Unit 18
An individual works for an accounting firm that does offer a retirement plan. She is paid $18,000 per year. During her spare time, she is a commercial artist and earned $16,000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)?
16, 000 Contributions to a Keogh must be based solely on self-employment income; the salary at the accounting firm is not considered self employment.
Which of the following qualified retirement plans offer tax advantages to both the employer and the employee?
401(k) plansDefined benefit plans In both 401(k) plans and defined benefit plans, tax advantages accrue to both the employer and the employees. Employer contributions are deductible, and earnings growth is tax deferred to the employee. IRAs offer no benefit to the employer (note that the answer choice did not say "SEP IRA"), and deferred compensation plans are nonqualified.
Keogh plan
A federally-approved, tax-deferred savings program for self-employed people, allowing them to set money aside for their retirement.
Money in an UTMA may be used to pay for certain expenses relating to the minor. Which of the following would be permitted usage of funds in an UTMA?
A vacation trip to Orlando Money in an UTMA may be used to pay for certain expenses relating to the minor. Which of the following would be permitted usage of funds in an UTMA?
Which of the following statements regarding Coverdell Education Savings Accounts are true?
After-tax contributions of up to an indexed maximum per student per year are allowed., Unless a special needs beneficiary, contributions may not be made for students past their 18th birthday. Coverdell Education Savings Accounts allow after-tax contributions of up to $2,000 per student, per year, for children until their 18th birthday. If the accumulated value in the account is not used by age 30, the funds must be distributed and subject to income tax and a 10% penalty, or rolled over into a different Coverdell ESA for another family member. When the beneficiary is a special needs beneficiary (an individual who because of a physical, mental, or emotional condition requires additional time to complete their education), there are no age restrictions. Furthermore, unless something in the question refers to this beneficiary, always use the age 18 and 30 restrictions.
Which of the following concerning a money purchase pension plan are true?
Employer contributions are required. Voluntary employee contributions are optional.
Which of the following statements regarding a qualified profit-sharing plan is true?
It must be established under a trust agreement. All qualified retirement plans must be established under a trust agreement. Contributions with this type of plan are not required annually, nor can the plan make direct cash payouts to participants before retirement.
What is the proper course of action for the fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock of one company that has recently experienced a 40% market gain?
Maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust In almost every trust question, the correct answer will be that the trustee (fiduciary) has to follow the terms of the trust and meet the trust's goals and objectives.
Which of the following statements regarding ERISA and qualified plans is correct?
Qualified plans must meet the requirements of ERISA. ERISA regulations are primarily focused on the non-tax aspects of qualified plans, such as non-discrimination rules and fiduciary obligations. ERISA requires that the fiduciary exercise the care, skill, and diligence of a prudent person acting solely in the interest of plan participants and beneficiaries. The fiduciary is not required to specifically invest for maximum gain. All corporate qualified plans are covered under ERISA.
What new benefit did the TCJA of 2017 bring to 529 plans effective 2018?
Qualified withdrawals of up to $10,000 per year to pay for K-12 tuition
If an individual leaves her current employer and takes a new job, which of the following cannot be done with the assets in her 401(k) plan?
Roll them over into a variable life insurance policy. Qualified distributions from a 401(k) plan cannot be rolled over into a a life insurance policy, variable or not.
Under the UTMA, which of the following statements is not true?
The maximum amount of money an adult can give to a minor in any one year is $17,000 Any adult can give a gift to a minor in a custodial account. There is no limitation on the size of the gift. However, any gift in excess of $17,000 (or such higher number as indexing provides for) will possibly subject the donor to a gift tax liability.
One of your clients has just completed a divorce. The client is a participant in a 401(k) and has a traditional IRA. The divorce settlement includes a QDRO providing for half of the client's account to go to the ex-spouse. The ex-spouse also receives half of the client's IRA. With regard to the ex-spouse, which of the following statements is correct?
Withdrawals from the IRA prior to age 59½ may be subject to the 10% penalty. QDROs apply only to qualified plans and, therefore, if the ex-spouse withdraws funds from the 401(k) prior to age 59½, it will generally qualify for the exemption from the 10% penalty. In the case of withdrawals from the IRA, unless due to one of the allowable exceptions (death, disability) the 10% tax penalty applies. When there is a divorce and an IRA is split, the ex-spouse now has an IRA in his or her name with no mention of the previous owner. There is technically no distribution so there is nothing to rollover.
Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in
a 403(b) and a 457 plan. Employees of public schools can legally maintain both a 403(b) plan and a 457 plan. In 2023, if both plan limits are contributed, that can be $45,000 ($60,000 if Mary is 50 or older and uses the $7,500 catch-up provision available with both plans). Remember, the exact numbers are never tested on the exam; we are using them to show your the concept. A 401(k) plan is not generally available for public sector employees.
All of the following are true about education funding plans except
a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty The tax and 10% penalty is only levied against earnings since the contributions were made with after-tax dollars. ESAs may be used for any level of education, including elementary school where it is hoped that the student would be under age 18. In order to receive the favored tax treatment, the proceeds must be used to pay for qualified educational expenses. Section 529 plans have the unique 5-year front-loading feature.
A nonqualified, single premium variable annuity differs from a Keogh plan in that
all payouts are fully taxable in a Keogh plan
Qualified Plan
an employee sponsored plan such as 401 k and 403b mde with re tax dollars
Because of the changes made in the SECURE Act 2.0, minimum distributions from a traditional IRA must begin
by April 1, the year after the owner turns 73.
Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited a traditional IRA, among other assets. As a result, Mrs. Beech would most likely
cash out the IRA following the 10-year rule. When an IRA is inherited from someone other than a spouse, there are basically two options. The most common is to take the funds over a 10-year period. There is no 10% tax penalty regardless of the age of the beneficiary, and the taxes are spread out over the withdrawal period. The other choice is to take the entire amount as a lump sum. Although that also avoids the 10% penalty, income taxes are due on the entire amount. It is only in the case of a spousal beneficiary where the options are to continue the IRA or roll it over.
Under ERISA, a fiduciary must act in all of the following ways except
confining investments to only those most likely to achieve growth
None Qualified plan
deferred contribution for later when owner is in lower tax bracket. offered to executives
Ways in which a Section 529 plan differs from a Coverdell ESA include
higher contribution limits no earnings limitations
A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be
methods of performance measurement, determination for meeting future cash flow needs
defined benifit plan
speicifies the benifits you'll recieve at retirement age, based on your total earnings and years on the job.
The main disadvantage of a contributory defined contribution pension plan is that
the actual sum an employee will receive at retirement is unknown. The liability of the employer in the defined contribution pension plan is an agreed contribution to the plan. The actual performance of the plan's investments will determine the final amount to be paid to the individual at retirement. In a contributory plan, the employee is also eligible to make contributions.
To comply with Section 404(c) of ERISA,
the plan must offer at least 3 different investment choices, such as a stable value option, an income option, and a conservative growth option
