8/1 Quiz: Retirement Plans

Mildred is age 58. She withdraws a sum of money from her qualified plan. What is the penalty?

A 10% penalty tax is applied to distributions made from a qualified plan prior to the plan participant reaching the age of 59 1/2. The correct answer is: 10% penalty tax

Maggie incurred a10% penalty to distributions from her qualified plan because they were made before she turned:

A 10% penalty tax is applied to distributions made from a qualified plan prior to the plan participant reaching the age of 59 1/2. The correct answer is: 59 1/2

The Baker Box Company is setting up a retirement plan for its employees. In order to meet the IRS standards for qualified plans, the plan must meet all of the following stipulations, EXCEPT:

A qualified retirement plan must be permanent. The correct answer is: Be temporary.

Special tax advantages of qualified plans include all of the following, EXCEPT:

Distributions are taxed, both principal and interest, because neither the contributions nor interest was previously taxed. The correct answer is: Distributions are tax-deferred.

If Becky wants to take a distribution from her qualified retirement plan, she should know that distributions can be made:

Distributions from a qualified retirement plan may be made regardless of age when an employee retires, the employee ceases employment, or the plan is terminated. However, if distributions from a qualified plan are made prior to the age of 59 , then a 10% penalty tax is imposed. The correct answer is: At any time.

Distributions from a qualified plan may be made without incurring the early distribution penalty tax for all of the following reasons, EXCEPT:

Distributions made for the following reasons are not subject to the early distribution penalty tax: the plan participant dies or incurs a disability; a loan is taken from the plan; distribution made as part of a divorce decree; level payments made at least annually to the participant over their life; or a distribution made is as a qualified rollover. The correct answer is: Distribution made to pay for a new RV.

What happens if insufficient distributions are made from Becky's qualified retirement plan after April 1 in the year after she reaches age 70 1/2?

Distributions must begin by April 1 in the year after the plan participant reaches the age of 70 1/2 or a nondeductible 50% penalty is assessed on the difference between the amount withdrawn and the required benefit amount. The correct answer is: A 50% penalty is assessed on the difference between the amount withdrawn and the required benefit amount.

Becky has a qualified retirement plan. To avoid penalties, she must make monthly distributions in the amount of $2,000 beginning April 1 in the year after she turns age 70 1/2. If she only makes a $1,000 withdrawal, how much will she be penalized?

Distributions must begin by April 1 in the year after the plan participant reaches the age of 70 1/2 or a nondeductible 50% penalty is assessed on the difference between the amount withdrawn and the required benefit amount. Fifty percent of $2,000 minus $1,000 is $500. Becky will be penalized $500. The correct answer is: $500

All of the following are characteristics of qualified retirement plans, EXCEPT:

Employee contributions to a qualified plan are made with pre-tax dollars. The correct answer is: Contributions are not tax-deductible for the employee.

Which of the following is not a characteristic of qualified plans?

Employee contributions to a qualified plan are made with pre-tax dollars. The correct answer is: Employee contributions are not tax-deductible.

George is contributing to a qualified retirement plan at his company. What percentage of his contributions are vested immediately?

George's contributions are 100% vested immediately and cannot be forfeited. The correct answer is: 100%

What happens if Becky takes her distributions from her qualified plan prior to age 59 1/2?

If distributions from a qualified plan are made prior to the age of 59 1/2, then a 10% penalty tax is imposed. The correct answer is: A 10% penalty tax is assessed.

George has been at the company for 7 years. Which type of vesting is characterized by employer contributions that are vested completely after a period of time?

In 5-year cliff vesting, the employer's contributions must be completely vested after the employee has worked five years. This means that during years 1 through 4 employer contributions are 0% vested; however, by the end of year 5 and in future years, employer contributions must be 100% vested. The correct answer is: 5-year cliff vesting

A nonqualified plan:

Nonqualified plans are characterized by the following: do not need to be approved by the IRS, can discriminate in favor of certain employees, contributions are not tax-deductible, and interest earned on contributions is tax-deferred until withdrawn upon retirement. The correct answer is: Permits discrimination in favor of certain employees.

Nonqualified plans are characterized by all of the following, EXCEPT:

Nonqualified plans do not need to be approved by the IRS. The correct answer is: Must be approved by the IRS

Plan vesting requirements on qualified plans are imposed on:

Only employers must comply with vesting requirements because employee contributions are completely vested immediately. The correct answer is: Employer contributions.

ERISA requires plan administrators to disclose which of the following information about pension plans and benefits plans?

Plan administrators must disclose: Summary Plan Description, Summary of Material Modification, and Summary Annual Report (Form 5500) provided to plan participants/pension beneficiaries. The correct answer is: All of the above

What type of vesting must be used for qualified defined benefit plans?

Qualified defined benefit plans must use either 5-year cliff vesting or 7-year graded vesting. The correct answer is: 5-year cliff vesting or 7-year graded vesting

To be qualified, a retirement plan must meet all of the following stipulations, EXCEPT:

Qualified plans cannot discriminate in favor of highly-paid employees, officers and stockholders. The correct answer is: Favor highly-paid employees, officers and stockholders.

Qualified plans are characterized by all of the following, EXCEPT:

Qualified plans have the following features: employer's contributions are tax-deductible as a business expense; employee contributions are made with pretax dollars contributions are not taxed until withdrawn; and interest earned on contributions is tax-deferred until withdrawn upon retirement. The correct answer is: Employee contributions are made with after-tax dollars.

Which of the followings is not a benefit of a qualified retirement plan?

Qualified plans have the following features: employer's contributions are tax-deductible as a business expense; employee contributions are made with pretax dollars, contributions are not taxed until withdrawn; and interest earned on contributions is tax-deferred until withdrawn upon retirement. The correct answer is: Employee contributions are made with after-tax dollars.

A qualified plan must meet all of the requirements, EXCEPT:

Qualified plans must be permanent. The correct answer is: Be temporary

What is vesting?

The Employee Retirement Income Security Act (ERISA) imposes certain requirements on qualified plans. ERISA has a set of vesting rules for how participants achieve ownership of contributions made by employers. The correct answer is: Rules for how participants achieve ownership of contributions made by employers

What is the purpose of ERISA?

The Employee Retirement Income Security Act (ERISA) was instituted to enact minimum standards for pension plans and employee benefit plans. The correct answer is: To enact minimum standards for pension plans and employee benefit plans

What are the two terms used to describe whether or not special federal tax benefits apply to retirement plans?

The federal government distinguishes qualified plans as those offering special tax benefits. Nonqualified plans are those which do not offer special federal tax benefits. The correct answer is: Qualified; nonqualified

What are the two types of vesting?

The two types of vesting are cliff and graded. The correct answer is: Cliff vesting; graded vesting

All of the following are characteristics of qualified retirement plans, EXCEPT:

There are two types of retirement plans: Qualified and Nonqualified - not two types of qualified plans. The correct answer is: There are two types of qualified plans.