Fin440 Exam 2

Thibodaux Company sponsors an integrated profit sharing plan with a base percent of 20%. Boudreaux, who is 60 years old, earns $330,000 per year. Assuming the plan uses the 2018 Social Security wage base as the integration level, how much more will Boudreaux receive because the plan is integrated over a plan that contributes a flat 20% of compensation? A) $0. B) $5,500. C) $8,356. D) $11,491.

A) $0. Rationale He would not get any benefit from integration if the base percent is 20% because 20% of $275,000 (2018 compensation limit) equals $55,000 (2018 annual additions limit).

Rustin recently retired from Fox, Inc., a national plastics supplier. When Rustin retired his stock bonus plan had 10,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $20 per share for the contributions made on Rustin's behalf. At retirement, Rustin took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $35 per share. Six months after distribution, Rustin sold the stock for $40 per share. What amount was subject to ordinary income tax on Rustin's tax return at the date Fox, Inc. contributed the stock to the plan? A) $0. B) $200,000. C) $350,000. D) $400,000.

A) $0. Rustin will not be subject to ordinary income at the date contributions are made to the stock bonus plan.

Rustin recently retired from Fox, Inc., a national plastics supplier. When Rustin retired his stock bonus plan had 10,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $20 per share for the contributions made on Rustin's behalf. At retirement, Rustin took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $35 per share. Six months after distribution, Rustin sold the stock for $40 per share. How much gain was Rustin subject to at the date the stock was distributed? A) $0. B) $50,000 short-term capital gain. C) $200,000 long-term capital gain. D) $150,000 long-term capital gain and $5,000 short-term capital gain. E) $400,000 long-term capital gain.

A) $0. Rustin will not have any capital gain until the stock is sold.

BigCorp, LLC has a 401(k) plan that allows for hardship distributions. Sandra would like to return to school to get a Masters degree. She has $3,000 in her savings account to use, but would like to take a hardship distribution from her 401(k) plan for the maximum amount available. Sandra's program will take two years and cost $7,000 per year. Sandra's 401(k) account balance is $20,000. Sandra has never made any hardship distributions and her elective contributions to the plan total $10,000. How much can Sandra withdraw as a hardship distribution? A) $4,000. B) $7,000. C) $10,000. D) $20,000.

A) $4,000. Sandra can take a distribution up to the hardship expense less other assets available to pay the hardship expense ($7,000 for one year of tuition - $3,000 in savings).

Davin sells stock six months after he received it as a distribution from a qualified stock bonus plan. When the stock was distributed, he had a net unrealized appreciation of $7,500. He also had ordinary income from the distribution of $29,000. The fair value of the stock at the time of sale was $81,000. How much of the sale price will be subject to long-term capital gain treatment? A) $7,500. B) $44,500. C) $52,000. D) $73,500.

A) $7,500. Appreciation on the stock after the date of distribution is taxed as long-term capital or short-term capital gain, depending upon the holding period beginning at the date of distribution. In this case, only the net unrealized appreciation of $7,500 is treated as long-term capital gain because the holding period for the sale was only six months. The remaining $44,500 of gain is taxed as short-term capital gain. $81,000 ($29,000) Basis $52,000 Total capital gain ($7,500) NUA long-term capital gain $44,500 Short-term capital gain

Which of the following are benefits of converting assets in a qualified plan to a Roth account through an in-plan Roth rollover? 1. The conversion may result in a reduction in income tax in future years. 2. The conversion will result in increasing after-tax deferred assets and reducing the gross estate. 3. The conversion will eliminate the need for minimum distributions during the life of the participant. A) 1 and 2. B) 2 and 3. C) 1 and 3. D) 1, 2 and 3.

A) 1 and 2. While there are no guarantees, the conversion may result in a reduction in tax in future years since all future income in the account will escape taxation. The conversion does result in increasing after-tax deferred assets and reducing the gross estate. However, because the funds are in a qualified plan, they will have to be distributed to comply with the minimum distribution rules or be rolled over to a Roth IRA.

Which of the following is true regarding negative elections? 1. A negative election is a device where the employee is deemed to have elected a specific deferral unless the employee specifically elects out of such election in writing. 2. Negative elections are no longer approved by the IRS. 3. Negative elections are only available for employees who enter the plan when it is first established and are not available for new employees. A) 1 only. B) 1 and 2. C) 2 and 3. D) 1, 2, and 3.

A) 1 only. Negative elections are approved by the IRS and they are available for both current and future employees. Qualified automatic contribution arrangements use negative elections. However, not all plans that employ a negative election will qualify as a qualified automatic contribution arrangement.

Which of the following are costs of a stock bonus plan? 1. Periodic appraisal costs. 2. Periodic actuarial costs. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

A) 1 only. Stock bonus plans require an independent appraisal of the stock value at contribution and distribution. Stock bonus plans do not require actuarial work.

Which of the following are false as to ESOPs? 1. An ESOP is controlled through a trust. 2. ESOPs provide corporate owners with a way to transfer ownership interests to their employees. 3. The trust of an ESOP is prohibited from borrowing money from a bank to purchase the employer stock. A) 3 only. B) 1 and 2. C) 2 and 3. D) None of the above.

A) 3 only. A key characteristic of the ESOP is that the trust may borrow money to purchase the employer stock.

Aztec Clay Distributor is a family owned business that is owned by Alice, Bill, Chad and Zion. Alice and Bill are over 50. Zion is not an employee, rather a silent or somewhat silent partner. Alice and Bill are married and Chad is their 25-year-old son who has a degree in Soil Science from Dhaka University in Bangladesh. Aztec sponsors a 401(k) plan. The employee census information is in the chart below. Assuming the company did not elect the exception to the definition of highly compensated employees, the average ADP of the highly compensated employees can be no greater than what percent? Employee Ownshp Salary Defral Plan Balance Status Alice 30% 330000 20000 400000 officer bill 3% 300000 20000 600000 Chad 4% 80000 10000 150000 dave 0% 180000 15000 150000 officer erin 0% 140000 15000 100000 frank 0% 50000 8000 50000 ginger 0% 40000 0 10000 haley 0% 30000 2000 30000 irish 0% 20000 1000 10000 jen 0% 20000 0 5000 1190000 91000 1505000 A) 7.53% B) 8.32%. C) 8.65%. D) 11.98%.

A) 7.53% The non-highly compensated employees are Frank, Ginger, Haley, Irish and Jen. The ADP for the NHCEs equals 5.53% [[16% + 0% + 6.67% + 5% + 0%] ÷ 5]. Adding 2 percentage points equals 7.53%. Chad is HC since he is attributed ownership from his parents.

In June 2018, Cody converts $100,000 in his 401(k) plan to a Roth account through an in-plan Roth rollover. The value of the assets in the Roth account drops by 40 percent due to a significant decline in the stock market that occurs in August 2018. The in-plan Roth rollover results in Cody incurring $100,000 of taxable income, when he could have waited and converted only $60,000 (after the 40 percent drop). Which of the following statements is correct? A) Cody cannot recharacterize the conversion. B) Cody can recharacterize as long as it is done within six months from the conversion. C) Cody can recharacterize after December 31, 2018. D) Cody can recharacterize at any time before the due date of his tax return, including extensions.

A) Cody cannot recharacterize the conversion. In-plan Roth rollovers cannot be "undone" or recharacterized. The other choices are not correct.

Skatium, the city's most popular roller skating rink, has a profit sharing plan for their employees. Skatium has the following employee information: Employee Age Length of Service Brett 62 14 years Greer 57 14 years Jennifer 32 6 months Dan 22 2 years Karen 19 2 years Mike 17 6 months Craig 16 1 year The plan requires the standard eligibility and the least generous graduated vesting schedule available. The plan is not top-heavy. All of the following statements are correct except: A) Dan and Karen are 20 percent vested in their benefits. B) Brett and Greer became 100 percent vested when they had been employed for six years. C) Three of the seven people are eligible to participate in the plan. D) Craig is not eligible for the plan.

A) Dan and Karen are 20 percent vested in their benefits. The standard vesting schedule requires individuals to be 21 years of age and have one year of service before becoming eligible for the plan. Brett, Greer, and Dan are the only individuals that meet that criteria. The least generous vesting schedules are 3-year cliff and 2 to 6 year graduated vesting. The facts say they use the least generous graduated vesting. Therefore, Dan is 20% vested and Greer and Brett became 100% vested in the 6th year. Craig is not eligible because he is 16 years old. Karen is not vested because she is not eligible due to her age.

Which of the following entities is unable to establish a 401(k) plan? A) Government entity. B) LLC. C) Partnership. D) Tax-exempt entity.

A) Government entity.

In May 2018, Seth converts $100,000 in his traditional IRA to a Roth IRA. The value of the assets in the Roth IRA drops by 40% due to a significant decline in the stock market that occurs in October 2018. The Roth conversion results in Seth incurring $100,000 of taxable income, when he could have waited and converted only $60,000 (after the 40% drop). Which of the following statements is correct? A) Seth cannot recharacterize the conversion. B) Seth can recharacterize as long as it is done within six months from the date of the conversion. C) Seth can recharacterize after December 31, 2018. D) Seth can recharacterize at any time before the due date of his tax return, including extensions.

A) Seth cannot recharacterize the conversion. Prior to 2018, taxpayers had the ability to recharacterize a Roth conversion up to the due date of the income tax return, including extensions. As a result of The 2017 TCJA, Roth conversions cannot be recharacterized after 2017.

Sam is a participant in RFK, Inc.'s ESOP. Sam has been a participant in the plan for eight years, and her account balance in the plan is $1,000,000 and is completely funded with employer securities. The plan defines the normal retirement age as 65 years old. Sam is 64 years old this year and would like to retire. Her advisor mentioned that she should have a more diversified portfolio. What, if anything, can she do to diversify her portfolio? A) The only way Sam can diversify her portfolio is to take a distribution of the employer stock from the ESOP and reinvest the value in a diversified portfolio. B) Sam can require the ESOP to diversify her up to 25 percent of her portfolio. C) Since Sam is in the final election year she can require the ESOP to diversify 50 percent of her portfolio. D) Sam can diversify 10 percent each year until the portfolio is completely diversified.

A) The only way Sam can diversify her portfolio is to take a distribution of the employer stock from the ESOP and reinvest the value in a diversified portfolio. Sam is not eligible to require the ESOP to diversify her portfolio because she has not been a plan participant for 10 years. Thus, she must take distributions and sell the stock in order to diversify.

Which of the following is not true regarding profit sharing plans? A) The plan is established and maintained by the individual employee. B) Allows employees to derive benefit from profits of the company. C) Profit sharing plans cannot discriminate in favor of officers and shareholders. D) Profit sharing plans provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan.

A) The plan is established and maintained by the individual employee.

Roger and Robin were happily married until Roger fell in love with Sam. As a result, Roger and Robin have agreed they need to get a divorce. As part of the process, the court has provided a domestic relations order that calls for Robin's profit-sharing plan to be divided into equal portions such that Roger will have his own account with half of the value of the retirement account. What type of approach has been taken? A) The separate interest approach. B) The split payment approach. C) The shared payment approach. D) The divided account approach.

A) The separate interest approach. The separate interest approach calls for splitting a retirement account into two separate accounts. Each party is free to act with regard to their separate account without the interference or consent of the other party. There is not such term as split payment approach or divided account approach.

Rustin recently retired from Fox, Inc., a national plastics supplier. When Rustin retired his stock bonus plan had 10,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $20 per share for the contributions made on Rustin's behalf. At retirement, Rustin took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $35 per share. Six months after distribution, Rustin sold the stock for $40 per share. What amount was subject to ordinary income on Rustin's tax return at the date the stock was distributed? A) $0. B) $200,000. C) $350,000. D) $400,000.

B) $200,000. Rustin will be subject to ordinary income at the date the stock is distributed equal to the value of the contributions made by the employer ($200,000).

Jim, a participant in the Zappa retirement plan, has requested a second plan loan. Jim's vested account balance is $80,000. He borrowed $27,000 eight months ago and still owes $18,000 on that loan. How much can he borrow as a second loan? A) $13,000. B) $22,000. C) $23,000. D) $31,000.

B) $22,000. He can borrow the lesser of $50,000 or half of the vested account balance. The $50,000 must be reduced by the highest outstanding balance in the last twelve months - $23,000. Half of the vested account balance ($40,000) less the outstanding loan of $18,000 equals $22,000.

Sheehan works for Andy Company and is a superior sales guy. His total compensation this year is $600,000. Andy sponsors an integrated profit sharing plan with a base percentage of 5.5% and a maximum excess percentage. It uses the current wage base as the integration level. How much will the company contribute for Sheehan for 2018? A) $15,125. B) $23,188. C) $23,481. D) $55,000.

B) $23,188. The excess percentage is 11% (twice the base percentage). Therefore, Sheehan receives 5.5% from zero to the wage base of $128,400 (2018) and 11% on income above the wage base up to the covered compensation limit of $275,000 (2018). [[$275,000 - $128,400] x 11% + $128,400 x 5.5%]. $16,126 + $7,062 = $23,188.

Jose Sequential, age 70½ in October of this year, worked for several companies over his lifetime. He has worked for the following companies (A-E) and still has the following qualified plan account balances at those companies. Company Jose's Account Balance A $250,000 B $350,000 C $150,000 D $350,000 E $200,000 Jose is currently employed with Company E. What, if any, is his required minimum distribution for the current year from all plans? Life expectancy tables are 27.4 for age 70 and 26.5 for age 71. A) $0. B) $40,146. C) $41,509. D) $47,445.

B) $40,146. Jose is required to take a minimum distribution for the years in which he is 70½ from each qualified plan, except from his current employer ($1,100,000 ÷ 27.4 = $40,146). He can delay the payment until April 1 of next year, but the question asks for the distribution required for the current year. Note: He must take from each account. He cannot take $40,146 from one account as he could if A-D were IRAs.

The early distribution penalty of 10 percent does not apply to qualified plan distributions: 1. Made after attainment of the age of 55 and separation from service. 2. Made for the purpose of paying qualified higher education costs. 3. Paid to a designated beneficiary after the death of the account owner who had not begun receiving minimum distributions. A) 1 only. B) 1 and 3. C) 2 and 3. D) 1, 2, and 3.

B) 1 and 3. Statement 2 is an exception for distributions from IRAs, not qualified plans. Statements 1 and 3 are exceptions to the 10% penalty for qualified plan distributions.

One of the disadvantages of an ESOP is that the stock is an undiversified investment portfolio. Which of the following is correct? 1. An employee, age 55 or older, who has completed 10 years of participation in an ESOP may require that 100% of the account balance be diversified. 2. An employee who receives corporate stock as a distribution from an ESOP may enjoy net unrealized appreciation treatment at the time of distribution. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

B) 2 only. The first statement is incorrect because the percentage is 25% (increased to 50% for the final year of the election period), not 100%. The second statement is correct.

Patrick and Kevin own Irisha Corporation and plan to retire. They would like to leave their assets to their children; therefore, they transfer 70 percent of the stock to a trust for the benefit of their 10 children pro rata. Patrick and Kevin then plan to sell the remaining Irisha shares to a qualified ESOP plan. Which of the following is correct? 1. The stock transfer to the ESOP is not a 50 percent transfer and therefore will not qualify for nonrecognition of capital gains. 2. Any transfer to an ESOP of less than 50 percent ownership may be subject to a minority discount on valuation. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

B) 2 only. There must be a sale of at least 30% (not 50%) to the ESOP to qualify for nonrecognition of capital gain treatment. In addition, any transfer that is less than 50% of the stock of the corporation might be subject to a minority discount on valuation.

Andi, the 100 percent owner of Andi's Day Care, would like to establish a profit sharing plan. Andi's Day Care's tax year ends July 31 to coincide with the school year. What is the latest day Andi can establish and contribute to the plan? A) Andi must establish and contribute to the plan by December 31 of the year in which she would like to establish the plan. B) Andi must establish the plan by July 31 of the year in which she would like to have the plan and contribute by April 15 of the following year assuming she filed the appropriate extensions. C) Andi must establish the plan by July 31 of the year in which she would like to establish the plan an d contribute by December 31. D) Andi must establish the plan by December 31 of the year in which she would like to establish the plan and contribute to the plan by April 15 of the following year.

B) Andi must establish the plan by July 31 of the year in which she would like to have the plan and contribute by April 15 of the following year assuming she filed the appropriate extensions. Andi must establish the plan by July 31 of the year in which she would like to have the plan and contribute funds by April 15 the following year assuming she filed all of the appropriate extensions.

All of the following are advantages of a 401(k) plan except: A) Employees are permitted to shelter current income from taxation in a 401(k) plan. B) Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability. C) Earnings grow tax-deferred until distributed. D) Employers can establish 401(k) plans with minimal expense.

B) Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability. Answer b is false, and thus not an advantage of 401(k) safe harbor plans. Employers are generally required under the safe harbor rules to make either a matching contribution or a contribution to all employee's eligible for the plan whether they contribute or not. C)

Mikael opened a fabulous restaurant ten years ago. The food is so exceptional that the restaurant has become one of the top spots in the city. Mikael, age 55, is the sole owner with compensation of $275,000. Mikael's son Jamel, age 28, is the master chef with compensation of $100,000. Jamel has been with the restaurant full time since he turned 18. Mikael also employs 15 other individuals whose ages range between 25 and 35 and have compensation on average of $40,000 per year. Mikael wants to establish a profit sharing plan. Which of the following statements is true? A) If Mikael selected the standard allocation method and the plan contributes 10 percent per individual, the plan will contribute $55,000 to Mikael's account. B) If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased. C) Considering the needs and wants of Mikael and Jamel, an age-based profit sharing plan is the best plan for both of them. D) A new comparability plan is the least expensive, simplest way to meet both Mikael and Jamel's retirement needs.

B) If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased. By using permitted disparity, or integration with Social Security, Mikael can increase the contribution to both himself and Jamel. Answer a is false because the covered compensation limit is $275,000 for 2018; thus, the contribution to Mikael's account using a standard allocation of 10% is $27,500. Answer c is false because an age-based profit sharing is not necessarily in Jamel's best interest. The facts say that the 15 other employees range from age 25 to age 35, with some of these employees being older than Jamel. In this instance, some employees might be allocate d a greater share of the contribution than Jamel. Answer d is false because a new comparability plan is generally more expensive to administer than other plans.

Mike, age 60, is a participant in the stock bonus plan of Tantalus, Inc., a closely held corporation. Mike received contributions in shares to the stock bonus plan and Tantalus, Inc. took income tax deductions as follows: value per share - at time of contribution Year # of Shares Value per Share 2014 100 $10 2015 125 $12 2016 150 $13 2017 200 $15 2018 400 $18 Mike terminates employment and takes a distribution from the plan of 975 shares of Tantalus, Inc., having a fair value of $19,500. What are Mike's tax consequences? A) There are no immediate tax consequences because he has not sold the stock. B) Mike has ordinary income of $14,650 at distribution. C) Mike has net unrealized appreciation of $19,500 at distribution. D) Mike has ordinary income of $19,500 at distribution.

B) Mike has ordinary income of $14,650 at distribution. Mike's ordinary income is exactly equal to Tantalus, Inc.'s deduction at the time of contribution, $14,650 (see chart below). Mike's net unrealized appreciation is $4,850 ($19,500 - $14,650) and will be taxed as long-term capital gains when the stock is sold. # of Shares Value per Share Value of Contribution 100 $10 $1,000 125 $12 $1,500 150 $13 $1,950 200 $15 $3,000 400 $18 $7,200 Total $14,650

Steve, age 69, is an employee of X2, Inc. He plans to work until age 75. He currently contributes 6 percent of his pay to his 401(k) plan, and his employer matches with 3 percent. Which one of the following statements is true? A) Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he attains age 70½. B) Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he retires. C) Steve is required to take minimum distributions from his Traditional IRA beginning April 1 of the year after he retires. D) Steve cannot contribute to his 401(k) plan after age 70½ in any case.

B) Steve is required to take minimum distributions from his 401(k) plan beginning April 1 of the year after he retires. Generally, an individual must receive his or her first minimum distribution by April 1 following the year the individual attains age 70½. However, if the individual remains employed beyond age 70½, he or she may defer minimum distributions until April 1 of the year following the year of retirement. This exception to the general rule only applies to the employer's qualified plan. Therefore, answers a and c are incorrect. Answer d is incorrect because Steve can continue to contribute to the 401(k) plan as long as he is still working for X2, Inc. and the plan permits.

Tyler's Bike Shop has a 401(k) plan that offers an employer match of dollar-for-dollar up to four percent of employee compensation. Although the plan provides for the least generous graduated vesting schedule available, it does allow employees to enter the plan on their hire date. The employee census is as follows: CC - covered compensation ER - employee deferral YIP - years in plan Employee Age CC ER YIP Tyler 57 $150,000 10% 10 Tanya 23 $100,000 Not yet participating Timmy 37 $80,000 20% 10 Tom 31 $76,000 4% 5 Tyler established the plan ten years ago to benefit him and his only employee, his son Timmy. Since then Tyler hired his other son, Tom, and his new wife Tanya. Tyler wanted to establish the 401(k) plan to encourage his children to save for their future. He also wanted a vesting schedule to ensure that they would learn the responsibility of sticking to their employment commitments. The family has come to you for recommendations to help them maximize their plan contributions. Since both of his sons have shown commitment over the past years, Tyler is willing to make some alterations to the plan in order to increase the retirement savings for all of them. Which of the following would not be one of your recommendations? A) Tyler and Tom should increase their contributions in order to reach the total maximum deferral limit. B) Tanya should enter the plan and contribute 20 percent of her salary. C) Tom is not 100 percent vested in the employer match, thus he should stay employed at least one more year. D) Tyler should consider adding a profit sharing contribution to the plan in order to increase the contributions.

B) Tanya should enter the plan and contribute 20 percent of her salary. Yes, Tanya should enter the plan, but she would not be able to contribute 20%. Remember that the limit for a 401(k) contribution is $18,500 for 2018. Thus to reach the limit, Tanya may only contribute 18.5%. Tyler and Tom should both increase their contributions. Tyler can increase his contribution because he is below the maximum of $18,500 and because of the $6,000 catch-up contribution allowed for his age. Tom is far from making the maximum contribution and should thus increase his contribution. The least generous graduated vesting schedule for matching contributions is 2 to 6 years. Thus, Tom is not 100% vested in the employee match and should stay an additional year. Tyler could increase the contribution for all of them by adding a profit sharing contribution to the plan. This would allow them to reach the annual additions limit of $55,000 for 2018. As you recall, the profit sharing plan contribution will allow the company to make an additional contribution to increase the employee balances.

ABC Company has three employees: Ann, Brenda, and Curtis. Their compensation is $50,000, $150,000, and $200,000 respectively. ABC is considering establishing a straight 10% profit sharing plan or an integrated profit sharing plan using a 10% contribution for base compensation and 15.7% for excess compensation. Which of the following statements are correct? A) If the integrated plan is selected, then the total contribution for all employees is $62,800. B) The effect of the integrated plan results in an increase in Brenda's contribution of $1,231. C) If the integrated plan is selected, the base contribution for all employees is $55,000. D) If the integrated plan is selected, Curtis' total contribution is $31,400.

B) The effect of the integrated plan results in an increase in Brenda's contribution of $1,231 If ABC selected the 10% profit sharing plan, the amount for the employee contributions is $5,000 for Ann, $15,000 for Brenda, and $20,000 for Curtis. Alternatively, if ABC established an Integrated Plan using a 10% base contribution and a 15.7% excess contribution, more benefit could be allocated to Brenda and Curtis.

MaryAnn, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently moved the funds into a taxable account. MaryAnn did not make the request of the IRS until six months after the mistake was made. Will the IRS permit the waiver? A) No. The IRS never waives this requirement, except under the most extreme of circumstances. B) Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances. C) No. MaryAnn waited beyond 90-days for filing such a request. D) No. MaryAnn waited an unreasonable amount of time before filing the request.

B) Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances. The IRS generally grants such requests if timely made.

On January 5, Cindy, age 39, withdrew $42,000 from her qualified plan. Cindy had an account balance of $180,000 and an adjusted basis in the account of $30,000. Calculate any early withdrawal penalty. A) $0. B) $1,200. C) $3,500. D) $4,200.

C) $3,500. $30,000/$180,000 = 0.1667 exclusion. $42,000 x 0.1667 = $7,000. $42,000 - $7,000 = $35,000 x 0.10 = $3,500.

Gary quits his job with a 401(k) account worth $500,000. He wants to roll the funds over to his IRA. If his employer sends the funds to Gary directly, how much will they send? A) $100,000. B) $250,000. C) $400,000. D) $500,000.

C) $400,000. An employer will withhold 20%. Gary should use a direct trustee to trustee transfer to avoid the required withholding.

Taylor, age 65, retires from Tickle Tile corporation and receives 25,000 shares of Tickle Tile stock with a fair market value of $500,000 in 2018. Taylor recognized $48,000 of ordinary income upon the distribution. What is Taylor's NUA immediately after the distribution? A) $48,000. B) $348,000. C) $452,000. D) $500,000.

C) $452,000. The NUA immediately after the distribution is $452,000 ($500,000 - $48,000).

Gerry is 70½ on April 1 of the current year and must receive a minimum distribution from his qualified plan. The account balance had a value of $423,598 at the end of last year. The distribution period for a 70 year old is 27.4, and for a 71 year old it is 26.5. If Gerry takes a $15,000 distribution next April 1st, what is the amount of the minimum distribution tax penalty associated with his first year's distribution? A) $0. B) $230. C) $492. D) $985.

C) $492. The required minimum distribution for Gerry is $15,985 ($423,598 divided by 26.5) because he is 71 years old as of December 31 of the current year. Gerry only took a distribution of $15,000, therefore, the minimum distribution penalty (50%) would apply to the $985 balance. Therefore, the minimum distribution penalty is $492 (50% of the $985).

Cavin sells stock several years after he received it as a distribution from a qualified stock bonus plan. When the stock was distributed, he had a net unrealized appreciation of $7,500. Cavin also had ordinary income from the distribution of $29,000. The fair market value of the stock and the sales price at the time of sale was $81,000. How much of the sale price will be subject to long-term capital gain treatment? A) $7,500. B) $44,500. C) $52,000. D) $73,500.

C) $52,000. Sale Price - Adjusted Basis. $81,000 - $29,000 = $52,000 long-term capital gain.

Which of the following distributions from a qualified plan would not be subject to the 10% early withdrawal penalty, assuming the participant has not attained age 59½? 1. A distribution made to a spouse under a Qualified Domestic Relations Order (QDRO). 2. A distribution from a qualified plan used to pay the private health insurance premiums of a current employee of Clinical Trials Company. 3. A distribution to pay for costs of higher education. 4. A distribution made immediately after separation from service at age 57. A) 1 and 2. B) 1 and 3. C) 1 and 4. D) 2 and 3.

C) 1 and 4. Statement 2 is incorrect for two reasons. The exception to the 10 percent early withdrawal penalty for health insurance premiums is only applicable to unemployed individuals. In addition, this exception is only available for distributions from IRAs, not qualified plans. Statement 3 is incorrect because the exception to the 10 percent penalty for higher education expenses only applies to distributions from IRAs, not qualified plans.

Which of the following is/are elements of an effective waiver for a pre-retirement survivor annuity? 1. Both spouses must sign the waiver. 2. The waiver must be notarized or signed by a plan official. 3. The waiver must indicate that the person(s) waiving understand the consequences of the waiver. A) 2 only. B) 1 and 3. C) 2 and 3. D) 1, 2, and 3.

C) 2 and 3. Only the nonparticipant spouse must sign the waiver.

ESOP distributions can be made in installments: 1. No longer than 5 years under any scenario. 2. No longer than 5 years unless the account balance exceeds $1,105,000 for 2018, in which case an additional year is allowed for each $220,000 (2018) over $1,105,000 but not more than 5 additional years. 3. In substantially equal payments. A) 3 only. B) 1 and 3. C) 2 and 3. D) All of the above.

C) 2 and 3. Statement 1 is false because the scenario with an excess of $1,105,000 allows an additional year for each $220,000 over $1,105,000.

If Colin receives a distribution from a qualified plan, how long does he have to roll it over to an IRA without it being subject to taxation? A) 30 days. B) 45 days. C) 60 days. D) 90 days.

C) 60 days. Colin has 60 days to rollover a distribution to an IRA.

The following definition applies to which of the following terms: "the corporation makes tax deductible contributions to a trust in the form of both principal and interest for the loan." A) A stock bonus plan. B) An ESOP. C) A leveraged ESOP. D) A S corp ESOP.

C) A leveraged ESOP. Only a leveraged ESOP will have a loan and thus, have principal and interest payments.

Nex sponsors a DB(k) plan that provides benefits for all employees. Nex adopted the plan four years ago. Kleen, who is age 55 and earns $100,000, has been employed for the last ten years with Nex. Which of the following statements is correct regarding Kleen's benefits under Nex's DB(k) plan? A) Kleen will be limited on his deferral to the 401(k) plan because of the required contribution to the DB part of the plan. B) If the DB(k) plan provides for a cash balance option, then Kleen should be receiving pay credits of 6% per year. C) All benefits provided under the DB(k) plan will be 100 percent vested for Kleen. D) Because this plan is a proto-type DB (k) plan, Nex will not have to file a Form 5500.

C) All benefits provided under the DB(k) plan will be 100 percent vested for Kleen. Option a is not correct. He could defer up to the annual limit. Option b is not correct. Since Kleen is over age 50, he would be receiving pay credits of 8% per year. Option d is not correct because DB(k) plans must file a single Form 5500.

Which of the following are requirements for a qualified stock bonus plan? 1. Participants must have pass through voting rights for stock held by the plan. 2. Participants must have the right to demand employer securities at a distribution, even if the plan sponsor is a closely held corporation. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

C) Both 1 and 2. Both statements are true.

Decatur 401(k) Plan maintains a loan program for its participants. The plan has 50 participants, three of whom had participant loans. Decatur conducted a year-end review of its loan program and found the following: • Bob received a loan from the plan one year ago for $60,000 over a five-year term, amortized monthly using a reasonable interest rate. Bob timely made the required payments. Bob's vested account balance is $180,000. • Sandi received a loan of $10,000 to help her mother move to Florida this year, amortized over 72 months. Payments are timely and the interest rate is reasonable. Which of the following individuals have loans that do not comply with the IRC? A) Bob. B) Sandi. C) Both Bob and Sandi. D) Neither Bob nor Sandi.

C) Both Bob and Sandi. Bob's loan exceeds the $50,000 limit and Sandi's exceeds the five-year rule.

Which of the following statements is true? A) Profit sharing plans may not offer in-service withdrawals. B) Pension and profit sharing plans are both subject to mandatory funding requirements. C) Profit sharing plans allow annual employer contributions up to 25 percent of the employee's covered compensation. D) The legal promise of a profit sharing plan is to pay a pension at retirement.

C) Profit sharing plans allow annual employer contributions up to 25 percent of the employee's covered compensation. Answer c is the only true statement. Profit sharing plans allow annual contributions of up to 25 percent of covered compensation. Answer a is false because profit sharing plans can allow in-service withdrawals. Answer b is false because while pension plans are subject to mandatory funding standards, profit sharing plans are not. Answer d is false because the legal promise of a profit sharing plan is the deferral of compensation and the legal promise of a pension plan is to a pay a pension at retirement.

Pander's Box, a shop that specializes in custom trinket and storage boxes, has a 401(k) plan. The plan allows plan loans up to the legal limit allowed by law and they may be repaid under the most generous repayment schedule available by law. The plan has the following employee information: Balance Outstanding Loan - BOL Employee 401(k) BOL Karen $400,000 $0 Teddy $250,000 $30,000 Josh $75,000 $0 Justin $15,000 $0 Which of the following statements is correct? A) If Teddy quit today, state law requires that he repay the loan within five days. B) The maximum Karen can borrow from her account is $200,000. C) The maximum Justin can borrow from his account is $10,000. D) If Josh wanted to borrow money from his plan for the purchase of a personal residence, he would have to pay the loan back within five years.

C) The maximum Justin can borrow from his account is $10,000. Justin can borrow one half of his vested account balance up to $50,000. Since the balance is below $20,000, he can borrow a full $10,000. State law does not require the repayment of the loans within a specified time; however, the plan can require that Teddy repay the loan immediately. Karen can only borrow one-half of her account balance up to $50,000, thus she can only borrow $50,000. Josh will not have to repay the loan in five years because the loan proceeds are being used for a home purchase and an extended period is available.

One approach that is used in some domestic relations orders is to "split" the actual benefit payments made with respect to a participant under the plan to give the alternate payee part of each payment. Under this approach, the alternate payee will not receive any payments unless the participant receives a payment or is already in pay status. This approach is often used when a support order is being drafted after a participant has already begun to receive a stream of payments from the plan (such as a life annuity). This approach to dividing retirement benefits is often called what? A) The separate interest approach. B) The split payment approach. C) The shared payment approach. D) The divided annuity approach.

C) The shared payment approach. This is the definition of the shared payment approach. There is not such term as split payment approach or divided annuity approach.

Tim, a participant in the Zappa retirement plan, has requested a second plan loan. Tim's vested account balance is $70,000. He borrowed $30,000 ten months ago and still owes $20,000 on that loan. Could he increase his maximum permissible loan if he repaid the outstanding loan before taking the new loan? A) No. Paying off the loan will not increase an available loan. B) Yes. Paying off the loan will increase the loan available by $15,000. C) Yes. Paying off the loan will increase the loan available by $5,000. D) No. He is not permitted to pay off the loan.

C) Yes. Paying off the loan will increase the loan available by $5,000. He can borrow the lesser of $50,000 or half of the vested account balance. The $50,000 must be reduced by the highest outstanding balance ($30,000) in the last twelve months, which equals $20,000. Half of the vested account balance ($70,000) less the outstanding loan of $20,000 equals $15,000. If the loan of $20,000 is repaid, which it could be, then the available loan would increase by $5,000 to $20,000.

Rustin recently retired from Fox, Inc., a national plastics supplier. When Rustin retired his stock bonus plan had 10,000 shares of Fox, Inc. stock. Fox, Inc. took deductions equal to $20 per share for the contributions made on Rustin's behalf. At retirement, Rustin took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $35 per share. Six months after distribution, Rustin sold the stock for $40 per share. What gain is Rustin subject to at the date the stock was sold? A) $0. B) $50,000 short-term capital gain. C) $200,000 long-term capital gain. D) $150,000 long-term capital gain and $50,000 short-term capital gain. E) $400,000 long-term capital gain.

D) $150,000 long-term capital gain and $50,000 short-term capital gain. When Rustin sells the stock any appreciation after the employer's contribution will be capital gain. Rustin's adjusted basis in the stock is the amount that was subjected to ordinary income ($200,000). The appreciation before the date of distribution will be long- term capital gain ($150,000) while the taxation of the appreciation after the date of distribution will depend on the holding period. Since Rustin only held the property for six months after the date of distribution, the $50,000 of appreciation after the date of distribution will be short-term capital gain.

Nancy, age 70 on February 2, 2018, had the following account balances in a qualified retirement plan. 12/31/2017 $500,000 12/31/2018 $478,000 12/31/2019 $519,000 12/31/2020 $600,000 Assuming that Nancy is retired and has never taken a distribution prior to 2019, what is the total amount of minimum distribution required in 2019? Life expectancy factors according to the uniform life table are 27.4 for a 70 year old and 26.5 for a 71 year old. A) $18,038. B) $18,248. C) $35,597. D) $36,286.

D) $36,286. For 2018, look back to 2017: $500,000 ÷ 27.4 = $18,248 For 2019, look back to 2018: $478,000 ÷ 26.5 = $18,038 $18,248 + $18,038 = $36,286 She must take a distribution for 2018 and 2019. However, she can wait to take the 2018 distribution until April 1, 2019 in which case she has 2 distributions in 2019.

Which of the following statements is/are correct regarding the early distribution 10 percent penalty tax from a qualified plan for years after 2017? 1. Retirement at age 55 or older exempts the distributions from the early withdrawal penalty tax. 2. Distributions used to pay medical expenses in excess of the 7.5% of AGI for a tax filer who itemizes are exempt from the early withdrawal penalty. 3. Distributions that are part of a series of equal periodic payments paid over the life or life expectancy of the participant are exempt from the early withdrawal penalty. A) 3 only. B) 1 and 3. C) 2 and 3. D) 1, 2, and 3.

D) 1, 2, and 3. Statements 1, 2, and 3 are correct. The 2017 TCJA reduced the 10% AGI limit to 7.5% of AGI for medical deductions for 2017 and 2018.

Which of the following vesting schedules may a top-heavy profit sharing plan not use? A) 1 to 4 year graduated. B) 35% after 1 year, 70% after 2 years, and 100% after 3 years. C) 2 to 6 year graduated. D) 4 year cliff.

D) 4 year cliff. The only choice that is not possible is a 4 year cliff, since 3 year cliff is the standard for a DC plan. Top heavy is irrelevant with DC plans after PPA 2006.

JJ is a Marine, who served our country for the last 25 years. He has $250,000 in his U.S. Government Thrift Savings Plan. Which of the following plans is JJ's Thrift Plan most similar to? A) Defined benefit plan. B) Cash balance plan. C) Profit sharing plan. D) 401(k) plan.

D) 401(k) plan. The US Government Thrift Savings Plan is very similar to a 401(k) plan. It allows for the same employee deferral limits and maximum contribution limits as a 401(k) plan. The other choices are not correct.

Which of the following is true regarding QDROs? A) The court determines how the retirement plan will satisfy the QDRO. (i.e. split accounts, separate interest). B) In order for a QDRO to be valid, the order must be filed on Form 2932-QDRO provided by ERISA. C) All QDRO distributions are charged a 10% early withdrawal penalty. D) A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's qualified plan.

D) A QDRO distribution is not considered a taxable distribution if the distribution is deposited into the recipient's qualified plan. The plan document, not the court, determines how the QDRO will be satisfied. No particular form is required for a QDRO, although some specific information is required. Form 2932-QDRO is not a real form. QDRO distributions may be subject to the 10% early withdrawal penalty if the distribution is not deposited into the recipient's qualified plan.

Ansley's Art Gallery has a profit sharing plan. The plan requires employees to be employed two years before they can enter the plan. The plan has two entrance dates per year, January and July 1st. Assume today is December 1, 2020 and the Gallery has the following employee information. Employee Age Start Date Ansley 42 1/1/2018 Ginny 37 5/1/2018 Max 31 8/12/2018 Alex 29 6/4/2019 Which of the following statements is true? A) As of today, three individuals have entered the plan. B) Ginny entered the plan on 5/1/2019. C) Alex will enter the plan on 1/1/2021. D) As of today, three individuals are eligible for the plan.

D) As of today, three individuals are eligible for the plan. Only three individuals are eligible for the plan, Ansley, Ginny, and Max. Ansley and Ginny are both in the plan, but Max is not yet in the plan because there has not been an entrance date since he became eligible. Max would not enter the plan until 1/1/2021. Alex would enter the plan 7/1/2021.

Bobby Brown would not listen to his financial advisor and decided to rollover his qualified plan assets to a traditional IRA. Which of the following is correct? A) Bobby is entitled to the same alternative tax options in an IRA that are available in a qualified plan. B) Bobby has the same or more investment options in his IRA as compared to his qualified plan. C) Bobby can now convert the funds to a Roth IRA, where before he could not. D) Bobby has lost some of his creditor protection by moving the funds from a qualified plan to an IRA.

D) Bobby has lost some of his creditor protection by moving the funds from a qualified plan to an IRA. Choice a is not correct because ten year forward averaging, pre-74 capital gain treatment and NUA treatment are available in a qualified plan, but not available in an IRA. Choice b is not correct because qualified plans can investment in life insurance and collectibles, which is not permitted in an IRA. Choice c is not correct, as he could have converted direct from a qualified plan to a Roth IRA. Choice d is correct as the assets are no longer protected under ERISA. The assets will be protected under bankruptcy law, but not ERISA.

Which of the following statements is true regarding CODAs? A) A 401(k) can only be established as a stand alone plan. B) A CODA is allowed with a profit-sharing plan, stock bonus plan, and a cash balance pension plan. C) Contributions can only be made after-tax. D) CODAs are employee self-reliant plans.

D) CODAs are employee self-reliant plans. 401(k) plans are not stand alone plans; they must be combined with another plan. A CODA is not allowed with a cash balance pension plan (other than the special DB(k) plan). Contributions can be made pre- and post-tax.

Baily is 56 years old and obtained ten years of participation in the Blackwater ESOP in Year 1. Assume she elects to diversify 20% of her account balance, which was $100,000, during the 90-day period following Year 1. Which of the following is correct? A) If the account value at the end of Year 3 was $150,000, Baily could diversify $37,500 during the 90-day period following Year 3. B) Baily can diversify an additional $5,000 anytime before the final year of the election period. C) Baily can diversify an additional 5% anytime before the final year of the election period. D) During the 90-day period following Year 6, Baily could diversify up to $100,000, on a cumulative basis with prior diversification amounts, assuming her plan balance was $200,000 at the end of Year 6.

D) During the 90-day period following Year 6, Baily could diversify up to $100,000, on a cumulative basis with prior diversification amounts, assuming her plan balance was $200,000 at the end of Year 6. Choice a is incorrect as she could not diversify $37,500, rather, she could diversify that amount on a cumulative basis. Choice b and c are incorrect because it is only during the 90-days following the end of the year. Choice d is correct as she can diversify 50% for the final year.

Josh recently died at the age of 63, leaving a qualified plan account with a balance of $1,000,000. Josh was married to Kay, age 53, who is the designated beneficiary of the qualified plan. Which of the following is correct? A) Kay must distribute the entire account balance within five years of Josh's death. B) Kay must begin taking distributions over Josh's remaining single-life expectancy. C) Any distribution from the plan to Kay will be subject to a 10 percent early withdrawal penalty until she is 59½. D) Kay can receive annual distributions over her remaining single-life expectancy, recalculated each year.

D) Kay can receive annual distributions over her remaining single-life expectancy, recalculated each year. Kay can receive distributions over her remaining single-life expectancy. A spouse beneficiary can recalculate life expectancy each year. Statement a is incorrect. She is not required to distribute the entire account within 5 years. Statement b is incorrect. Kay can wait until Josh would have been 70½ and begin taking distributions over her life expectancy. Statement c is incorrect. The distribution will not be subject to the early withdrawal penalty because the distributions were on account of death. Kay could also roll the account over to her own IRA and begin distributions when she attains age 70½.

Meb, the owner of Meb's Hardware, is considering establishing a stock bonus plan. She recently talked with her advisor, Don T. Know. Don T. Know never studied when he took his certificate program, therefore he gave Meb incorrect information about stock bonus plans. Which of the following statements given to Meb was correct? A) Meb can establish a stock bonus plan for the previous year anytime before the due date (plus extensions) of Meb's Hardware's tax return. B) When the employee's of Meb's Hardware receive distributions of stock from the stock bonus plan, they will receive capital gain treatment on the distribution equal to the value of the stock as contributed by Meb's Hardware. C) A valuation of the stock of Meb's Hardware is required when the stock bonus plan is established, but subsequent valuations are unnecessary. D) Meb can require the employees to be age 21 and employed for two years before becoming eligible for the stock bonus plan.

D) Meb can require the employees to be age 21 and employed for two years before becoming eligible for the stock bonus plan. Meb must establish the stock bonus plan by the end of the year in which she would like the plan to begin. When the employees of Meb's Hardware receive distributions of stock from the plan, the value of the distribution equal to the value at the date Meb contributed the stock will be ordinary income. The appreciation will be long-term capital gain. Meb must have the stock valued at the date the plan is established and at the date of any distributions.

Brenda, age 53 and a recent widow, is deciding between taking a lump-sum distribution from her husband's pension plan of $263,500 now or selecting a life annuity starting when she is age 65 (life expectancy at 65 is 21 years) of $2,479 per month. Current 30-year Treasuries are yielding 6 percent annually. Which of the statements below are true? 1. If she takes the lump-sum distribution, she will receive $263,500 in cash now and be able to reinvest for 34 years, creating an annuity of $4,570 per month. 2. If she takes the lump-sum distribution she will be subject to the 10% early withdrawal penalty. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

D) Neither 1 nor 2. Statement 1 is false. She will only receive $210,800 ($263,500 less 20% withholding). Statement 2 is also false. The distribution is on account of death, an exception to the 10% early withdrawal penalty rule.

Tom, age 39, is an employee of Star, Inc., which has a profit sharing plan with a CODA feature. His total account balance is $412,000, $82,000 of which represents employee elective deferrals and earnings on those deferrals. The balance is profit sharing contributions made by the employer and earnings on those contributions. Tom is 100 percent vested. Which of the following statements is/are correct? 1. Tom may take a loan from the plan, but the maximum loan is $41,000 and the normal repayment period will be 5 years. 2. If Tom takes a distribution (plan permitting) to pay health care premiums (no coverage by employer) he will be subject to income tax, but not the 10% penalty. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

D) Neither 1 nor 2. Statement 1 is incorrect because he can take a loan equal to one-half of his total vested account balance up to $50,000. Statement 2 is incorrect because the exemption from the 10% penalty only applies to IRAs and only to the unemployed.

BJ owns NOCTM, Inc. and sells 100 percent of the corporate stock (all outstanding stock) on January 1, 2018 to an ESOP for $5,000,000. His adjusted basis in the stock was $2,400,000. Which of the following is correct? 1. If BJ reinvests the $5,000,000 in qualified domestic securities within 18 months, he has a carryover basis of $2,400,000 in the qualified domestic security portfolio and no current capital gain. 2. BJ has a long-term capital gain of $2,600,000 reduced by the 20 percent small business credit; therefore, his gain is $2,080,000 if he does not reinvest in qualified domestic securities within 18 months. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

D) Neither 1 nor 2. The $5,000,000 must be reinvested within 12 months and there is not a 20% small business credit. In addition, to qualify for nonrecognition of gain treatment, the NOCTM, Inc. stock must have been owned by BJ for at least three years.

Ginger, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently moved the funds into a taxable account. Ginger did not make the request of the IRS until five years after the mistake was made. Will the IRS permit the waiver? A) No. The IRS never waives this requirement, except under the most extreme of circumstances. B) Yes. The mistake was the fault of the financial advisor and the IRS regularly grants waivers in these circumstances. C) No. Ginger waited beyond the one-year period for filing such a request. D) No. Ginger waited an unreasonable amount of time before filing the request.

D) No. Ginger waited an unreasonable amount of time before filing the request. The IRS generally grants such requests if timely made. However, Ginger should have realized this long before five years. She would have reported interest on her Form 1040 which would have caused her to realize the mistake. She certainly would have received account statements. Choice a is false. Choice b would be correct if Ginger had filed the request timely. Choice c is false and there is no such one-year period.

Which phrase best completes the following sentence: "A repurchase option allows a terminating employee the choice to receive the cash equivalent of the employer's stock if the stock is _____." A) Convertible. B) Tradeable. C) Not readily tradeable. D) Not readily tradeable on an established market.

D) Not readily tradeable on an established market. This phrase is directly from IRC §409(h)(1).

Andrea recently died at age 77, leaving behind a qualified plan worth $200,000. Andrea began taking minimum distributions from the account after attaining age 70½ and correctly reported the minimum distributions on her federal income tax returns. Before her death, Andrea named her granddaughter, Reese age 22, as the designated beneficiary of the account. Now that Andrea has died, Reese has come to you for advice with respect to the account. Which of the following is correct? A) Reese must distribute the entire account balance within five years of Andrea's death. B) In the year following Andrea's death, Reese may begin taking distributions from the account based on Reese's remaining life expectancy, recalculated each year. C) In the year following Andrea's death, Reese must begin taking distributions over Andrea's remaining single-life expectancy. D) Reese can roll the account over to an IRA and name a new beneficiary.

D) Reese can roll the account over to an IRA and name a new beneficiary. Statement a is incorrect because the five-year rule only applies if there is no designated beneficiary, or if a charity is the beneficiary. Since minimum distributions had already begun at the time of Andrea's death, Reese must take distributions over the greater of Reese's life expectancy or Andrea's life expectancy. Thus, statement c is incorrect because Andrea's life expectancy is definitely shorter than Reese's life expectancy. While statement b may appear to be correct, Reese would need to take distributions from the account based on her remaining life expectancy reduced by one year. She is not allowed to recalculate her life expectancy. Statement d is correct. However, the account must be in the name of the deceased (Andrea) for the benefit of Reese. In addition, the distributions can be taken over Reese's single life expectancy and not over a joint life expectancy.

Laura, age 43, has several retirement accounts and wants to know what accounts can be rolled over to other accounts. Which of the following statements regarding rollovers is not correct? A) She could take a distribution from her SEP IRA and roll it over to a qualified plan without incurring a 20% withholding. B) She could rollover her government 457(b) plan to her new employer's qualified plan. C) She could rollover the funds from her old employer's qualified plan to her new employer, who sponsors a 401(k) plan with a Roth account, and be able convert the funds in an in-plan Roth rollover. D) She could rollover her traditional IRA to her SIMPLE IRA.

D) She could rollover her traditional IRA to her SIMPLE IRA. Choices a, b and c are all correct and permissible. Basically no other retirement assets can be rolled over to a SIMPLE IRA except assets currently in a SIMPLE IRA.

Reese has assets both in her Roth IRA and in her Roth account that is part of her employer's 403(b) plan. However, she is not sure about the differences between the two types of accounts. Which of the following statements would you tell her is correct? A) Both Roth IRAs and Roth accounts have a five-year holding period requirement, but the establishment of the first Roth IRA or Roth account starts the five-year holding period for all Roth IRAs and Roth accounts. B) Both Roth IRAs and Roth accounts have the same rules regarding the definition of a qualified distribution. C) The minimum distribution rules for Roth IRAs and Roth accounts are the same. D) The nature of the income received by beneficiaries in a qualified distribution is the same for distributions from both Roth IRAs and Roth accounts.

D) The nature of the income received by beneficiaries in a qualified distribution is the same for distributions from both Roth IRAs and Roth accounts. Choice a is not correct because the five year holding period is separate for each type of account. Choice b is not correct because the Roth IRA has an additional distribution exception for first time home buying. Otherwise the rules are the same. Choice c is not correct because Roth IRAs do not have to comply with minimum distribution rules upon attainment of age 70½, while Roth accounts do have to comply.

Rex, age 47, an employee at Water Waste, is considering contributing to a 401(k) plan during 2018. Which of the following statements are true? A) Rex can make a $24,500 elective deferral contribution to a 401(k) plan for 2018. B) If Rex does make an elective deferral contribution, the amount is not currently subject to income or payroll taxes. C) Rex can contribute $18,500 to a 401(k) plan and an additional $18,500 to a 401(k) Roth account in the current year. D) Water Waste must deposit Rex's elective deferral contribution to the plan as soon as reasonably possible.

D) Water Waste must deposit Rex's elective deferral contribution to the plan as soon as reasonably possible. Rex can only make a $18,500 contribution for 2018. He would only be able to contribute $24,500 if he were over age 50. Employee deferrals are subject to payroll tax but not income tax. Rex cannot exceed the maximum deferral contribution amount of $18,500 by contributing to both a 401(k) and a 401(k) Roth account.

To qualify for nonrecognition of gain treatment, the following requirements apply: A) The ESOP must own at least 30% of the corporation's stock immediately after the sale. B) The corporation that establishes the ESOP must have no class of stock outstanding that is tradable on an established securities market. C) The seller and 25% shareholders in the corporation are precluded from receiving allocations of stock acquired by the ESOP through the rollover. D) The stock sold to the ESOP must be common or convertible preferred stock and must have owned by the seller for at least 3 years prior to the sale. E) All of the above.

E) All of the above.