CH#6: Qualified Plans Q&A

Employees

For a retirement plan to be qualified, it must be designed for the benefit of A) IRS. B) Employees. C) Key employee. D) Employer

An undetermined percentage for each dollar contributed by the employee

Under the 401(k) bonus or thrift plan, the employer will contribute A) 30% of what the employee contributes. B) 75% of what the employee contributes. C) An undetermined percentage for each dollar contributed by the employee. D) All of the money to the plan

Distributions are made on a policy before age 59½

Which of the following scenarios will incur a 10% tax penalty on distributions A) Distributions are made to the beneficiary. B) Distributions are made as part of a qualified rollover. C) Distributions are made on a policy before age 59½. D) Distributions are made prior to the age of 70½

Roth IRA

Which type of retirement account allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½ A) Roth IRA B) Flexible IRA C) Standard IRA D) Traditional IRA

Certain groups of employees only

A tax-sheltered annuity is a special tax-favored retirement plan available to A) Anyone. B) Certain age groups only. C) Certain groups depending on factors such as race, gender, and age. D) Certain groups of employees only

Roth IRA

An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after age 70½. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it A) Roth IRA B) 403(b) plan C) Simplified Employee Pension Plan D) Traditional IRA

Participant's debt

All of the following types of distributions are considered exceptions to the early distribution rule and, therefore, are not subject to the penalty tax EXCEPT A) Death of participant. B) A loan from the plan. C) Participant's debt. D) Participant's disability

A qualified plan for a small business

If a company has a Simplified Employee Pension plan, what type of plan is it A) A qualified plan for a small business B) The same as a 401(k) plan C) The same as an IRA, with the same contribution limits D) An undefined contribution plan for large businesses

The CEO of a private corporation

All of the following employees may use a 403(b) plan for their retirement EXCEPT A) A part-time classroom aide. B) The vice president of a charitable organization. C) The CEO of a private corporation. D) A school bus driver

Keogh

Which of the following is an IRS qualified retirement program for the self-employed A) Keogh B) Split Dollar C) Buy and Sell Agreement D) 401(k)

Employer contributions are not tax deductible

All of the following statements are true regarding tax-qualified annuities EXCEPT A) Employer contributions are not tax deductible. B) Tax accumulation is deferred. C) They must be approved by the IRS. D) Withdrawals are taxed

3

Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages A) 10 B) 3 C) 5 D) 7

It has a tax benefit for both employer and employee

Which of the following is TRUE of a qualified plan A) It has a tax benefit for both employer and employee. B) It does not need to have a vesting schedule. C) It may discriminate in favor of highly paid employees. D) It may allow unlimited contributions

The president and employee of a family corporation

All of the following would be eligible to establish a Keogh retirement plan EXCEPT A) A sole proprietor of film development store with no employees. B) A hair dresser who operates her business at her house. C) The president and employee of a family corporation. D) A sole proprietor of a service station who employs four employees

Are subject to vesting requirements

Employer contributions made to a qualified plan A) Are subject to vesting requirements. B) May discriminate in favor of highly paid employees. C) Are after-tax contributions. D) Are taxed annually as salary

HR-10 (Keogh Plan)

Two attorneys at law and operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose A) Section 457 Deferred Compensation Plan. B) 403(b) plan. C) 401(k) plan. D) HR-10 (Keogh Plan)

Teachers and not-for-profit organizations

A 403(b) plan, commonly referred to as a TSA, is available to be used by A) Government workers. B) Postal employees. C) Self-employed persons. D) Teachers and not-for-profit organizations

Simplified Employee Pension plan

An IRA purchased by a small employer to cover employees is known as a A) Simplified Employee Pension plan. B) 401(k) plan. C) Defined contribution plan. D) 403(b) plan

403(b) Plan (TSA)

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A) Keogh Plan. B) Roth IRA. C) SEP. D) 403(b) Plan (TSA)

Profit sharing plan

An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called A) HR 10 plan B) Profit sharing plan C) 401(k) plan D) Tax-sheltered account plan

They are tax deferred until withdrawn

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings A) 75% of employee's contributions are taxed. B) They are tax deferred until withdrawn. C) Taxes must be paid in full. D) Employer's matching contribution can be 50% of employee's salary

Someone who works 400 hours per year

Which of the following applicants would NOT qualify for a Keogh Plan A) Someone who works for a self-employed individual B) Someone who works 400 hours per year C) Someone who has been employed for more than 12 months D) Someone who is over 25 years of age

The plan must provide an offset for social security benefits

All of the following are general requirements of a qualified plan EXCEPT A) The plan must be communicated to all employees. B) The plan must be for the exclusive benefits of the employees and their beneficiaries. C) The plan must be permanent, written and legally binding. D) The plan must provide an offset for social security benefits

They are not included as income for the employee, but are taxable upon distribution

How are contributions to a tax-sheltered annuity treated with regards to taxation A) They are taxed as income for the employee, but are tax free upon withdrawal. B) They are not included as income for the employee, but are taxable upon distribution. C) They are never taxed. D) They are taxed as income for the employee

No penalties

A 35-year-old spouse of the insured collects early distributions from her husband's retirement plan as a result of a divorce settlement. What penalties, if any, will she have to pay A) 15% penalty tax B) Age-based penalty stipulated in the contract C) No penalties D) 10% penalty tax

It needs IRS approval

Which of the following is NOT true regarding a nonqualified retirement plan A) It needs IRS approval. B) Contributions are not currently tax deductible. C) It can discriminate in benefits and selecting participants. D) Earnings grow tax deferred

SEPs are suitable for large companies

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT A) Employer contributions are not included in the employee's gross income. B) SEPs are suitable for large companies. C) SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income. D) SEPs have a higher tax deductible contribution limit than an IRA

It is approved by the IRS

If a retirement plan or annuity is "qualified," this means A) It accepts after-tax contributions. B) It is noncancellable. C) It is approved by the IRS. D) It has a penalty for early withdrawal

Retirement

What is the primary purpose of a 401(k) plan A) Education funds B) To receive dividends over a certain period C) Life insurance distribution D) Retirement

Taxation on accumulation

All of the following would be different between qualified and nonqualified retirement plans EXCEPT A) Taxation of withdrawals B) Taxation of contributions C) IRS approval requirements D) Taxation on accumulation

At least 1,000 employees

SIMPLE Plans require all of the following EXCEPT A) No other qualified plan can be used. B) No more than 100 employees. C) Employees must receive a minimum of $5,000 in annual compensation. D) At least 1,000 employees

Self-employed plumber

Who may contribute to an HR-10 plan A) Partner with at least 5% ownership B) Self-employed plumber C) Manager of a store D) Corporate executive