Retirement Plans

The penalty tax incurred for premature distributions from an IRA is: 5% 10% 20% 50%

10%

To be eligible to establish a SIMPLE retirement plan, an employer can have a maximum of how many employees earning at least $5,000? 25 50 100 250

100

Which of these statements concerning Traditional IRAs is CORRECT? Earnings are not taxable when withdrawn Earnings are taxable when withdrawn Contributions are never tax-deductible Contributions are always made by the employer

Earnings are taxable when withdrawn

Which of the following is NOT a federal requirement of a qualified plan? Must benefit a broad cross-section of employees Employee must be able to make unlimited contributions Vesting schedule must be defined Employer establishes the plan

Employee must be able to make unlimited contributions

When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable? Principal Contributions made by employee Contributions made by employer Gains

Gains

How are contributions made to a Roth IRA handled for tax purposes? Fully tax deductible Not tax deductible Partially tax deductible Conditionally tax deductible

Not tax deductible

The IRS levies an excise tax on retired individuals over a certain age who do not take the required minimum distribution from a qualified retirement plan. What is the excise tax rate? 20% 30% 50% 60%

50% (Distributions must be made by April 1 following the year the participant turns age 70 1/2, or a 50% excise tax will be assessed on the amount that should have been withdrawn.)

A Roth IRA owner must be at least what age in order to make tax-free withdrawals? 59 1/2 and owned account for a minimum of 10 years 59 1/2 and owned account for a minimum of 5 years 70 1/2 and owned account for a minimum of 10 years 70 1/2 and owned account for a minimum of 5 years

59 1/2 and owned account for a minimum of 5 years

Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences? 30 45 60 90

60

Within how many days must a rollover be completed in order to avoid being taxed as current income? 30 60 90 120

60

Which statement about traditional individual retirement accounts is true? Funds withdrawn from an IRA after age 60 are not subject to income tax Only workers covered by other pension plans are eligible for IRAs A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2 The minimum amount that can be deposited into an IRA each year is $2,000

A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2

Which is true about the income tax withholding requirements for eligible rollover funds received personally by a participant in a profit-sharing plan? A 10% mandatory withholding rate applies A 20% mandatory withholding rate applies A 50% mandatory withholding rate applies The participant may elect to have nothing withheld

A 20% mandatory withholding rate applies (A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)

Which of the following employers is required to follow ERISA regulations? A local government with 150 employees A church with 30 employees A local electrical supply company with 12 employees A Canadian company with 300 employees working in the United States

A local electrical supply company with 12 employees

Distributions from a traditional individual retirement annuity (IRA) must begin by The participant's 65th birthday The participant's 70th birthday December 31st of the year the participant turns 70 1/2 April 1st of the year following the year the participant attains age 70 ½

April 1st of the year following the year the participant attains age 70 ½

A qualified plan participant elected a trustee-to-trustee transfer of rollover funds instead of personally receiving the funds and then rolling them over. The election permits the participant to Avoid mandatory income tax withholding on the amount transferred Eliminate the possibility of funds being lost in the mail Significantly reduce the amount of time required for the transaction Eliminate the penalty tax that normally applies to rollover funds

Avoid mandatory income tax withholding on the amount transferred (There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made.)

Which of the following types of employee welfare plans is specifically exempt from regulation under ERISA? Church plans Blue Cross-Blue Shield plans Hospital benefit plans Accidental plans

Church plans

Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description? Key person IRA Period certain annuity Deferred compensation option Income deferral option

Deferred compensation option

One of the purposes of a qualified profit-sharing plan is to Motivate management to achieve a 25% profit margin Distribute a portion of company earnings to employees Liquidate the assets of a corporation Reward the stockholders of a corporation

Distribute a portion of company earnings to employees

Upon retiring at age 60, an employee requested the 401(k) plan trustee to issue a check payable to the employee for the entire accrued benefit in the employee's account. The funds were immediately rolled over into an IRA. The 401(k) distribution will be Subject to a penalty tax Eligible for capital gains tax treatment Included in gross income for tax purposes Reduced by the amount withheld for federal income tax

Included in gross income for tax purposes (In this situation, the 401(k) distribution will be included in gross income for tax purposes because the plan participant took physical receipt of the distribution before its rollover to the IRA.)

Which of the following is generally assessed when a participant receives retirement savings from an IRA before reaching age 59 1/2? Income tax only A penalty tax only Income tax and a penalty tax Capital gains tax

Income tax and a penalty tax

An individual, age 45, received a distribution of $15,000, less $3,000 income tax withholding, from a former employer's 401k plan. None of the money was rolled over. Which federal taxes apply? Only income taxes on $15,000 Only income taxes on $12,000 Income taxes plus a 10% penalty tax on $15,000 Income taxes plus a 10% penalty tax on $12,000

Income taxes plus a 10% penalty tax on $15,000 (All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.)

Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment? Contains a vesting schedule Contributions are applied with no regard to income Formed for the sole benefit of employees and their beneficiaries It is temporary

It is temporary

A qualified retirement plan is "top heavy" when More than 20% of participants are highly compensated More than 20% of annual additions are for key employee accounts Fewer than 60% of employees benefit by the plan More than 60% of plan assets are in key employee accounts

More than 60% of plan assets are in key employee accounts (A plan is considered to be top heavy if more than 60% of plan assets are attributable to "key employees" as of the last day of the prior plan year.)

How much tax is withheld from funds that are transferred directly from one IRA to another IRA? 10% 15% 50% None

None

Which type of retirement plan sets aside a portion of the firm's net income for distributions to employees who qualify under the plan? Defined benefit plan Noncontributory retirement plan Profit-sharing plan Pension trust plan

Profit-sharing plan

Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered? Qualified retirement annuity Key employee retirement annuity Executive compensation plan Keogh annuity plan

Qualified retirement annuity

Qualified distributions from a Roth IRA are Fully taxable in the year received Taxable only on amounts over the aggregate Subject to a 10% penalty tax Received income tax free

Received income tax free

Which of these retirement plans do NOT qualify for a federal income tax deduction? SIMPLE Plan Traditional IRA Keogh Plan Roth IRA

Roth IRA

All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT Qualified college expenses First time home purchase Death of the participant Stock purchase

Stock purchase (Withdrawing funds from a qualified plan for the purpose of purchasing stocks or other securities would trigger a 10% tax penalty.)

All of the following are types of insurance policy exchanges that can be made without current taxation EXCEPT: The exchange of an annuity for a life insurance policy The exchange of a life insurance policy for an annuity An annuity exchanged for another annuity contract A life insurance policy exchanged for another life policy

The exchange of an annuity for a life insurance policy (The 1035 exchange does not allow for an annuity to be exchanged for a life insurance policy. This is not considered an equal exchange and will be taxed.)

Who were Keogh plans designed to provide pension benefits for? Corporate officers Public school employees The self-employed Government employees

The self-employed

An IRA owner names the spouse beneficiary. What is true if the owner dies before any distributions are made? All future distributions are forfeited The surviving spouse can roll the account into an IRA Distributions must begin within six month of the decedent's death. Distributions must begin in the year after the deceased would have reached age 70 1/2.

The surviving spouse can roll the account into an IRA (A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name.)

Rollover contributions to an individual retirement annuity (IRA) are Limited to 15 percent of the participant's compensation Limited to $2,000 per year Limited to $35,000 per year for married parties Unlimited by dollar amount

Unlimited by dollar amount

The annual addition to an employee's account in a qualified retirement plan can be any amount as determined by the end of year to year must be the same dollar amount for every full time employee cannot exceed the maximum limits set by the Internal Revenue Service usually reflects the employee's individual work performance each year

cannot exceed the maximum limits set by the Internal Revenue Service

An example of a tax-qualified retirement plan would be a(n) equity compensation plan defined contribution plan executive index plan 1035 exchange plan

defined contribution plan