Retirement Planning Exam #2

Sal, single and age 72, is a participant of his employer's qualified profit sharing plan. For the current year he received a profit-sharing contribution of $1,200. Sal would like to make a deductible IRA contribution. If Sal's AGI is $79,000 (comprised of $35,000 of W-2 earnings, and the rest as Social Security and portfolio income), what is the maximum deductible IRA contribution Sal can make for 2021? a) $0 b) $3,000 c) $6,000 d) $7,000

$0

Sodium Services, Inc. (SSI) sponsors a SIMPLE for its employees with a 100% match up to 3% of compensation. Mary, age 52, has been an SSI employee for 14 years. In the current year, Mary earns $35,000 and defers $10,000 to the SIMPLE plan. What is the maximum matching contribution to Mary's SIMPLE from SSI?

$1,050

In August of 2019, Gideon turned age 70 and 1/2. He was a participant in his former employer's profit-sharing plan. His profit-sharing plan had an account balance of $600,000 on December 31 of 2018, $550,000 on December 31, 2019, and $450,000 on December 31 of 2020. According to the Uniform Lifetime Table the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6 respectively. What is the amount of Gideon's required minimum distribution for 2021? a) $0 b) $16,981 c) $17,578 d) $22,641

$17,578

Tiana contributed $5,000 each year to her ROTH IRA for eleven years. At age 57, Tiana's IRA was worth $100,000 consisting of $55,000 in contributions. $25,000 in conversions from her 401(k) plan last year, and earnings $20,000. What are the tax consequences if Tiana takes a complete distributions of the ROTH IRA at age 57, once she has retired, to travel around the world? a) Only $20,000 is subject to the 10 percent early withdrawal penalty. b) $20,000 is subject to income tax but no penalty. c) $45,000 is subject to the 10 percent early withdrawal penalty and $20,000 is subject to income tax. d) None of the distribution is taxable or subject to a penalty.

$45,000 is subject to the 10 percent early withdrawal penalty and $20,000 is subject to income tax.

At the age of 57, James converted his traditional IRA, valued at $45,000, to a ROTH IRA. At age 60, James took a distribution from this Roth IRA of $100,000 to buy a new car for his daughter for college. Which of the following statements is true with regards to the distribution from the Roth IRA? a) $100,000 will be subject to ordinary income tax. b) $55,000 will be subject to ordinary income tax. c) $55,000 will not be subject to ordinary income tax penalty. d) $55,000 will be subject to ordinary income tax and penalty.

$55,000 will be subject to ordinary income tax.

Colton, single and age 53, is a participant of his employer's qualified profit-sharing plan. For the current year he received a forfeiture allocation of $250, but the employer did not make any other contribution for the year. Colton would like to make an IRA contribution. If Colton's AGI is $71,000 (all comprised of W-2 earnings and portfolio income), which is the maximum IRA contribution Colton can make for 2021? a) $0 b) $3,500 c) $6,000 d) $7,000

$7,000

Which of the following statement(s) regarding 403(b) plans is true? 1. Assets within a 403(b) plan may be invested in annuities. 2. Assets within a 403(b) plan may be invested in mutual funds. 3. All 403(b) plans must pass the ADP test. 4. In certain situations, a participant of a 403(b) plan can defer an additional $25,000 (catch up) to a 403(b) plan in a single plan year.

*1 and 2* *Statement 3 is false b/c 403(b) plans are not qualified plans. Non-qualified plans do not need to pass ADP/ACP testing.

True or False: Pension plans generally provide a lump-sum distribution.

*False*; While some plans do offer a lump-sum distribution, most do not. Other options might be rolling over their assets to an IRA or another qualified plan, or simply leaving their funds in the pension plan.

True or False: Profit sharing plans may allow for in-service withdrawals.

*True*; Unlike pension plans, PSPs may allow for in-service withdrawals for participants of any age (not just those doing a "phased-in retirement."

What are possible benefits of a ROTH conversion?

- Tax reduction/diversification - Tax deferred funds transfer - Minimum distribution avoidance - Possible estate tax reduction

Which of the following qualified plan distributions are subject to 10% early withdrawal penalty? 1. Garrett, age 56, currently employed by UBEIT Corporation, takes a $125,000 distribution from the UBEIT 401(k) plan. 2. Brad, age 50, takes a $1,000,000 distribution from his employer's profit-sharing plan. Ten days after receiving the $800,000 check (reduced for 20% withholding), Brad deposited the $800,000 into a new IRA account. 3. Patricia, age 22, takes a $2,000 loan from her 401(k).

1 and 2

Which of the following statements regarding 457 plans is (are) true? 1. An individual who defers $19,500 to his 403(b) plan during 2021 can also defer $19,500 to a 457 plan during 2021 (salary and plan permitting). 2. A 457 plan allows an executive of a tax-exempt entity to defer compensation into and ERISA protected trust. 3. In the final three years before normal retirement age, a participant of a government sponsored 457 plan may be able to defer $39,000 (2021) for the plan year.

1 and 3

SEPs and SIMPLES are tax-advantaged retirement plans that are less complex than qualified plans and easier to implement. Which of the following statements is (are) true regarding SEPs and SIMPLEs? 1. For an employee with a salary of $30,000, more money can be contributed (from both the employer and employee) to a SEP versus a SIMPLE. 2. Vesting and distribution rules for both plans are almost identical. 3. Both plans have the same coverage and participation rules.

2 only

Which of the following statements is (are) true? 1. A SEP requires the plan sponsor to provide at least a 100% match up to 3% of all employee deferrals. 2. A SEP plan can be established by employers who employ more than 100 employees who earn $5,000 or more during the preceding calendar year. 3. SIMPLEs can be either contributory for noncontributory plans, whereas newly established SEP plans are always noncontributory. 4. An employer who wants to share the responsibility of retirement plan funding should establish a SIMPLE rather than a SEP.

2, 3, and 4

All of the following types of income are considered "earned" income for the purposes of contributing to a traditional IRA except: a) K-1 income for an S-corp b) W-2 income c) Self-employment income d) Alimony from a divorce that occurred 5 years ago. e) Neither A nor B can be counted as earned income. f) All could be counted if the K-1 income is from "active" participation.

All could be counted if the K-1 income is from "active" participation.

Matthew, Luke and John are all considering making a contribution to a ROTH IRA. Which of the following individuals is not permitted to contribute a ROTH IRA this year? a) John, age 75, who earns $35,000 as a part-time engineering consultant -- self-employment income. b) Luke, age 60, who was divorced in 2016, receives unemployment compensation, and receives alimony of $12,000 per year. c) Matthew, age 37, who earns $52,000 as PT Tech and is a participant in his employer's qualified plan. d) All of the above can make a ROTH IRA contribution.

All of the above can make a ROTH IRA contribution.

With the SIMPLE IRA, the employer may reduce the three percent matching contribution requirement under which of the following circumstances? a) The limit is reduced to no less than one percent. b) The limit is not reduced for more than two years out of the five-year period that ends with (and includes) the year for which the election is effective. c) Employees are notified of the reduction limit within a reasonable period of time before the sixty-day election period for a salary reduction agreement. d) All of the above must be present for the reduction to apply.

All of the above must be present for the reduction to apply.

Which of the following qualified plan distributions will be subject to a 10% early withdrawal penalty? a) Lonnie, age 35, takes a $100,000 distribution from his traditional IRA to pay for his son's college tuition. b) Carolyn, age 56, was terminated from UBEIT Corporation. Carolyn takes a $125,000 distribution from the UBEIT retirement plan to pay for living expenses. c) Anderson, age 47, takes $1,000,000 distribution from his employer's profit-sharing plan. Six weeks after receiving the $800,000 check (reduced for 20% withholding), Anderson deposited $800,000 into a new IRA account. d) Tara, age 42, begins taking equal distributions over her life expectancy from her IRA. The annual distribution is $2,000.

Anderson, age 47, takes $1,000,000 distribution from his employer's profit-sharing plan. Six weeks after receiving the $800,000 check (reduced for 20% withholding), Anderson deposited $800,000 into a new IRA account.

In 2021, Barbie, age 50, inherits a ROTH IRA from her dad, Ken, who was 76 years old. When could Barbie begin taking distributions from the inherited ROTH IRA and satisfy the minimum distribution rules? a) By the fifth year after Ken's death. b) December 31 of the year following the year Ken died. c) By the tenth year after Ken's death. d) Distributions are not required for a ROTH IRA as distributions are not taxable.

By the tenth year after Ken's death.

Cammie, who is 60 years old, is getting ready to retire in a couple of months from RPC, a publicly traded company. She has contributed to her 401(k) plan for the last 35 years. RPC matches employee contributions with RPC stock. Cammie has kept the stock in the plan over the last 35 years. Which of the following is correct about what to do with the assets upon her retirement? a) Cammie's best option is to rollover the qualified assets into a self-directed IRA. b) Cammie should take a lump-sum distribution of the stock and rollover the rest of the funds to an IRA. c) Cammie should consider ten-year averaging for his distribution. d) Cammie's best course of action cannot be determined from the information provided.

Cammie's best course of action cannot be determined from the information provided.

Which of the following are characteristics of a SIMPLE? a) Contributions to a SIMPLE are 100% vested at all times. b) The maximum contribution to a SIMPLE is the lesser of 25% of compensation or $58,000 for 2021. c) A SIMPLE permits employer discretionary contributions. d) A SIMPLE imposes a 25% penalty on all distributions prior to age 59 and 1/2.

Contributions to a SIMPLE are 100% vested at all times.

An employer has adopted a SEP for his employees. What can you tell the employer if he wishes to add loans, in addition to employee contributions? a) Either a SIMPLE IRA, a SIMPLE 401(k), or a combination of a regular 401(k) and profit-sharing plans will fill these requirements. b) Either a SIMPLE 401(k) or the combination 401(k) and profit-sharing plan can allow for loans. c) He can already take loans from his existing SEP. d) Only the combination 401(l) and profit-sharing option will allow for these requirements.

Either a SIMPLE 401(k) or the combination 401(k) and profit-sharing plan can allow for loans.

Skip is a very smart professional. However, he agreed to personally guarantee a real estate development loan. Unfortunately, the project has been stalled and Jon has to pay the interest, which amounts to $45,000 per month. There appears to be little hope for Skip avoiding bankruptcy. Which of the following assets is not protected from creditors by federal bankruptcy? a) SEP IRA b) Government 457(b) c) ROTH IRA d) IRA inherited from his father seven years ago

IRA inherited from his father seven years ago

Which of the following statements regarding a SEP is true? 1. The maximum contribution to a SEP is the lesser of 100% of compensation of $58,000 for 2021. 2. A SEP is appropriate for an employer with many part-time employees who want to limit coverage under the SEP. 3. Contributions to a SEP must vest at least as rapidly as a 5-year cliff vesting schedule or 2 to 6 year graduated vesting schedule. 4. If a partnership make a flat percentage contribution equal to 25% of all employees' salary for the year to a SEP, a partner earning $100,000 during the year would receive a $25,000 contribution. a) 4 only b) 1 and 3 c) 1 and 4 d) None of the statements are true

None of the statements are true

Which of the following are correct regarding SIMPLEs? a) An employer can maintain a SEP and a SIMPLE at the same time covering the same employees. b) A SIMPLE is predominantly an employer contribution plan. c) Once deposited in a SIMPLE IRA, funds can be distributed by the participant. d) Employers must provide a matching contributions to the employees covered by a simple.

Once deposited in a SIMPLE IRA, funds can be distributed by the participant.

Roberta began taking RMDs from her profit-sharing plan in 2017. In 2019, Roberta died after suffering from a heart attack. She did not have a named beneficiary for her profit-sharing plan. Which of the following statements is false? a) Roberta's estate may take a full distribution of the profit-sharing plan's assets in the year of her death. b) In the year of Roberta's death, the minimum required distribution will be equal to the minimum required distribution had Roberta not died. c) Roberta's estate must take a distribution of the profit-sharing plan account balance by the end of the fifth year after Roberta's death. d) The required minimum distribution for years subsequent to Roberta's death will be calculated utilizing the factor according to Roberta's age reduced by one in each succeeding year.

Roberta's estate must take a distribution of the profit-sharing plan account balance by the end of the fifth year after Roberta's death.

Andre died in 2019 at age 75 and left his traditional IRA to his favorite nephew, Dawson. Which of the following distribution methods would Dawson use to satisfy the minimum distribution rules and stretch the payments out over the longest period possible? a) Five-year period b) Single life expectancy c) Roll it over to Dawson's IRA d) Ten-year period

Single life expectancy

True or False: A qualified joint and survivor annuity (QJSA) and qualified pre-retirement survivor annuity (QPSA) are required for pension plans.

True

True or False: If Jerome begins receiving distributions from a profit-sharing plan calculated over his life expectancy at the age of 28, the distributions will be subject to income tax but will not subject to the 10% penalty.

True

True or False: In 2021, Justine earns $52,000 as an employee of CHS Systems (CHS). Before filing its current year tax return, CHS decides to establish a SEP plan for its employees and contribute the maximum amount permissible for the benefit of each employee. In this case, Justine may receive a contribution of $13,000 to her SEP account.

True

True or False: Sheldon had been an active participant in a qualified plan for four years. His AGI exceeded the thresholds to make deductible IRA contributions for those years, but Sheldon continued to make deductible IRA contributions totaling $9,000 (these were the only nondeductible contributions to the IRA - all other contributions were pre-tax). If Sheldon were to take a distribution of $10,000 from his IRA, valued at $100,000, $900 would not be subjected to ordinary income tax.

True

Carlton recently died at the age of 63, leaving a qualified plan account with a balance of $1,000,000. Carlton was married to Vanessa, age 53, who is the designated beneficiary of the qualified plan. Which of the following is correct? A) Vanessa must distribute the entire account balance within five years of Carlton's death. B) Vanessa must begin taking distributions over Carlton's remaining single-life expectancy. C) Any distribution from the plan to Vanessa will be subject to a 10 percent early withdrawal penalty until she is 59½. D) Vanessa can receive annual distributions over her remaining single-life expectancy, recalculated each year.

Vanessa can receive annual distributions over her remaining single-life expectancy, recalculated each year.