RPF1: Chapter 3
If an individual or the individual's spouse participates in an employer-sponsored retirement plan, there are limits on the amount that can be contributed to the traditional IRA and deducted? True or False?
True
Inherited IRA comes about when a beneficiary moves assets from a deceased IRA or 401(K) owner to their account. True or false?
True
SEPs may be set up as late as the due date of the business income tax return. True or False?
True
Some defined contribution plans are set up by individuals but most are set up by the employer. True or false?
True
The simplified construct of the SEP results in avoidance of some of the more stringent requirements of qualified plans. True or False?
True
The sponsor's 401(k) plan will define the types of contributions that will be accepted. True or False?
True
Under SIMPLE IRAs, any employee that received $5,000 in compensation during any two preceding years and is expected to earn at least %5,000 during the current year must be eligible to enter the plan. True or False?
True
What's the individual contribution limit for a traditional IRA?
$5,500
What's the catch-up limit for a traditional 401(k)?
$6,000 (2015)
How old must you be to make catch-up contributions to a 401(k)?
50 or older
What form is used to report SEP contributions?
Form 5498
What's the benefit of a SEP from an employer's perspective?
Lower cost to maintain and administer than a typical employer-sponsored retirement plan. Also, they are very easy to setup.
Are SEPs subject to permanency requirements to which qualified plans are subject?
No
Designated Roth contributions can be made to 401(k), 403(b) and 457 plans. True or False?
True
What's the catch-up limit for a SEP IRA?
$1,000
What's the catch-up limit for a traditional IRA?
$1,000
What's the individual contribution limit for a SIMPLE IRA?
$12,000
What's the elective contribution limit for a traditional 401(k)?
$18,000 (2015)
What's the catch-up limit for a SIMPLE IRA?
$2,500
How much $ can an individual contribute to an IRA yearly as of 2015?
$5,500
What's the individual contribution limit for a SEP IRA?
$5,500
What types of elective contributions can be made to a 401(k) plan?
1. pre-tax elective contributions 2. pre-tax catch-up contributions 3. Designated Roth contributions 4. Roth catch-up contributions
The earnings of a Roth IRA are not taxed so long as:
1. they are not distributed earlier than 5 years from the 1 January that the first contribution was made 2. The distribution is made because the individual turned 591/2, died or became disabled.
SIMPLE 401(k)s and IRAs are only allowed for businesses that have how many employees?
100 or fewer
Is a business adopts an SEP-IRA plan, SEP-IRAs are required for all employees over the age of ____ that have received at least $550 and have performed services for the employer during at least ___ of the previous 5 years.
21 3
What is the max. amount an employer can deduct on its tax return of the total eligible compensation of all participants?
25%
What's the employer-contribution limit for SIMPLE IRAs?
3% of a contributing participant's income or non-elective contribution of 2% to all employees
With a SIMPLE IRA plan, employers must either match contribution of 100% for each employee up to ___% of compensation OR contribute a ____% non-elective contribution to all employees regardless of whether they contribute.
3,2
The elective deferral limit is often referred to as the "____" dollar limit.
402(g)
What section of the IRC governs 401(K) contribution limits? What does this limit apply towards?
402(g) The limit applies toward all 401(k) plan in which the employee makes a pre-tax elective contribution.
An individual over ___ years of age can contribute a catch-up addition of $______ per year.
50 $1,000
Contributions to a personal IRA can be made by anyone who is under ____ years of age.
70 1/2
Simplified Employee Pension Plan (SEP)
A type of employer provided retirement plan in which contributions are made to an IRA established for the participant.
What are SIMPLE IRAs designed to do?
Address the needs of small businesses, simplify qualified plan administration for their sponsors. Minimal record keeping.
Like ROTH IRAs, designated Roth contributions are tax-free when distribution is made when?
After the participants turn 59&1/2, died or becomes disabled and at least five years after the first contribution is made.
A 401(k) plan is a qualified CODA. What does CODA stand for?
Cash or Deferred Salary Arrangement
What does COLA stand for?
Cost of Living Adjustment
Educational IRAs are also known as _____ ______ savings account.
Coverdell Edu.
What are nondiscrimination rules intended to do?
Determine if a sponsor is providing disproportionally greater benefits to the highly compensated employees.
With a SIMPLE 401(k), withdrawals are subject to different rules than with a traditional 401(k). True or False?
False. They are the same.
The simplest retirement plan is the _____.
IRA
What IRC code governs catch-up limits?
IRC 414(v)
What IRC section covers 401(k) plans
IRC sec. 401(k)
A Spousal IRA is applicable in what circumstances?
It is set up for a non-working spouse. As long as one spouse is under 70 1/2, he or she can contribute to the IRA. It has the same contribution limits as a normal IRA.
An employee may also have the option to contribute voluntary after-tax employee contributions. For some plans, they are mandatory. After-tax employee contributions are different from designated Roth contributions, how so?
Like a Roth contribution, they are not deductible. Unlike the Roth contribution, they are NOT subject to the elective deferral limit. Unlike the Roth contribution, there earnings (earnings only) will be taxed upon distribution.
Are SEPs usually subject to annual return/report filings with the government and other reporting an disclosure statues?
No
Are after-tax employee contributions considered "elective contributions"?
No
Can a SIMPLE IRA be maintained outside an employer-sponsored arrangement?
No
Do SEP or SIMPLE IRAs undergo nondiscrimination testing?
No
Do SIMPLE IRAs receive Top-Heavy testing?
No
Does a pre-tax elective contribution reduce compensation for SS taxes?
No
Are employer contributions mandatory with SEP-IRAs? Must they be fully vested if they are contributed?
No Yes (vested)
Are after-tax contribution allowed in a SIMPLE IRA?
No, only pre-tax
If an employee has two 401(k)s (from two separate jobs), can he or she contribute the full amount to each?
No, the limit would apply to the person's combined pre-tax elective contributions into both employers' plans for that calendar year.
If a 401(k) plan offers designated Roth contributions, can the employee only choose to make Roth or pre-tax contributions?
No, they can make any combination of both.
Since the CODA (also known as the 401(k)) is actually a feature of a profit sharing plan, the employer may also elect (beyond matching contributions) to make discretionary contributions under the profit sharing provision of the plan, what are these contributions referred to as?
Non-elective contributions
Roth IRAs allow an individual to make ______ contributions. What's the advantage?
Nondeductible Earnings received on the investments are not taxed.
A SIMPLE 401(k) is a type of 401(k) that only authorizes ___-tax contributions and does not require _____ or Top-Heavy testing.
Pre-Tax Nondiscrimination
An educational IRA is established to provide funds for?
Qualified edu expenses
Name some IRA accounts established by an employer for its employees.
SEP-IRA SIMPLE-IRA
The compensation cap that limits 401(k) plans does not apply to _______ IRA match calculations.
SIMPLE
What are the two types of SIMPLE plans?
SIMPLE IRA & SIMPLE 401(K)
A 401(k) plan allows employees to defer part of their compensation on a pre-tax basis. These elective contributions are also known as _____ deferrals or _____ deferrals.
Salary, elective
There are several different types of IRAs, name some of those established by the individual.
Traditional IRA Spousal IRA Roth IRA Rollover IRA Educational IRA Inherited IRA
A 401(k) plan MAY ACCEPT designated ROTH Contributions (after-tax). True or False?
True
A rollover IRA is a traditional IRA that has received a rollover from an employer sponsored retirement plan, true or false?
True
All employee contributions except for those made through after-tax employee contributions (not to include Roth contributions) are treated as EMPLOYER contributions to the 401(K) after their deposit for many purposes. After-tax employee contributions are always treated as employee contributions. True or False?
True
Because the retirement savings vehicle under SEPs is a participant's individual IRA (SEP-IRA), the participant owns and exercises control over the IRA. True or False?
True
Distribution and withdrawal rules for SEPs follow IRA rules rather than qualified plan rules. True or False?
True
Are ROTH IRA limits the same as Traditional IRAs?
Yes
Are SEP and SIMPLE IRA Employer contributions fully vested upon contribution?
Yes
Are SIMPLE 401(k) sponsors required to file a Form 5500?
Yes
Are SIMPLE plans exempt from nondiscrimination testing (provided the employer makes required contributions)
Yes
Are designated Roth contributions subject to the same max. elective deferral limit as pre-tax elective contributions?
Yes
Are employer nonelective contributions subject to nondiscrimination testing rules under the IRC?
Yes
Can an employer choose to match after-tax employee contributions?
Yes
Can certain "classes" of employees be excluded from participation in a SIMPLE 401(K) (provided that the min. coverage rules are satisfied)?
Yes
Do SEP IRAs receive Top-Heavy testing?
Yes
With a SIMPLE 401(k) plan, are loans to participants from their accounts allowed?
Yes
With a SIMPLE 401(k), are all employer contributions 100% vested?
Yes
With a SIMPLE IRA, are all employer contribution fully vested?
Yes
Is employer-contribution required? If so, how much?
Yes 100% match on first 3% OR 2% nonelective contribution to all employees.
Can an individual have both a Roth IRA and a traditional IRA? Can they contribute the original amount to each?
Yes No, there is a specific formula that determines their limit based on their MAGI (modified adjusted gross income).
Is there a employer-contribution limit for SEP IRAs? If so, what? (If an employer choses to contribute)
Yes Lesser of 25% of participant's compensation or $53,000
Often an employer sects a profit sharing plan for its employees because it can determine each year how much to contribute to the plan based on its ______ ______.
financial conditions.
Although SEPs are easy to adopt, they are less ______ than other employer-sponsored retirement plans.
flexible
A 401(k) plan sponsor can make either ______ contributions or ________ contributions.
matching non-elective
For a SIMPLE IRA, is the plan required to file a Form 5500?
no
A 401(k) plan is a type of _____ sharing plan.
profit
For SIMPLE IRAs, are loans to plan participants from their accounts allowed?
No
If a sponsor offer a SIMPLE 401(K) can they offer other plans?
No
If an employer sponsors a SIMPLE IRA plan, can they sponsor other plans?
No
Is there a fixed annual contribution commitment for an employer operating a profit sharing plan?
No
What does the "SIMPLE" in SIMPLE 401K stand for?
Savings Incentive Match Plans for Employees
An IRA is a personal savings account established by an individual for the purpose of accumulating tax-favored ______ income.
retirement.
SIMPLE 401(K)s (like SIMPLE IRAs) are designed to address the needs of _____ businesses.
small
Is there an employee limit for SIMPLE IRAs? If so, what is it?
Yes, 100 or fewer employees
With a profit sharing plan, may an employer exercise discretion over the amount contributed to the plan each year?
Yes, but it must contain a specific formula for allocating contribution made to participants.
Are catch-up contributions allowed? If so, for who?
Yes, for those age 50 and over
Through a ______ sharing plan the employer may make contributions to the plan to reward the employees for their efforts.
profit