Retirement Plans

For the year 2019, couples who are age 50 or over are permitted to make a maximum annual IRA contribution of: A. $12,000 B. $13,000 C. $14,000 D. $15,000

C. For the year 2019, the maximum annual contribution for an individual into an IRA is $6,000. However, individuals age 50 or older can make an extra "catch up" contribution of $1,000, for a total permitted contribution of $7,000. For couples where at least 1 person works that are age 50 or older, this amount is doubled to $14,000.

HR-10 plan

also called a Keogh plan, a retirement plan for self-employed individuals, based upon their self-employed income. Contributions to a Keogh are fully deductible from the employer's gross income. Employer contributions are limited to 25% of pre-deduction income annually, capped at a maximum of $56,000 in 2019.

Non-tax qualified plan

a pension or retirement plan in which the contributions are not deductible against the contributor's taxable income. In effect, the contribution is made with after-tax dollars. All earnings on the contributions are still tax deferred; however, when distributions begin, only the tax deferred earnings build-up is taxed.

Which of the following statements are TRUE regarding contributions to 403(b) tax deferred annuities and the distributions from these plans after age 59 1/2? I Contributions are made with before tax dollars II Contributions are made with after tax dollars III Distributions are 100% taxable IV Distributions are tax free A. I and III B. I and IV C. II and III D. II and IV

A. Contributions to tax qualified plans such as 403(b) tax deferred annuities are tax deductible. They are made with "before-tax" dollars, hence those funds were never taxed. When distributions commence, since no tax was paid on the entire amount, the distribution is 100% taxable.

If a corporation has an unfunded pension liability, this means that: A. the expected future value of fund assets is less than projected benefit claims B. the expected future value of fund assets is more than projected benefit claims C. inflation has eroded the value of the portfolio funding the plan D. existing retirees' benefit claims are not being met

A. An unfunded pension liability means that expected payments from the retirement plan are in excess of the expected future assets in the plan. It is common for defined benefit pension plans to be underfunded, but the plan trustee is responsible to ensure that future funding is adequate as needed.

Which of the following statements are TRUE regarding Individual Retirement Accounts? I The earliest a taxpayer can make an annual contribution is January 1st of that tax year II The latest a taxpayer can make an annual contribution is April 15th of the next tax year III If the taxpayer obtained a 4 month filing extension, the annual contribution can be made until the extension date IV Annual tax deductible contributions may be made even if the person is covered by another qualified retirement plan A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

A. Annual IRA contributions can be made anytime from January 1st of that year until April 15th of the next tax year. If the taxpayer requests an extension for filing his tax return, he does not get an extension for making the IRA contribution. Contributions can always be made based upon earned income, but if a person is covered by another qualified retirement plan and earns too much (over $74,000 in 2019), the contribution is not deductible.

If a couple that is not covered by another qualified retirement plan makes over $123,000 in year 2019, IRA contributions are: I permitted II not permitted III tax deductible IV not tax deductible A. I and III B. I and IV C. II and III D. II and IV

A. Anyone can contribute to an IRA, whether covered by a pension plan or not. If a couple is not covered by a qualified plan, the contribution is tax deductible and the maximum that can be contributed is $6,000 each ($12,000 total). However, the contribution is not tax deductible for couples, where both are covered by qualified plans, who earn over $123,000 in year 2019 (the deduction phases out between $103,000 - $123,000 of income).

An unmarried person, earning $100,000 a year, is not covered by a pension plan and has been contributing to an IRA account annually. If this individual joins a corporation at the same salary, and is included in that company's pension plan, which statement is TRUE? A. Annual contributions to the IRA can continue but will not be tax deductible B. Annual contributions to the IRA can continue and continue to be tax deductible C. Annual contributions to the IRA must cease D. The IRA must be closed and the balance transferred to the pension plan

A. Anyone who has earned income can contribute to an IRA, whether covered by a pension plan or not. However, the contribution is not tax deductible for individual employees covered by a pension plan who earn over $74,000 in year 2019 (the deduction phases out between $64,000 - $74,000 of income).

What is the penalty imposed for excess contributions to an IRA? A. 6% of the excess contribution B. 8 1/2% of the excess contribution C. 10% of the excess contribution D. no penalties are imposed

A. Excess contributions to an Individual Retirement Account are subject to a 6% penalty tax. Do not confuse this penalty with that imposed on a premature distributions from an IRA. Premature distributions (prior to age 59 1/2) are subject to a 10% penalty tax.

In 2019, the maximum contribution that an individual who earns $1,000 can make to an IRA is: A. $1,000 B. $4,000 C. $5,000 D. $6,000

A. For the year 2019, the maximum individual contribution to an IRA is the lesser of 100% of income or $6,000. Since this person earns $1,000, the maximum permitted contribution is $1,000. Of course, if someone only earns $1,000 per year, they probably don't have enough money to eat and the probably don't have any excess funds to put into an IRA - but that is not part of the question!

Payments received by the owner of a tax qualified variable annuity are: A. 100% taxable as investment income B. only taxable to the extent of earnings above the holder's cost basis C. only taxable to the extent of the holder's cost basis D. non-taxable

A. Funds paid into "tax qualified" retirement plans were never subject to tax, since the contribution amount was deductible from income at the time it was made. Earnings build up tax deferred in the plan. When distributions are taken, since all of the dollars in the plan were never taxed, all of the distribution is taxable. Funds paid into "non-tax qualified" retirement plans are not tax deductible. Any earnings build up tax deferred. When distributions are taken, the portion that represents the return of original after tax investment is not taxed; while the portion that represents the tax deferred earnings buildup is taxable.

Which of the following statements are TRUE about Keogh Plans? I Contributions are 100% deductible II Contributions are not deductible III Distributions are 100% taxable IV Distributions are partially taxed, with only the amount above what was contributed being taxed A. I and III B. I and IV C. II and III D. II and IV

A. Keogh contributions are tax deductible (up to $56,000 in 2019), so the original investment was made with "before tax" dollars. In addition, earnings on Keogh investments are tax deferred. Once distributions commence from the Keogh, they are 100% taxable at that individual's tax bracket.

Which statement is FALSE about a SIMPLE IRA? A. The maximum annual contribution is the same as for a Traditional IRA B. The contribution is made by the employee, who gets a salary reduction for the amount contributed C. The plan is only available to small employers D. The employer must make a matching contribution

A. SIMPLE IRAs are only available to small businesses with 100 or fewer employees. The plan is established by the employer and is much more simple to establish and administer than a traditional pension plan (hence the name SIMPLE). Each employee contributes up to $13,000 (in 2019) as a salary reduction. In addition, the employer must make a matching contribution of either 2% or 3% of the employee's salary (the 2% match option must be made regardless of whether the employee makes any contribution; the 3% match must be made only if the employee makes a contribution). Also note that there is no flexibility regarding the employer match - it must be made in good times and bad times by the company.

Which of the following statements about 403(b) Plans are TRUE? I Contributions are tax deductible to the employee II Contributions are not tax deductible to the employee III These plans are available to employees of any organization IV These plans are available to non-profit organization employees only A. I and III B. I and IV C. II and III D. II and IV

B. 403(b) plans are only available to non-profit organization employees, such as school and hospital employees. These are tax qualified annuity plans, where contributions made by employees are tax deductible. Earnings in the plan grow tax deferred. When the employee retires, he or she may take the annuity, which is 100% taxable as ordinary income as taken.

A person can start withdrawing from his or her Keogh Plan without penalty at age: A. 50 1/2 B. 59 1/2 C. 60 1/2 D. 70 1/2

B. Before age 59 1/2, distributions from a Keogh Plan are subject to regular income tax plus a 10% penalty tax. Afterwards, withdrawals are subject to regular tax; but not to the 10% penalty tax.

A person can start withdrawing from his or her Individual Retirement Account without penalty at age: A. 50 1/2 B. 59 1/2 C. 60 1/2 D. 70 1/2

B. Before age 59 1/2, distributions from an IRA are subject to regular income tax plus a 10% penalty tax. Afterwards, withdrawals are subject to regular tax; but not to the 10% penalty tax.

Distributions after age 59 ½ from non-tax qualified retirement plans are: A. 100% taxable B. partial tax free return of capital and partial taxable income C. 100% tax free D. 100% tax deferred

B. Contributions to non-tax qualified plans, such as most variable annuities, are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital is not taxed; the earnings are taxed.

Payments received by the owner of a non-tax qualified variable annuity are: A. 100% taxable as investment income B. only taxable to the extent of earnings above the holder's cost basis C. only taxable to the extent of the holder's cost basis D. non-taxable

B. Funds paid into "non-tax qualified" retirement plans are not tax deductible. Any earnings build up tax deferred. When distributions are taken, the portion that represents the return of original after tax investment is not taxed; while the portion that represents the tax deferred earnings buildup is taxable.

A divorced woman with 2 young children has just re-entered the workforce part time and earns $3,000 from this work. She collects another $2,400 per year in alimony payments. The woman wishes to make a contribution to an Individual Retirement Account this year. Which statement is TRUE? A. No contribution can be made because the woman received alimony payments B. A contribution can be made based only on the income earned from part-time work C. A contribution can be made based only on the alimony payments received D. A contribution can be made based on both the earned income from part-time work and the alimony payments received

B. IRA contributions can only be made based on earned income - meaning income from one's work. Alimony and child support payments are not classified as "earned income" for purposes of making IRA contributions. Thus, a woman who has both earned income from work and who received alimony payments can only make an IRA contribution based on the $3,000 earned from work. (Of course, the big question here is, "If this person only has total income of $5,400 a year, how would she be able to make an IRA contribution since she doesn't even have enough money to eat!")

A 50-year old becomes disabled and wishes to withdraw money from his IRA. With regard to the withdrawal, how will it be taxed? A. There will be no tax due B. The withdrawal is subject to income tax only C. The withdrawal is only subject to penalty tax only D. The withdrawal is subject to both income tax and a penalty tax for early withdrawal

B. If an individual becomes disabled before age 59 1/2, distributions can be taken without penalty tax. However, since income tax has never been taken on the withdrawal, it will be subject to regular income tax.

In 2019, a doctor has earned $300,000 from her practice and another $200,000 from investments. Their maximum contribution to an HR 10 plan is: A. $46,000 B. $56,000 C. $66,000 D. $112,000

B. Keogh (HR10) contributions are based only on personal service income - not investment income. $300,000 of personal service income x 20% effective contribution rate = $60,000, however the maximum contribution allowed is $56,000 in 2019.

Which statements are TRUE regarding Individual Retirement Accounts? I Investment in U.S. minted gold coins is permitted II Investment in U.S. issued securities is permitted III Investment in art is permitted IV Investment in collectibles is permitted A. II only B. I and II only C. III and IV only D. I, II, III, IV

B. Permitted investments in Individual Retirement Accounts include securities, bank certificates of deposit, U.S. minted gold coins, and precious metals bullion. Please note that antiques, art, and collectibles are not permitted; neither are commodity futures, and the cash value of whole life insurance policies.

Which statements are TRUE when comparing a Roth IRA to a Traditional IRA? I Traditional IRAs are available to anyone who has earned income II Roth IRAs are available to anyone who has earned income III Traditional IRAs are not available to high-earning individuals IV Roth IRAs are not available to high-earning individuals A. I and III B. I and IV C. II and III D. II and IV

B. Roth IRAs allow for the same contribution amounts as Traditional IRAs, but the contribution is never tax-deductible (which is usually the case with a Traditional IRA). Earnings build tax deferred and when distributions commence after age 59 1/2, no tax is due. This is a very good deal. Unfortunately, it is not available for high-earners. Individuals that earn over $137,000 and couples that earn over $203,000, in 2019, cannot open Roth IRAs. They can open Traditional IRAs, however.

An individual, age 40, earns $60,000 per year. He has no family and has $200,000 of life insurance. He contributes 6% of his salary to his company sponsored 401(k) annually. He informs his registered representative that he is getting a $5,000 raise. What should you recommend that the customer do with the raise? A. Purchase a non-qualified variable annuity by making $5,000 a year payments B. Increase the 401(k) contributions by $5,000 per year C. Use the $5,000 annual increase to purchase a fixed annuity contract under a contractual plan D. Roll the 401(k) into a variable annuity contract and then re-roll the variable annuity into an IRA

B. Since any permitted 401(k) contribution is deductible, it is best to recommend that the customer max out his 401(k). Remember, he can contribute up to 25% of salary, capped to $19,000 in 2019, and this is a salary reduction. The purchase of either a variable annuity or a fixed annuity will not permit a salary reduction - these are non-qualified plans. Choice D is utter nonsense.

In 2019, a self-employed individual earns $350,000 for the year. The maximum contribution that can be made to an HR10 plan for this year is: A. $6,000 B. $56,000 C. $66,000 D. $76,000

B. The maximum contribution to a Keogh is effectively 20% of income (prior to taking the Keogh "deduction") or $56,000 in 2019, whichever is less. 20% of $350,000 = $70,000. However, only the $56,000 maximum can be contributed in 2019. (Note that this amount is adjusted each year for inflation.)

A couple earning $70,000 in 2019 makes a contribution of $6,000 to a Traditional IRA. Which statement is TRUE? A. This couple can contribute a maximum of $3,000 to a Roth IRA B. This couple can contribute a maximum of $6,000 to a Roth IRA C. This couple can contribute a maximum of $12,000 to a Roth IRA D. This couple is prohibited from contributing to a Traditional Individual Retirement Account in that year

B. The maximum permitted annual contribution to a Traditional IRA or Roth IRA for a couple is $12,000 total in 2019. This can be divided between the 2 types of accounts. In this case, since $6,000 was contributed to the Traditional IRA, another $6,000 can be contributed to a Roth IRA for that tax year. Also note that this couple's income is too low for the Roth IRA phase-out (which occurs between $193,000 and $203,000 for couples in 2019).

All of the following are characteristics of Defined Benefit Plans EXCEPT: A. annual contribution amounts may vary B. if the corporation has an unprofitable year, the contribution may be omitted C. the annual benefit amount is fixed at retirement D. the adoption of this type of plan benefits key employees who are nearing retirement

B. Under a defined benefit plan, contributions are made by the employer on behalf of the employees, to fund a defined "future" benefit. With this plan type, less funds are contributed on behalf of younger employees, and more funds are contributed on behalf of the older employees. However, all of the pooled monies in the fund are used to pay out current benefits, and in effect, younger employees with many years to retirement, are paying for both the retirement benefits of older retired employees, and for the funding of the benefit of those older employees nearing retirement. Once a person retires, the benefit amount is fixed, based upon that person's last year's salary and years of plan participation. Annual contribution amounts are not fixed with this type of plan - the actual annual contribution amount is based upon actuarial assumptions about the plan participants. If the corporation has an unprofitable year, it must still make the contribution amount as determined by the actuary.

Which of the following are characteristics of Defined Contribution Plans? I Annual contribution amounts are fixed II Annual contribution amounts will vary III The benefit amount to be received is fixed IV The benefit amount to be received will vary A. I and III B. I and IV C. II and III D. II and IV

B. Under a defined contribution plan, a fixed percentage or dollar amount is contributed annually for each year that the employee is included in the plan. The longer an employee is in the plan, the greater the benefit that he or she will receive at retirement.

If an individual, aged 44, takes a withdrawal from his Individual Retirement Account, which statement is TRUE? A. The amount withdrawn is subject to income tax only B. The amount withdrawn is subject to a 10% penalty tax only C. The amount withdrawn is subject to income tax plus a 10% penalty tax D. The amount withdrawn is not subject to any tax

C. Premature distributions from an IRA (before age 59 1/2), unless for reason of death, disability, to pay qualified education expenses, or to pay up to $10,000 of first-time home purchase expenses, incur normal income tax plus a 10% penalty tax on the amount withdrawn.

A 45-year old man earns $150,000 per year and is covered by his employer's 401(k) Plan. He quits his job and moves to a new company that has no retirement plan, but will also pay him $150,000 per year. He should be advised to: A. continue to make maximum annual contributions to his 401(k) Plan B. roll his 401(k) Plan into a Roth IRA and continue to make annual contributions to the Roth IRA C. roll his 401(k) Plan into a Traditional IRA and continue to make annual contributions to the Traditional IRA D. request a distribution of the 401(k) and use the proceeds to buy a variable annuity

C. The 401(k) Plan was at this customer's ex-employer - he can no longer make contributions to it. His new employer does not have a 401(k) plan. He can roll over the 401(k) amount into an IRA account without dollar limit and continue to make annual contributions to the IRA. It must be a Traditional IRA - this guy earns too much to have a Roth IRA (complete phase-out for Roth eligibility occurs if an individual earns over $137,000 in 2019). Any funds rolled-over stay tax deferred. If he requests a distribution and uses the funds to buy a variable annuity, tax will be due, so this is not a good choice.

Which retirement plan is corporate sponsored and permits employees to make the greatest pre-tax contribution? A. Roth IRA B. SIMPLE IRA C. 401(k) D. 403(b)

C. 401(k) plans are corporate-sponsored "salary reduction" plans that allow an individual to contribute a dollar amount annually that is tax deductible. $19,000 can be contributed for tax year 2019). In contrast, 403(b) plans are salary reduction plans for the not-for-profit sector. Roth IRAs are established by individuals, not corporations, and only allow for a maximum non-deductible contribution of $6,000 for an individual (who is under age 50). SIMPLE IRAs are corporate-sponsored salary reduction plans for small companies, but that maximum contribution in 2019 is $13,000.

Which of the following investments are permitted for 403(b) plans? I Corporate stocks II Certificates of deposit III Fixed annuities IV Variable annuities A. I and IV only B. II and III only C. III and IV only D. I, II, III, IV

C. 403(b) retirement plans allow employees of non-profit institutions such as hospitals and universities to establish their own retirement plans if none is provided by the employer. The monies contributed are excluded from taxable income. The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. Direct investments in common stocks are not allowed; the investments must be managed by a professional manager.

A self-employed individual makes $95,000 per year. To which type of retirement plan can the maximum contribution be made? A. Roth IRA B. Traditional IRA C. SEP IRA D. SIMPLE IRA

C. A SEP (Simplified Employee Pension) IRA is usually set up by small business because it simplifies all of the recordkeeping associated with retirement plans. Contribution amounts made by the employer cannot exceed 25% of the employee's income (statutory rate - the effective rate is 20%), up to a maximum of $56,000 in 2019. In contrast, the maximum contribution to either a Traditional or Roth IRA in 2019 is $6,000 (plus an extra $1,000 catch-up contribution for individuals age 50 or older), while the maximum contribution for a SIMPLE IRA in 2019 is $13,000.

If a corporation has an unfunded pension liability, this means that: A. inflation has eroded the value of the portfolio funding the plan B. the plan is in default because the existing retirees' benefit claims are not being met C. the expected future value of fund assets is less than projected benefit claims D. the expected future value of fund assets is more than projected benefit claims

C. An unfunded pension liability means that expected payments from the retirement plan are in excess of the expected future assets in the plan. It is common for defined benefit pension plans to be underfunded, but the plan trustee is responsible to ensure that future funding is adequate as needed.

Contributions to Individual Retirement Accounts must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. December 31st of the calendar year after which the contribution may be claimed on that person's tax return C. April 15th tax filing date of the calendar year after which the contribution may be claimed on that person's tax return D. August 15th tax filing date permitted under an automatic extension of the calendar year after which the contribution may be claimed on that person's tax return

C. Contributions to Individual Retirement Accounts must be made by April 15th (tax filing date) of the year after the tax filing year. For example, a contribution for tax year 2019 must be made by April 15th, 2020. No extensions are permitted.

A defined benefit plan: A. excludes employees earning less than $20,000 per year B. is required to vest 100% of contributions after 1 year's service C. gives the greatest benefit to high salaried employees close to retirement age D. bases contributions solely on each employee's earnings

C. Defined benefit plans calculate annual contributions based on expected future benefits to be paid. The largest benefits will be paid to high salaried employees nearing retirement so these are the largest contributions. The smallest benefits are owed to low salary employees far away from retirement, so these are the smallest contributions.

Distributions from an Individual Retirement Account must commence by age: A. 50 1/2 B. 59 1/2 C. 70 1/2 D. 75 1/2

C. Distributions from an Individual Retirement Account must commence by April 1st of the year following that person reaching age 70 1/2.

Retirement plans that must comply with ERISA requirements include all of the following EXCEPT: A. Defined benefit plans B. Profit sharing plans C. Federal Government plans D. Payroll deduction savings plans

C. ERISA rules cover private retirement plans to protect employees from employer mismanagement of pension funds. It does not cover public sector retirement plans, such as federal government and state government plans, since these are funded from tax collections and are closely regulated. The listing of plans that must comply with ERISA include: Profit sharing plans Defined contribution plans Defined benefit plans Tax deferred annuity plans Payroll deduction savings plans

ERISA requirements regarding the investments that are suitable for a retirement account stress: A. income potential B. capital gain potential C. safety of principal D. legal list securities

C. ERISA rules regarding retirement plans stress that investments should be "safe."

A husband and wife wish to open a spousal IRA. The wife works while the husband does not. What is the permitted maximum contribution to this spousal IRA for the year 2019? A. $6,000 for the wife; $0 for the husband B. $6,000 for the wife; $3,000 for the husband C. $6,000 for the wife; $6,000 for the husband D. $60,000 for the wife; $60,000 for the husband

C. For the year 2019, the maximum contribution to a spousal IRA, is $6,000 each, in two accounts, for a total of $12,000. It makes no difference if the spouse works or not.

In 2019, a self-employed doctor contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $60,000 per year. The contribution to be made for the nurse is: A. $5,500 B. $12,000 C. $15,000 D. $17,500

C. If an employer contributes the maximum of $56,000 to a Keogh in 2019, then 25% of "after Keogh earnings" is used to compute the percentage to be contributed for employees. Thus, for the nurse, $60,000 of income x 25% = $15,000 contribution. Note that this contribution is an added benefit for the nurse and will be deductible to the doctor making it.

A company has decided to terminate its retirement plan and is going to make lump sum distributions to its employees. In order to defer taxation on the distribution, the employee may: A. buy tax exempt municipal bonds B. buy a single premium deferred annuity C. roll over the funds into an Individual Retirement Account within 60 days D. establish a UGMA account within 60 days

C. Lump sum distributions from qualified plans can be "rolled over" into an IRA without dollar limit and remain tax deferred as long as the rollover is performed within 60 days of the distribution date.

Which statement is FALSE about a SIMPLE IRA? A. The maximum annual contribution is higher than for a Traditional IRA B. The contribution is made by the employee, who gets a salary reduction for the amount contributed C. The plan is available to any size employer D. The employer must make a matching contribution

C. SIMPLE IRAs are only available to small businesses with 100 or fewer employees. The plan is established by the employer and is much more simple to establish and administrate than a traditional pension plan (hence the name SIMPLE). Each employee contributes up to $13,000 (in 2019) as a salary reduction. In addition, the employer must make a matching contribution of either 2% or 3% of the employee's salary (the 2% match option must be made regardless of whether the employee makes any contribution; the 3% match must be made only if the employee makes a contribution). Also note that there is no flexibility regarding the employer match - it must be made in good times and bad times by the company. Note that a SIMPLE IRA gives a higher contribution amount than a Traditional IRA, which is capped at $6,000 in 2019 (plus a $1,000 catch up contribution for employees who are age 50 or older).

An individual who maintains a Keogh Plan is approaching the age of 70 1/2. Which statement is TRUE? A. Distributions from the plan must commence on the date that the individual reaches the age of 70 1/2 B. Distributions from the plan must commence on April 1st prior to the year the individual reaches the age of 70 1/2 C. Distributions from the plan must commence on April 1st following the year the individual reaches the age of 70 1/2 D. Distributions are not required, but may be taken at the discretion of the individual

C. Under the Keogh rules, any distributions from a Keogh Plan must start no later than the April 1st following the year that the individual reaches the age of 70 1/2.

A person, age 55, wishes to withdraw $25,000 from a Keogh plan. The tax will be: A. 10% of the amount withdrawn B. 10% of the amount in the plan C. ordinary income tax + 10% penalty tax on the amount in excess of contributions D. ordinary income tax + 10% penalty tax on the amount withdrawn

D. A Keogh plan is tax qualified, so all contributions are tax deductible. Thus, all of the dollars in the plan, including the tax deferred build-up, have never been taxed. When a distribution is taken, ordinary income tax is due on the entire distribution amount. In addition, if a premature distribution is taken (prior to age 59 1/2), an additional penalty tax of 10% is applied to the amount withdrawn.

All of the following statements are true about SEP IRAs EXCEPT: A. the plan is established by the employer B. the plan allows for flexible contribution amounts C. the amount that can be contributed is significantly greater than for a Traditional IRA D. the contributions made are not deductible

D. A SEP IRA is a "Simplified Employee Pension" plan that must be set up by the employer, with deductible contributions made by the employer. They are easier to set up and administrate than regular pension plans and allow for a very large annual contribution (25% of income statutory rate; 20% effective rate, capped at $56,000 in 2019). The employer sets the actual contribution percentage, which must be the same for all employees. A major advantage of SEP IRAs is that there is flexibility regarding the annual contribution to be made - the employer can change the contribution percentage each year. So this plan is a good option for a small business that has variable cash flow.

Distributions from a Roth IRA after age 59 1/2 where the assets have been held in the account for at least 5 years are: I taxable II not taxable III subject to penalty tax IV not subject to penalty tax A. I and III B. I and IV C. II and III D. II and IV

D. As long as the assets in the account have been held for at least 5 years, distributions from Roth IRAs after age 59 1/2 are not taxable (but, then again, the contribution was not tax deductible, either).

Individual Retirement Account contributions can ONLY be made with: A. stocks B. bonds C. mutual funds D. cash

D. Contributions to an IRA can only be made with cash. Once the cash is deposited, it can be used to purchase any type of qualified investments (bank certificates of deposit, securities, U.S. minted gold coins, and precious metals).

Which of the following statements are TRUE regarding contributions to, and distributions from, non-tax qualified retirement plans? I Contributions are made with before tax dollars II Contributions are made with after tax dollars III Distributions are 100% taxable IV Distributions are partially tax free, with the amount above the original cost basis being taxed A. I and III B. I and IV C. II and III D. II and IV

D. Contributions to non-tax qualified plans are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital contributions made with after-tax dollars is not taxed. Only the tax deferred "build-up" in the account above what was originally contributed is taxed.

Contributions to Keogh Plans must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. December 31st of the calendar year after which the contribution may be claimed on that person's tax return C. April 15th tax filing date of the calendar year after which the contribution may be claimed on that person's tax return D. August 15th tax filing date permitted under an automatic extension of the calendar year after which the contribution may be claimed on that person's tax return

D. Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

Contributions to qualified retirement plans, other than IRAs, must be made by: A. December 31st of the calendar year in which the contribution may be claimed on that person's tax return B. April 15th of the calendar year in which the contribution may be claimed on that person's tax return C. April 15th of the calendar year after which the contribution may be claimed on that person's tax return D. The date on which the tax return is filed with the Internal Revenue Service

D. Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

For a qualified retirement plan contribution to be deductible from that year's tax return, the contribution must be made by no later than: A. April 15th of that year B. December 31st of that year C. April 15th of following year D. the tax filing date of the following year

D. Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

In 2019, a customer earns $400,000 as a self-employed doctor, and contributes the maximum permitted amount to a Keogh plan. The doctor has a full time nurse earning $40,000 per year. The contribution to be made for the nurse is: A. $0 B. $2,500 C. $3,000 D. $10,000

D. If an employer earns $280,000 or more and contributes the maximum of $56,000 to a Keogh in 2019, then 25% of "after Keogh earnings" is used to compute the percentage to be contributed for employees. If the employer earns $400,000 and contributes $56,000 to the Keogh, the "after Keogh earnings" are based on the "cap" income amount of $280,000. $280,000 - $56,000 = $224,000 of "after Keogh deduction" income. $56,000/$224,000 = 25%. Thus, for the nurse, $40,000 of income x 25% = $10,000 contribution.

All of the following statements are true about non-contributory defined benefit retirement plans EXCEPT: A. contribution amounts vary based upon the age of the person covered under the plan B. larger contributions are made for older plan participants nearing retirement than for younger ones C. once benefit payments start, the amount of the benefit is fixed D. contribution amounts remain fixed based regardless of age

D. In a "defined benefit" retirement plan, contribution amounts vary based upon the age of the person covered under the plan. Larger contributions are made for older plan participants nearing retirement than for younger plan participants who have many years left until retirement. Once benefit payments start, the amount of the benefit is fixed - since the plan funded a "defined" benefit. The other type of plan is a "defined contribution." In this type, the contribution amount is fixed. The benefit payment depends on the investment results of the fixed contributions made, and hence can vary.

A 50 1/2 year old self-employed individual has a balance of $200,000 in his HR 10 plan. This balance is composed of $140,000 of contributions and $60,000 of earnings. The individual decides to withdraw $100,000 from the plan. Which statement is TRUE? A. There will be no tax liability B. There will be regular tax liability, but no 10% penalty tax liability C. There will be a 10% penalty tax liability, but no regular tax liability D. There will be both regular tax liability and a 10% penalty tax liability

D. Since this individual is younger than age 59 1/2, any distribution from the Keogh plan is subject to both ordinary income tax plus the 10% penalty tax. If the distribution is made after age 59 1/2, it is subject only to ordinary income tax - there is no penalty tax. Please note that 100% of all distributions from Keoghs are taxable - these are tax qualified plans where all of the investment dollars were never taxed. Once distributions commence, both the original investment (that was never taxed), and the tax deferred build-up, are now taxable in full.

Tax deferred annuities for employees of non-profit organizations are known as: A. SEP IRA Plans B. Defined Benefit Plans C. 401(k) Plans D. 403(b) Plans

D. Tax deferred annuities for employees of non-profit organizations are 403(b) plans. These retirement plans allow employees of non-profit institutions such as hospitals and universities to establish their own retirement plans if none is provided by the employer. The monies contributed are excluded from taxable income, and must be used to purchase "tax sheltered" annuities or mutual funds; direct stock investments are prohibited.

The penalty tax applied for not taking required minimum distribution from a qualified retirement plan in a given year is: A. 6% of the shortfall B. 10% of the shortfall C. 15% of the shortfall D. 50% of the shortfall

D. The penalty applied for not taking required minimum distributions from a qualified plan starting at age 70 1/2 is 50% of the under-distribution. There is an incentive to take the money out and pay tax on it, which is what the Treasury is really looking for!

Distributions from Roth IRAs: A. must commence by April 1st of the year prior to reaching the age of 70 1/2 without being penalized B. must commence by April 1st of the year of reaching age 70 1/2 without being penalized C. must commence by April 1st of the year after reaching age 70 1/2 without being penalized D. can commence at any time after reaching age 59 1/2 without being penalized

D. Unlike Traditional IRAs that require distributions to start on April 1st of the year after reaching age 70 1/2, there is no mandatory distribution age for Roth IRAs.

Which statements are TRUE about Roth IRAs? I Contributions must cease at age 70 1/2 II Contributions can continue after age 70 1/2 III Distributions must start after age 70 1/2 IV Distributions are not required to start after age 70 1/2 A. I and III B. I and IV C. II and III D. II and IV

D. Unlike Traditional IRAs, Roth IRA contributions can continue after age 70 1/2, as long as that person has earned income. And unlike Traditional IRAs, there are no required minimum distributions after age 70 1/2 for Roth IRAs.