Retirement plans Questions

Distributions from an Individual Retirement Account must commence: A by April 1st of the year preceding that person reaching age 72 B by April 1st of the year following that person reaching age 72 C upon reaching age 72 D upon reaching retirement

B. Distributions from an Individual Retirement Account must commence by April 1st of the year following that person reaching age 72.

ERISA regulations cover: I public sector retirement plans II private sector retirement plans III federal government employee retirement plans A I only B II only C III only D I, II, III

B. 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.

Which statements are TRUE regarding a Roth IRA? I Roth IRAs allow for tax-free growth II Roth IRA contributions are tax deductible III Roth IRAs are not subject to Required Minimum Distributions (RMDs) IV Roth IRAs are not subject to income limitations A I and III B I and IV C II and III D II and IV

. Roth IRAs, introduced in 1998, are an alternate to the Traditional IRA. Both allow the same contribution amount - a maximum of $6,000 per person in 2021 for individuals under age 50. If one contributes the maximum to a Traditional IRA, a contribution cannot be made to a Roth IRA; and vice-versa. Roth IRA contributions are not tax deductible. However, all distributions from a Roth IRA made after age 59 1/2 are 100% excluded from taxation as long as the investment has been held for 5 years. Compared to a Traditional IRA which allows a tax deduction for the contribution, a Roth contribution is not tax deductible. The benefit is that when distributions commence from a Roth IRA, there is no tax due (in contrast, distributions from Traditional IRAs are taxable). Because the IRS is not collecting tax, Roth IRAs are not subject to Required Minimum Distributions after age 72, which is the case with a Traditional IRA. Roths offer a very good deal, but they are not available to high earning individuals. High earning individuals can still contribute to a Traditional IRA.

A working couple that has a combined income of $150,000 are both covered by qualified pension plans. Which statement is TRUE about IRA contributions by these persons? A IRA contributions are prohibited since these persons are covered by a qualified plan B IRA contributions are prohibited since these persons' income exceeds allowed limits C IRA contributions are permitted; however the contribution amount is not deductible D IRA contributions are permitted with the contribution amount being tax deductible

. 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 in 2021 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 $125,000 in year 2021 (the deduction phases out between $105,000 - $125,000 of income).

What is the maximum contribution for a SIMPLE IRA`

13,500

401(k)

401(k) plans are defined contribution money purchase plans established by for-profit entities such as corporations. They allow employees to contribute up to $19,500 in 2021 as a "salary reduction" - so the contribution is made with pre-tax dollars. The employer can choose to match, at a stated percentage of salary, the contribution made by the employee. Earnings grow tax deferred and distributions at retirement age are 100% taxable. RMDs (Required Minimum Distributions) must be taken starting no later than April 1st of the year after reaching age 72 (same rule as for a Traditional IRA).

Non-Tax Qualified Retirement Plan

A non-tax qualified retirement plan is one that does not allow the contribution amount to be deducted from the contributor's taxable income, thus these contributions are made with "after-tax" dollars. An example of a non-qualified plan is a variable annuity. Any income and capital gains from securities held in the plan are reinvested and build "tax-deferred." When distributions commence from such a plan, the portion of the distribution amount that represents the original capital contribution is not taxed (remember, since the contributions was made with "after-tax" dollars, it was already taxed once), while the "build-up" amount (monies that were never taxed) is taxable.

Tax Qualified Retirement Plan

A tax qualified retirement plan is one that allows the contribution amount to be deducted from the contributor's taxable income, thus these contributions are made with "before-tax" dollars. Any income and capital gains from securities held in the plan are reinvested and build "tax-deferred." When distributions commence from such a plan, the entire distribution amount is taxable (since none of the monies in the plan were ever taxed).

An individual works in a small manufacturing business with fewer than 100 employees. The company does not offer a retirement plan. This individual has $5,000 of discretionary funds that she wishes to put away for retirement. The BEST recommendation for this individual is to make a $5,000 contribution to a(n): A Traditional IRA B 401(k) C SEP IRA D SIMPLE IRA

A. SEP IRAs and SIMPLE IRAs are designed for small businesses, but the plans must be established by the corporate employer. Similarly, a 401(k) plan is established by the corporate employer - these plans are designed for larger businesses. The only retirement plans that can be set up by an individual are a Traditional IRA, a Roth IRA, or an annuity contract purchased from an insurance company.

A money purchase retirement plan would invest in all of the following securities EXCEPT: A Tax Free Municipal Bonds B U.S. Government Bonds C Equities D Variable Annuities

A. A retirement plan would not invest in tax free municipal bonds because such instruments provide a lower yield than taxable bonds. Since the pension plan itself is a "tax free" envelope in which securities are held, the plan would invest in securities that yield a higher amount.

In the year 2021, a divorced woman under age 50 collects $50,000 of alimony and child support as her sole source of income. 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 does not have earned income B A contribution of up to $6,000 is permitted, but the contribution is not tax deductible. C A tax deductible contribution of up to $6,000 is permitted D A tax deductible contribution of up to $12,000 is permitted

A. Alimony and child support payments are not classified as "earned income" for purposes of making IRA contributions. Thus, a woman whose sole support stems from these payments cannot make an IRA contribution.

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 Explanation

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 $76,000 in year 2021 (the deduction phases out between $66,000 - $76,000 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.

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.

In 2021, a self-employed person earning $100,000, who also has $100,000 of investment income, wishes to open a Keogh Plan. Their maximum permitted contribution is: A $20,000 B $40,000 C $58,000 D $68,000

A. Keogh (HR10) contributions are based only on personal service income - not investment income. $100,000 of personal service income x 20% effective contribution rate = $20,000. Note that this is less than the maximum contribution allowed of $58,000 in 2021.

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 $58,000 in 2021), 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.

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 statements are TRUE? I The entire withdrawal is taxed as ordinary income II Since half the account balance has been withdrawn, the withdrawal is taxed at 50% of ordinary rates III The entire withdrawal is subject to a 10% penalty tax IV Since half of the account has been withdrawn, the withdrawal is subject to half of the 10% penalty tax A I and III B I and IV C II and III D II and IV

A. 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.

A new customer, age 45, has been terminated from his assembly-line job of the past 20 years at an automotive parts supplier. During that time period, he has accumulated $124,000 in the company's 401(k) plan. He wishes to rollover the funds to an IRA account with your brokerage firm. This customer, who is an unsophisticated investor, has the entire 401(k) invested in a growth mutual fund and has no other investments. As the representative for this customer, your IMMEDIATE concern should be: A communicating effectively with an unsophisticated customer in an understandable manner to assess financial goals and risk tolerance B setting the investment allocation strategy that should be employed in order to provide sufficient retirement income for this individual C creating a financial plan that emphasizes asset preservation and that is likely to provide a prolonged income stream for a prolonged period of retirement D minimizing the tax consequences of any recommended transactions to increase the long-term growth potential of investments made

A. This customer has a "blue-collar" job and is an unsophisticated investor. He has no other investments than his 401(k), all in one growth mutual fund. The registered representative's immediate concern should be communicating effectively with such an unsophisticated customer using simple, understandable language, in order to assess the customer's financial goals and risk tolerance level. The other concerns are important as well, but they come into play after the customer's investment objectives are determined.

A 65-year old individual has just retired after working for the same employer for 20 years. He will collect an annual pension benefit of $50,000, but is not yet ready to stop working. He has lined up a part-time job that will pay $3,000 this coming year. How much can he contribute to a Traditional Individual Retirement Account for his first year in retirement? A 0 B $3,000 C $6,000 D $7,000

B. Contributions to an IRA are only based on earned income - not on pension income. The maximum contribution in 2021 is 100% of earned income, capped at $6,000. In addition, he qualifies for a $1,000 additional catch-up contribution. But all of this is moot, because he only has $3,000 of earned income, so this is the maximum IRA contribution for this year.

Your customer, age 68, that has an IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his son, age 38. He has no need for current income as he is still working, and wishes to know his best option to minimize taxes. He expects to retire in 22 years, at which time, he will need the funds to pay for annual living expenses. You should advise the son to: A roll the funds over into a new IRA in the son's name B transfer the IRA funds to a beneficiary distribution account C cash out the inherited IRA account D disclaim the inherited IRA account

B. Since the son is the beneficiary, the most advantageous option, which is to roll over the account, is not available. Roll overs of inherited IRAs are only available to spouses. The best option is for the son to transfer the funds into a beneficiary distribution account. The tax rule is that the account must be depleted over 10 years - however distributions can be taken at any time during that 10-year window. Tax must be paid on each distribution, but there would be no 10% penalty tax, even though the son is under age 59 1/2, because the account is titled in both the decedent's name and the beneficiary's name and the account is considered to be the property of the estate of the decedent. Immediate cash out of the account would subject the entire proceeds to ordinary income tax that year - again, not meeting the customer's goal of minimizing taxes. Finally, the customer has stated that he will need the funds for retirement in 22 years, so disclaiming (giving away) the account makes no sense.

A customer who is age 75 has been taking RMDs (Required Minimum Distributions) each year from his Traditional IRA in cash. This year, he asks his representative if he can take the distribution in the form of shares of a mutual fund position in his account. He tells the representative that because it has been a bear market, the share price is depressed and rather than liquidate, he would like to take the shares into his cash account at the firm, awaiting a market rebound. You should tell him that the RMD can: A only be taken in cash B be taken in securities, but the entire amount of the RMD will be taxable without receiving any cash to pay the tax bill C be taken in securities with no tax due and the cost basis of the securities in the cash account will be "0" D be taken in securities with no tax due and the cost basis of the securities in the cash account will be the market value as of the transfer date

B. While RMDs from Traditional IRAs are typically taken in cash, they can be taken as securities from the account. The cost basis of the securities is "0," and the market value as of the distribution date is the sales proceeds, so the entire value is taxable. The cost basis of the securities in the cash account is the market value at the date of transfer. Clients have requested this in years when the market has declined steeply because they don't want to liquidate positions at a loss. The client is hoping that the securities taken for the distribution recover over the long term. However, note that the client must have the available cash to pay the tax bill!

For the past 5 years, an individual earning $40,000 per year, who was not covered by another retirement plan, has made annual contributions to an Individual Retirement Account. That individual has changed jobs at the same salary and has been included in that company's qualified retirement plan. Which statement is TRUE? A Annual contributions to the Individual Retirement Account must cease B Annual contributions to the Individual Retirement Account can continue and are an adjustment to income each year C Annual contributions to the Individual Retirement Account can continue but no adjustment to income is allowed D The employee has 60 days to roll over the funds from the IRA to the qualified plan in order to maintain tax deferred status

B. Any individual, whether or not he is covered by another retirement plan, can make an annual contribution to an Individual Retirement Account. However, if that person's income is high (above $76,000 for an individual in year 2021; between $66,000 - $76,000 the deduction phases out), the contribution is not tax deductible. This person makes $40,000 per year, so the IRA contribution is tax deductible.

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.

Under the provisions of ERISA (Employee Retirement Income Security Act), the use of index options is: A prohibited because of the speculative nature of these instruments B allowed only if the strategies followed are in compliance with the objectives and restrictions of the plan C allowed only if the plan trustee maintains physical possession of the underlying securities D allowed without restriction as long as the investment manager acts in a prudent manner

B. Index options can be a useful tool for portfolio managers to hedge in a declining market (by purchasing index puts) or to enhance income from the portfolio (by writing index calls). ERISA does not prohibit their use in portfolios that fund retirement plans. However, any strategies that are used must be in compliance with any restrictions set in the plan documents.

A company has decided to terminate its retirement plan. In order to defer taxation on the distribution, the employee must roll over the funds into an Individual Retirement Account within how many days of the distribution? A 30 B 60 C 90 D 120

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

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 $140,000 and couples that earn over $208,000, in 2021, cannot open Roth IRAs. They can open Traditional IRAs, however.

Which statement is FALSE about 401(k) Plans? A The plan is established by the corporate employer B The corporate employer can make matching contributions into the plan based on the contribution made by the employee C All corporate employees must participate in the plan D All contributions into the plan are made with pre-tax dollars

C. 401(k) Plans are corporate-sponsored salary reduction plans allow employees to contribute up to $19,500 in 2021 as a salary reduction, so these are pre-tax dollars going into the plan. The account grows tax-deferred and all distributions at retirement age are 100% taxable. Participation in the plan is voluntary, and employers can make matching contributions for employees that contribute.

Which of the following is a non-qualified retirement plan? A Profit sharing plan B 401(k) plan C Deferred compensation plan D Defined benefit plan

C. Qualified retirement plans cannot be discriminatory - they must include all employees that meet eligibility requirements - typically they must have at least 1 year of service and be at least age 21. Deferred compensation plans are offered only to high-earning employees, who can enter into a contract with their employer to "defer" taking some of their compensation (reducing current income and taxes due), with the agreement that the compensation will be paid with interest, at a later date (closer to retirement or at retirement). The risk to the employee is that the company goes bust in the interim, in which case nothing will be paid! These are only intended for high level employees and are non-qualified plans. In contrast, 401(k) plans are offered to all eligible employees, as are defined benefit pension plans and profit sharing plans. Profit sharing plans are a type of defined contribution plan under ERISA that bases the annual contribution amount on the profitability level of the corporate employer.

All of the following statements about 403(b) Plans are true EXCEPT: A employees make voluntary contributions through their employers B contributions are tax deductible to the employee C employees of any organization can contribute to this type of plan D earnings on contributions by employees are tax deferred

C. 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.

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.

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.

Which statement is FALSE regarding RMDs (Required Minimum Distributions) from IRA accounts? A The RMD is based on the life expectancy of the account beneficiary B RMDs must start on April 1st of the year after reaching age 72 C The RMD is taxable at capital gains tax rates D If the RMD is not taken, a penalty tax of 50% is applied

C. Distributions from IRAs are taxable at ordinary income tax rates, not at lower capital gains tax rates. The penalty applied for not taking required minimum distributions from a qualified plan starting at age 72 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)! The IRS creates tables that lay out the required minimum distribution amount each year; and these are based on life expectancy.

Distributions from qualified retirement plans that are not rolled over into an IRA or other qualified plan are subject to: A 6% withholding tax B 10% withholding tax C 20% withholding tax D 25% withholding tax

C. Distributions from qualified retirement plans, unless they are rolled over into an IRA, are taxable. To ensure that the tax will be paid, the tax code requires that 20% of the distribution amount be withheld as a credit against taxes due. No withholding tax is imposed if a trustee to trustee transfer is made - with the assets being transferred directly into another IRA or qualified retirement plan.

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."

In 2021, a customer earns $500,000 as a self-employed doctor. The maximum contribution to a Keogh plan is: A $28,000 B $50,000 C $58,000 D $100,000

C. The maximum contribution to a Keogh is effectively 20% of income (prior to taking the Keogh "deduction") or $58,000 in 2021, whichever is less. 20% of $500,000 = $100,000. However, only the $58,000 maximum can be contributed in 2021. (Note that this amount is adjusted each year for inflation.)

Under Keogh rules, any distributions from a Keogh Plan must start no later than: A April 1st of the year following the year the individual turns 59 1/2 B December 31st of the year following the year the individual turns 69 1/2 C April 1st of the year following the year the individual turns 72 D April 15th of the year following the year the individual turns 72

C. Under the Keogh rules, any distributions from a Keogh Plan must start no later than April 1st of the year following the year that the individual reaches the age of 72.

Tax Status of 401k and 403b plans

Contributions to both 401(k) and 403(b) plans are tax deductible. Earnings within the plan build tax-deferred. All distributions from the plan after age 59 1/2 are 100% taxable (since none of the monies in the plan were ever taxed).

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 $58,000 in 2021). 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.

A new customer, age 40, has been terminated by her current employer. This individual had an annual salary of $60,000 per year and has $180,000 in her 401(k) account at that employer. She has been informed that the funds cannot be maintained in the ex-employer's plan. This client is single with no children, has little investment experience, and has no other investments or retirement plans. The client asks about rolling over the funds into an IRA. As the registered representative for this client, the LEAST important consideration when discussing this with the customer is that: A any investments made in the IRA are consistent with the customer's stated investment objectives and limited investment experience B if the retirement assets were to decline in value, this individual might not have sufficient opportunity to replace the lost funds C based on increasing life expectancies, this individual may have a need for prolonged, substantial, income D the rollover of the assets in the 401(k) to an IRA will impact the customer's reported taxable income for that year

D. IRA rollovers result in no tax liability. The entire amount in a tax-qualified retirement plan can be rolled over into an IRA and maintain tax-deferred status, as long as the rollover is completed within 60 days of the distribution date from the qualified plan. Therefore, there should be no impact on the customer's reported taxable income for the year (unless the rollover does not occur within the 60 day limit). The other considerations are all important. Any investments made must be consistent with the customer's stated investment objectives and limited investment experience. The customer must understand that if the assets were to decline in value, he or she might not have the investment time horizon left to make up for lost funds, so investment choices should be on the conservative side. Finally, because life expectancies are increasing, the individual may have a need for a prolonged period of substantial income. To meet this objective, this individual might have to curtail current consumption and, instead, invest those funds.

In 2021, 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 $290,000 or more and contributes the maximum of $58,000 to a Keogh in 2021, 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 $58,000 to the Keogh, the "after Keogh earnings" are based on the "cap" income amount of $290,000. $290,000 - $58,000 = $232,000 of "after Keogh deduction" income. $58,000/$232,000 = 25%. Thus, for the nurse, $40,000 of income x 25% = $10,000 contribution.

403(b) Plans are: I non-tax qualified plans II tax qualified plans III plans available to "for profit" organizations IV plans available to "not for profit" organizations A I and III B I and IV C II and III D II and IV

D. 403(b) plans are tax deferred annuity contracts available to non-profit employees who are not covered by qualified retirement plans. 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. These plans are tax qualified; thus contributions are tax deductible and distributions are 100% taxable.

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).

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.

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.

Which statement is TRUE about transfers of Individual Retirement Accounts? A A maximum of 1 transfer is permitted each year B A maximum of 2 transfers are permitted each year C A maximum of 3 transfers are permitted each year D There is no limit on transfers

D. IRA transfers between trustees must be made directly from trustee to trustee. There is no limit on the number of transfers that can be made each year. If the transfer is effected by having the check made out to the account holder, this is considered to be an IRA rollover, which must be completed within 60 days and only 1 rollover per year is permitted.

What is Unfunded Pension Liability

Defined benefit plans may have a so-called "unfunded pension liability." Based on actuarial assumptions, this is the excess of benefits projected to be paid at retirement over projected plan assets available at retirement. Such unfunded pension plan liabilities must ultimately be funded by the corporation.

Premature Distribution exceptions

Dies; Is disabled; Uses the distribution to pay qualified education expenses of family members; Uses the distribution to pay up to $10,000 of first-time home purchase expenses; Uses up to $5,000 of the distribution within 1 year of a child's birth or adoption. Premature distributions are exempt from the 10% penalty tax, but subject to regular income tax, if the account holder:

Tax Deduction of Contribution...

If the individual is not covered by another qualified retirement plan, then the contribution amount is tax deductible. If an individual is covered by another qualified retirement plan and earns more than $75,000 in 2021, the contribution amount is not deductible (but income in the account still builds tax-deferred). Contributions are based solely on earned income; not on dividend or interest income. Earned income includes salary, royalties from published works, and personal service income.

When a spouse inherits an IRA to make sure the account stays taxed deferred they do what?

Roll over the IRA into his or her existing account or into a new IRA account - in this case the proceeds rolled over remain tax-deferred until the beneficiary takes distributions.

Permitted investments in an IRA account include:

Stocks Bonds Investment company securities Bank certificates of deposit Money market instruments U.S. minted gold coins Precious metals bullion Collectibles and artwork are not permitted investments; nor are life insurance policies permitted investments.

Characteristics of a defined Benefit Plan

The annual contribution amount into a defined benefit varies, based on actuarial assumptions. Larger contributions are made for older plan participants nearing retirement; while smaller contributions are made for younger plan participants far away from retirement. Once a participant retires, the annual benefit amount to be paid annually to that person is fixed.

Last Date to Make Contribution

The last day that a contribution can be made into an Individual Retirement Account is April 15th of the year following the tax return year. No extensions are permitted.

Defined Contribution Plan / Money Purchase Plan - Overview

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. Thus, the ultimate benefit to be received by the employee depends on the number of years he or she has been included in the plan and the annual amounts contributed. If the corporation has an unprofitable year, it must still make the contributions. Such plans are subject to ERISA requirements.