Unit 23

What is the penalty for not taking the required minimum distribution (RMD) for the year?

A) 50% of the amount short of what should have been taken

Required minimum distributions (RMDs) for IRAs must begin by

D) the year after the participant turns 72.

At what minimum age can retirement withdrawals be made from an individual retirement account (IRA) without a penalty?

59½ years old The minimum age to withdraw funds from a tax-qualified plan without penalty is 59½. Before that age, withdrawals are subject to a 10% penalty on growth withdrawn unless an exclusion applies.

In a defined contribution plan the the benefit amount is fixed. the benefit amount is variable. the contribution amount is fixed. the contribution amount can vary.

A) II and III In a defined contribution plan the amount that the employer is depositing is fixed by the employer, but the employee chooses the investments so the benefit varies.

Which of the following are true of nonqualified plans but not true of qualified plans? Contributions are not tax deductible. Contributions are tax deductible. Plan needs IRS approval. Plan does not need IRS approval.

D) I and IV Qualified plans require IRS approval and the contributions are tax deductible. Because nonqualified plans' contributions are not deductible they do not require IRS approval.

Which of the following are true of nonqualified plans but not true of qualified plans?

D) The plan may discriminate.

What is the penalty, if any, for overcontribution to an IRA?

D) 6% There is a 10% penalty is for early withdrawal. There is a 50% penalty is for failure to make the minimum required distribution for the year. Contribution of more than the maximum amount in a year carries a 6% penalty.

Who benefits more from a defined contribution plan?

A) Younger employees Younger employees have longer for the money to grow

Which of the following are true of Traditional IRAs but not Roth IRAs? Contributions may be deductible. Contributions are always deductible. There is a 50% penalty for failing to take the minimum required distribution (RMD). There are income limits for making contributions.

D) I and III If the contributor has an employer sponsored plan and makes over the limit, they can still have an IRA but it won't be deductible. After reaching age 72, RMDs must be taken each year. Failure to do so results in a 50% penalty. Income limits on traditional IRAs impact deductibility not contributions.

Which of the following are true of Roth IRAs but not Traditional IRAs?

Distributions are not required after reaching 72. Because distributions are not taxable on Roth IRAs, there are no required distributions. Roth IRAs have income limits and contributions to Roth IRAs are not deductible. Contributions to IRAs must come from earned income.

What is a big advantage Roth IRAs have over traditional IRAs?

Distributions are normally tax free If taken after age 59½ and the account has been open for five years, there are no taxes or penalties on distributions from Roth IRAs. Contributions are made with after-tax dollars. There may be penalties on distributions if the account hasn't been open for five years and the distributions are made before age 59½. Roth-allowable contribution amounts decrease and then end above certain income levels. LO 23.a

Which of the following are true of both qualified plans and nonqualified plans?

The accounts grow tax deferred.

A 73-year old client in the 25% income tax bracket withdraws $20,000 from her traditional IRA. Based on her life expectancy, the withdrawal should have been $30,000. How much tax will she owe?

$12,500 Failure to meet the required minimum distribution results in a 50% penalty on the shortfall. In this case, she took $20,000 when she should have taken $30,000 so there will be a 50% tax on the $10,000 difference ($5,000 penalty). In addition to that $5,000 penalty, the ordinary income tax on the total amount that should have been withdrawn must also be paid (25% × $30,000 = $7,500). Total tax liability on the withdrawal equals $12,500 ($5,000 penalty tax plus $7,500 ordinary income tax).

Contributions to an IRA can be made up to which of the following dates?

A) April 15 of the year following the year the contribution is for

In a defined benefit plan the benefit amount is fixed. the benefit amount is variable. the contribution amount is fixed. the contribution amount can vary.

I and IV In a defined benefit plan, the employee is promised a certain amount at retirement and the employer has to put in enough money to meet that promise. Changing rates of return can require changing deposits to meet the promised amounts at retirement.

Who is responsible for meeting the desired returns on a defined benefit plan?

The sponsor

IRAs have

no provisions for either hardship withdrawals or loans. B

All of the following are true of Roth IRAs except

contributions may be deductible depending on income limits. Contributions are not deductible, they are made with after tax dollars and may continue past 72 if still working. Roth IRAs are not subject to required minimum distributions (RMDs).

What is the penalty for not taking the required minimum distribution (RMD) for the year?

) 50% of the amount of the RMD that was not distributed. The 10% penalty is for early withdrawal. The penalty for missing a RMD is 50% of the amount missed.

Which of the following are available to participants in a 401(k) plan that are not available to IRA holders? Tax deferral on the earnings Hardship withdrawals The catch-up provision for those who are age 50 and older Loans against the vested balance

) II and IV

Required Minimum Distributions (RMDs) for traditional IRAs must begin

) the year following the year the participant turns 72.

In a defined contribution plan the the benefit amount is fixed. the benefit amount is variable. the contribution amount is fixed. the contribution amount can vary.

B) II and III

Who benefits most from a defined benefit plan?

B) Older employees Because the older employee has fewer years left to work, the contribution made by the company will be higher.

In a defined benefit plan the benefit amount is fixed. the benefit amount is variable. the contribution amount is fixed. the contribution amount can vary.

C) I and IV In a defined benefit plan, the employee is promised a certain amount at retirement and the employer has to put in enough money to meet that promise. Changing rates of return can require changing deposits to meet the promised amounts at retirement.

All of the following are true of Roth IRAs except

C) distributions are required after reaching 72.

What is a big advantage Roth IRAs have over traditional IRAs?

Normally distributions are tax free.

Your client retired from his job three years ago and placed all of the proceeds of his 401(k) distribution into a rollover IRA at his local bank. If the client wishes to transfer the funds to an IRA at your broker-dealer, which of the following statements would be true?

There is no limit to the number of transfers per year between custodians.