form of payment is a requirement for a vested participant in which of the following types of retirement plans?
A traditional defined benefit pension plan
Which of the following statements regarding having the owner's estate as the beneficiary for qualified plans and IRAs is NOT correct?
An advantage when designating the estate as the beneficiary is that the taxation of the benefit is more favorable at the estate income tax rate than at the individual tax rate.
Anastasia expects to begin distributions from her IRA at age 75 since she retired at age 74½. Which of the following statements would NOT be accurate as implications of a distribution made at that time?
Because Anastasia just retired, there will not be any distribution penalty on amounts that were not distributed in the past.
Carrie retired last week and received a lump-sum distribution of her employer's stock from the company's stock bonus plan. The value of the shares at the time of contribution varied. The first contribution was 2,500 shares at $10 per share. The second consisted of 2,500 shares at $13 per share, and the last 2,500 shares were valued at $15 per share. All stock was contributed by the employer, and the current value of the stock on the date of her retirement is $22 per share. Because she is only 63 years old today, she wants to wait to sell the shares until she is 66. How much of the lump-sum distribution should Carrie report on her income tax return in the year of her retirement?
Carrie has net unrealized appreciation (NUA) of $70,000 in the stock and must report $95,000 as ordinary income.
Carol has been researching IRAs and learning of the advantages and disadvantages of using an IRA as a retirement savings vehicle. Which of the following statements regarding an IRA is CORRECT?
Earnings on assets held in an IRA are not subject to federal income tax until withdrawn from the account
All of the following statements regarding interest charged to a plan participant for a loan from the participant's qualified retirement plan account are correct except
Generally, loans from qualified plans must be repaid within 10 years, unless the loan is used to acquire a primary residence
On December 31 of last year, Samuel Herman had $360,000 in his IRA. He has named Trudy Herman, his wife, as beneficiary. He wants you to determine the amount he must withdraw for his RMD this year and the date by which the withdrawal must be made. This year, he turned age 72 on October 17, and Trudy turned age 35 on January 8. (Assume the IRS RMD Joint Life Table divisor for two individuals ages 72 and 35 is 47.5; ages 73 and 36 is 46.6, and ages 74 and 37 is 45.6. The IRS Table I divisor for an individual age 72 is 15.5, age 73 is 14.7, and age 74 is 14.1. The Uniform Table factor is 27.4 at age 72 and 26.5 at age 73.) What is the smallest required minimum distribution (RMD) that Samuel can take, and when must distributions begin?
He must begin distributions on April 1 of next year in the amount of $7,579.
Kim, 44, has been a participant in her employer's profit-sharing plan for seven years. This year, she withdraws $16,000 (20% of her account balance) from the plan to cover her son's first year in college. Which of the following statements correctly describe the consequences of this withdrawal? The amount withdrawn will be subject to a 10% early withdrawal penalty. The amount withdrawn will be subject to ordinary income taxation. The distribution is exempt from the 10% penalty because it is for higher education. The distribution is considered a hardship withdrawal and is exempt from any penalty.
I and II
Which of these are CORRECT regarding the rules governing IRA distributions if an IRA owner dies before his or her required beginning date? A spouse who is named as the beneficiary may roll the IRA over into another IRA titled in his or her own name. If a designated beneficiary isn't named, the entire account must be distributed under the five year rule. If the beneficiary is a spouse, that person must begin taking distributions no later than December 31st of the year following the year in which the deceased died. A nonspouse eligible designated beneficiary may take distributions based upon the Uniform Lifetime Table (Table III) each year.
I and II
A traditional Section 401(k) plan allows plan participants the opportunity to defer taxation on a portion of compensation simply by electing to defer compensation to the plan instead of receiving it in cash. Which of the following statements apply to traditional Section 401(k) elective deferrals? Traditional Section 401(k) elective deferrals are immediately 100% vested and cannot be forfeited. In-service withdrawals are to be made only if an individual has attained age 59½. An extra nondiscrimination test called the actual deferral percentage test applies to elective deferral amounts.
I and III
Which of these qualified plans are always required to provide a qualified joint and survivor annuity (QJSA)? Cash balance plan Employee stock option plan (ESOP) Target benefit plan 401(k) plan
I and III
Which of the following statements regarding a simplified employee pension (SEP) plan are CORRECT? Distributions used to fund college education costs for the participant's child are not subject to the 10% early withdrawal penalty. Distributions from a SEP plan will not be subject to the 10% early withdrawal penalty if the participant leaves the sponsoring company after attaining age 55.
I only
Which of the following statements regarding traditional IRA required minimum distribution (RMD) rules are CORRECT? The entire account balance may be taken as a lump sum. The account balance may be distributed over the life expectancy of the owner under the uniform distribution table. The account balance may be distributed over the actual joint life expectancy of the owner and the spouse beneficiary if the spouse is more than 10 years younger than the owner. In the case of multiple IRAs, the minimum distribution must only be calculated for and received from one account.
I, II, and III
Parrish Products would like to implement a retirement plan for its employees. The company has over 2,000 employees and would like to help them in saving for their retirement. The company chairman, Roger Parrish, is concerned about the administrative costs of the plan. He was recently informed by one of his colleagues that certain types of retirement plans are required to provide annuities to the participants and their beneficiaries. Which of the following qualified plans must provide qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs)? Simplified employee pension (SEP) Target benefit pension plan Profit-sharing plan Defined benefit pension plan
II and IV
Jerry and Cindy are divorced, and Cindy obtained a qualified domestic relations order (QDRO) assigning her 50% of Jerry's qualified retirement plan benefit. How will the QDRO affect the benefits received from the plan? If Cindy receives an early distribution from the plan pursuant to the QDRO, the distribution is tax exempt. If Cindy receives an early distribution from the plan pursuant to the QDRO, the distribution is exempt from the 10% early distribution penalty. Jerry becomes an alternate payee of the plan under the QDRO. The QDRO may specify when Cindy receives the plan benefit.
II and Iv
When she retired at age 64, Lauren received a lump-sum distribution from her employer's stock bonus plan. The fair market value of the employer stock contributed to her account was $200,000 at the time of contribution. At the time of the distribution, the employer stock in Lauren's account had a fair market value of $300,000. Six months later, Lauren sold the stock for $310,000. Which of the following statements regarding the sale of Lauren's stock is(are) CORRECT? The $300,000 distribution is taxed at the long-term capital gain rate. Lauren has a $10,000 short-term capital gain when the stock is sold. There was no income tax liability incurred when the stock was contributed to the plan. The net unrealized appreciation (NUA) on the stock is $100,000.
II, III, and IV
Which of the following are exempt from the 10% penalty on qualified plan distributions made before age 59½? Distributions made to an employee because of "immediate and heavy" financial need In-service distributions made to an employee age 55 or older but younger than 59½ Distributions made to a beneficiary after the participant's death Substantially equal periodic payments made to a participant following separation from service, based on the participant's remaining life expectancy
III and IV
Jennifer recently separated from service with Acme, Inc., at age 52, and rolled her qualified plan lump sum into a new IRA. She had been a plan participant for 12 years. This year, she began to work for a new employer who provides a profit-sharing plan for employees. Jennifer will be eligible to participate in her new employer's profit-sharing plan in June of next year. Which one of the following statements describes an option that will be to Jennifer's benefit?
Jennifer should use the direct rollover to roll the entire IRA over into her new employer's qualified profit-sharing plan in accordance with tax requirements and plan provisions if the plan allows her to do so and allows for loans.
Stanley designated his son Tom, 49, as his IRA beneficiary 10 years ago. Stanley is considering adding his daughter Martha, 45, as a beneficiary to the IRA. He wants his children to receive the benefit over as long a period as possible. What is the best method? Separate accounts will allow Tom and Martha to each use their own life expectancies for RMDs after Stanley's death. Designating a revocable living trust with Tom and Martha as trust beneficiaries will allow for the longest payout period for the distributions from the IRA.
Neither
Which of the following are exceptions to the imposition of the 10% early distribution penalty for IRA withdrawals?
Owner's death
Which of the following will exempt a qualified plan distribution from the 10% premature distribution penalty?
Part of a series of substantially equal periodic payments to be paid over the life expectancy of the individual
