Retirement Test 2

Which of the following accurately describes a 403(b) plan?

403(b) plan assets can be invested indirectly in stocks and bonds through annuities or mutual funds.

Charles, a single 29 year old, deferred 2% of his salary, or $2,000, into a 401(k) plan sponsored by his employer during 2015. What is the maximum deductible IRA contribution Charles can make during 2015?

$0

Danielle has worked for the City of Buffalo for the last 20 years. She has deferred $18,000 into her 457(b) plan for 2015. She will attain her normal retirement age under the City's 457(b) plan in 2015. Danielle has prior unused deferral amount of $45,000 as of December 31, 2014. How much can Danielle contribute as her three-year catch-up contribution in 2015?

$18,000.

Jennifer, age 54, earns $125,000 annually from ABC Incorporated. ABC sponsors a SIMPLE, and matches all employee deferrals 100% up to a 3% contribution. Assuming Jennifer defers the maximum to her SIMPLE, what is the total contribution to the account in 2015 including both employee and employer contributions?

$19,250

Eric, age 53, had the following items of income: • Investment returns as a limited partner in a partnership of $1,200. • Unemployment compensation of $350. • Income from a law practice of $600. • Deferred compensation from a former employer of $14,000. • Alimony of $750. • Wages of $1,000. What is the maximum contribution Eric can make to an IRA in 2015?

$2,350.

Carrie, age 55, is an employee of Rocket, Inc. (Rocket). Rocket sponsors a SEP IRA and would like to contribute the maximum amount to Carrie's account for the plan year. If Carrie earns $14,000 per year from Rocket, what is the maximum contribution Rocket can make on her behalf to the SEP IRA?

$3,500.

On April 30, Janet, age 42, received a distribution from her qualified plan of $150,000. She had an adjusted basis in the plan of $500,000 and the fair market value of the account as of April 30 was $625,000. Calculate the taxable amount of the distribution and any applicable penalty.

$30,000 taxable, $3,000 tax penalty.

Robin and Robbie, both age 45, are married and file a joint return for 2015. Robbie earned a salary of $90K in 2015 and is covered by his employer's 401(k) plan. Robbie & Robin earned interest of $30K from joint savings acct. Robin is not employed and the couple has no other income. On April 15, 2016, Robbie contributed $5,500 to an IRA for himself and $5,500 to an IRA for Robin. What is the maximum allowable IRA deduction on their 2015 joint return:

$5,500

At the age of 57, James converted his traditional IRA, valued at $45,000, to a Roth IRA. At age 60, James took a distribution from this Roth IRA of $100,000 to buy a new car for his daughter for college. Which of the following statements is true with regards to the distribution from the Roth IRA?

$55,000 will be subject to ordinary income tax.

Amy, divorced and age 55, received taxable alimony of $50,000 in 2015. In addition, she received $1,800 in earnings from a part-time job. Amy is not covered by a qualified plan. What was the maximum deductible IRA contribution that Amy could have made for 2015?

$6,500 ($5,500 max IRA deduction + $1,000 50+ catch-up)

Corey, age 54 and single, has compensation this year of $85,000. His employer does not sponsor a qualified plan, so Corey would like to contribute to a Roth IRA. What is Corey's maximum contribution for this year to the Roth IRA?

$6,500.

Which of the following statements regarding 457 plans is (are) true? 1. An individual who defers $18,000 to his 403(b) plan during 2015 can also defer $18,000 to a 457 plan during 2015 (salary and plan permitting). 2. A 457 plan allows an executive of a tax-exempt entity to defer compensation into an ERISA protected trust. 3. In the final three years before normal retirement age, a participant of a government sponsored 457 plan may be able to defer $36,000 (2015) for the plan year.

1 and 3.

Which of the following statements is (are) true? 1. A SEP requires the plan sponsor to provide at least a 100% match up to 3% of all employee deferrals. 2. A SEP plan can be established by employers who employ more than 100 employees who earn $5,000 or more during the preceding calendar year. 3. SIMPLEs can be either contributory or noncontributory plans, whereas SEP plans are always noncontributory. 4. An employer who wants to share the responsibility of retirement plan funding should establish a SIMPLE rather than a SEP.

2, 3, and 4.

Which of the following statement(s) regarding 403(b) plans is true? 1. Assets within a 403(b) plan may be invested in individual securities. 2. A 403(b) plan usually provides a 3 to 7 year graduated vesting schedule. 3. A 403(b) plan must pass the ACP test if it is an ERISA plan. 4. In certain situations, a participant of a 403(b) plan can defer an additional $15,000 as a catch up to the 403(b) plan.

3 and 4.

Which of the following statements regarding determination letters for qualified plans is true?

A qualified plan which receives a favorable determination letter from the IRS may still be disqualified at a later date.

A profit sharing plan is required to offer its participants, or the participant's beneficiaries, a qualified preretirement survivor annuity (QPSA).

False

Contributions to SIMPLE plans predominantly consist of employer contributions.

False

Hank's employer sponsors a 457(f) plan. Hank, age 41, earns $400,000 per year and defers $25,000 to the 457(f) plan each year. Although there is no limit on deferrals to an ineligible plan, only $18,000 of the deferral is protected by trust. The remaining $7,000 ($25,000 - $18,000) is the only amount subject to the employer's creditors.

False

Justine earns $22,000 as an employee of CHS Systems (CHS). Before filing its current year tax return, CHS decides to establish a SEP plan for its employees and contribute the maximum amount permissible for the benefit of each employee. In this case, Justine may receive a contribution of $12,000 to her SEP account.

False

Otto, who is 41 years old, was a participant in his employer-sponsored 401(k) plan during the early part of the year, prior to being terminated. He deferred a total of $10,000 into that plan. Later in the year, Otto becomes a participant in his new employer's 403(b) plan and the employer's public 457(b) plan. Otto can defer a maximum of $18,000 (2015) to each of the 403(b) plan and the 457(b) plan this year. (Chapter 10)

False

Vicki has a vested account balance in her employer-sponsored profit sharing plan of $25,000. Upon her termination from the plan sponsor, she elected to take a full distribution from the plan. If Vicki does not rollover the entire $25,000 to an IRA (or other qualified plan) within 60 days she will only be subjected to tax on 80% of the distribution.

False

Which of the following statements regarding a SEP is true? 1. The maximum contribution to a SEP is the lesser of 100% of compensation or $53,000 for 2015. 2. A SEP is appropriate for an employer with many part-time employees who want to limit coverage under the SEP. 3. Contributions to a SEP must vest at least as rapidly as a 5 year cliff vesting schedule or 2 to 6 year graduated vesting schedule. 4. If a partnership makes a flat percentage contribution equal to 25% of all employees' salary for the year to a SEP, a partner earning $100,000 during the year would receive a $25,000 contribution.

None of the statements are true.

Thomas, age 55 and the owner of a computer repair shop, has come to you to establish a qualified plan. The repair shop, which employs mostly young employees, has had steady cash flows over the past few years, but Thomas foresees shaky cash flows in the future as new computer prices decline. Thomas would like to allocate as much of the plan contributions to himself as possible. He is the only employee whose compensation is in excess of $100,000. Which of the following qualified plans would you advise Thomas to establish?

Profit sharing plan.

All of the following are acceptable reasons for an employer to terminate a qualified retirement plan except:

The employer no longer wants to maintain the plan because it must cover other employees other than just himself.

An individual is considered an active participant in a defined contribution plan if the individual receives a qualified nonelective contribution from the plan sponsor so that the plan sponsor can meet the required ADP test. The individual need not make or receive any other allocations to the qualified plan for the year.

True

Mandy, a single 29 year old, has an AGI of $50,000. She is eligible to defer to her 401(k) plan, but she has not deferred any compensation to the 401(k) plan for the current year. However, she did receive a qualified matching contribution of $200. Her maximum deductible contribution to an IRA for this year (2015) is $5,500.

True

Robbie had been an active participant in a qualified plan for four years. His AGI exceeded the thresholds to make deductible IRA contributions for those years, but Robbie continued to make nondeductible IRA contributions totaling $9,000 (these were the only nondeductible contributions to the IRA - all other contributions were pre-tax). If Robbie were to take a distribution of $10,000 from his IRA, valued at $100,000, $900 would not be subjected to ordinary income tax.

True

Rock, age 28, terminated employment with Stone Brothers on April 30 this year (2015). Before terminating employment Rock had earned $25,000 of compensation and deferred $6,000 to the SIMPLE sponsored by Stone Brothers. If during the remaining months of 2015 Rock earns $40,000 from his new employer who sponsors a 401(k) plan, Rock may defer up to $18,000 of the $40,000 of compensation to their 401(k) plan.

false

What is the maximum employee elective deferral contribution (salary reduction) for an employee who is 45 years old under a 403(b) plan in 2015?

$18,000

Jason turned 70½ in November of this year. He was a participant in his employer's profit sharing plan. His profit sharing plan had an account balance of $250,000 on December 31 of last year, and $200,000 on December 31 of the prior year. According to the Uniform Lifetime Table, the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6 respectively. What is Jason's required minimum distribution for this year?

$9,124.