Chapter 9 - Retirement Plans

Premature IRA distributions are assessed a penalty tax of: 0% 10% 15% 20%

10%

An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age? 70 1/2 65 55 59 1/2

59 1/2

How long does an individual have to "rollover" funds from an IRS or qualified plan? 60 days 90 days 120 days no limit

60 days

When funds are shifted straight from one IRA to another IRA, what percentage of the tax is withheld? 10% 20% 30% None

None

What type of employee welfare plans are not subject to ERISA regulations? church plans major medical plans corporate qualified plans

church plans

An individual working part-time has an annual income of $2,500. If this individual has an IRA, what is the maximum deductible IRA contribution allowable? - No deduction allowed - $2,500 - $2,000 - $1,000

- $2,500

Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. - The widow qualifies for the marital deduction - death benefits - Section 1035 - exchange capital gains taxation

- The widow qualifies for the marital deduction

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid: - mandatory income tax withholding on the transfer amount - paying transfer fees - paying trustee fees - every paying income taxes on the distributions

- mandatory income tax withholding on the transfer amount

An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?Distribution is subject to capital gains taxDistribution is subject to ordinary income taxDistribution is subject to a tax penalty -Distribution is subject to federal income tax withholding

Distribution is subject to federal income tax withholding

All of the following statements about traditional individual retirement accounts are false EXCEPT: - 10% penalty is applied to withdrawals after age 59 1/2 - withdrawals are normally tax free to recipient - 10% penalty is applied to withdrawals before age 59 1/2 - contributions are not tax deductible

- 10% penalty is applied to withdrawals before age 59 1/2

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted? - 20% of the funds are subject to taxes - 80% of the funds are invested in a separate account - If Tom's employment is terminated, 20% of the funds would be forfeited - If Tom's employment is terminated, 80% of the funds would be forfeited

- If Tom's employment is terminated, 20% of the funds would be forfeited

In a qualified retirement plan, the yearly contributions to an employee's account: - are not tax deductible - are restricted to minimum levels set by the IRS - are restricted to maximum levels set by the IRS - must be matched dollar for dollar by employer

- are restricted to maximum levels set by the IRS

A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,0000 withholding. Which federal taxes apply if none of the fund were rolled over? - only income taxes on $30,000 - only income taxes on $24,000 - income taxes + 10% penalty on $30,000 - income taxes + 10% penalty on $24,000

- income taxes + 10% penalty on $30,000 (made before age 59)

An employer that offers a qualified retirement plan to its employees is eligible to: - avoid ERISA regulations - make tax deductible contributions to the plan - make tax deductible contributions to key employees only - make partial tax deductible contributions to the plan

- make tax deductible contributions to the plan

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2? - 10% tax penalty for early withdrawal - capital gains tax - ordinary income tax and a 10% penalty for early withdrawal - ordinary income tax

- ordinary income tax and a 10% penalty for early withdrawal

A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a: - rollover plan - 403(b) plan - profit sharing plan - salary reduction plan

- profit sharing plan

What does a 401(k) plan generally provide its participants? - tax free distributions - salary deferral distributions - salary deferral contributions - a defined retirement benefit

- salary deferral contributions

Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributors are made? - surrender charge is applied - the account can be rolled into the surviving spouse's IRA - distributions will be received tax-free if surviving spouse is over age 59.5 - future distributions are payable to the owner's estate

- the account can be rolled into the surviving spouse's IRA

What is the MAXIMUM number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan? 25 50 100 250

100