16 - Retirement Plans
A distribution received from an employer sponsored retirement plan or from an IRA is eligible for a tax-free rollover if it is reinvested in an IRA within how many days after the distribution? A) 45. B) 60. C) 20. D) 30.
B) 60. A distribution received from an employer-sponsored retirement plan or from an IRA is eligible for a tax-free rollover if reinvested in an IRA within 60 days.
If a company has a Simplified Employee Pension plan (SEP), what type of plan is it? A) The same as a 401(k) plan. B) An undefined contribution plan for a large business. C) The same as a 403(b) plan. D) A defined contribution plan for a small business.
D) A defined contribution plan for a small business. A SEP is an employer-sponsored IRA for small businesses.
Which of the following is NOT a Defined Contribution plan? A) Money purchase plan. B) Profit-sharing plan. C) Deferred arrangement plan. D) Stock bonus plan.
C) Deferred arrangement plan. A deferred arrangement plan is not one of the three types of defined contribution plans (Profit-Sharing, Stock Bonus and Money Purchase).
What type of retirement plan meets federal requirements and receives favorable tax treatment? A) Noncontributory. B) Deferred compensation. C) Qualified. D) Nonqualified.
C) Qualified. Qualified plans meet federal requirements and receives favorable tax treatment.
Which of the following statements regarding Roth IRA's is correct? A) Qualified earnings are taxable when withdrawn. B) There is no income tax deduction for contributions. C) There is no penalty for withdrawals prior to age 59 1/2 for plans held 5 years or longer. D) There are mandatory distribution provisions after age 70 1/2.
B) There is no income tax deduction for contributions No deduction can be taken for contributions made to a Roth, but earnings on contributions are entirely tax-free when they are withdrawn.
To avoid penalties, distributions under a traditional IRA must begin no later than April 1 in the year following attainment of age? A) 59 1/2. B) 65. C) 62. D) 70 1/2.
D) 70 1/2. Traditional IRA owners must begin to receive payment from their accounts no later than April 1 following the year in which they reach age 70 1/2.
The special class of retirement plan available to employees of certain charitable, educational, or religious organizations is referred to as. A) a tax-sheltered annuity. B) a charitable IRA. C) the Keogh Act. D) a 401(k) plan.
A) a tax-sheltered annuity. A tax-sheltered annuity is a special class of retirement plan available to employees of certain charitable, educational, or religious organizations.
Salary Reduction SEP plans (SARSEP's) are reserved for small employers with up to how many employees? A) 75. B) 50. C) 25. D) 100.
C) 25. SARSEP's incorporate a deferral/salary reduction approach. The employee can elect employer contributions directed into the SEP or paid out as taxable cash compensation.
A tax penalty is imposed if a healthy person makes a withdrawl from his traditional IRA fund before age? A) 70 1/2. B) 65. C) 59 1/2. D) 62.
C) 59 1/2. With few exceptions, any distribution from a traditional IRA before age 59 1/2 will have adverse tax consequences. In addition to income tax, the taxable amount of the withdrawal will be subject to a 10% penalty.
Which of the following would be eligible for a 403(b) plan? A) Electrical worker. B) Teacher. C) Government worker. D) Landscaper.
B) Teacher. 403(b) plans are tax sheltered annuities primarily for teachers, college professors, and ministers.
All of the following statements regarding Roth IRAs are true EXCEPT? A) They limit contributions each year. B) They mandate distributions no later than age 70 1/2. C) They provide for tax-free accumulation of funds. D) They are not available to those in the upper income tax brackets.
B) They mandate distributions no later than age 70 1/2. Unlike traditional IRA's, Roth IRA's impose no age limits.
Which law protects the rights of workers covered under an employer-sponsored pension plan? A) Employee Retirement Income Security Act (ERISA). B) McCarren-Ferguson Act. C) Pension Protection Act of 2006. D) IRC Section 457.
A) Employee Retirement Income Security Act (ERISA). Before the passage of ERISA in 1974, workers had few guarantees to assure them that they would receive the pension benefit they thought they had earned.
Which of the following options is a tax advantage to corporate pension plans? A) Retaining key employees. B) Qualified contributions. C) Good public relations. D) Increased productivity.
B) Qualified contributions. Qualified plans meet certain requirements established by the federal government and, consequently, receive favorable tax treatment.
The Pension Protection Act of 2006 is designed to? A) discourage employees from maintaining separate savings accounts. B) encourage employees to increase contributions to their employer-sponsored retirement plans. C) encourage employers to increase contributions to their employees' pension plan. D) discourage employers from offering health insurance.
B) encourage employees to increase contributions to their employer-sponsored retirement plans. The act encourages workers to increase their contributions to employer-sponsored retirement plans and helps them manage their investments.
All of these are basic requirements for a defined benefit plan EXCEPT? A) Maximum annual benefit an employee may receive in any one year is limited to an amount set by the tax law. B) Must provide for payment of benefits to employees over a period of years (usually for life) after retirement. C) Must provide death and disability benefits. D) Must provide for definitely determinable benefits.
C) Must provide death and disability benefits. This is inaccurate. A defined benefit plan must provide primarily retirement benefits. However, the IRS will allow provisions for death or disability benefits, but does not require them.
All of these are characteristics of a qualified retirement plan EXCEPT? A) Earnings from a qualified plan are deferred or sometimes exempt from income taxation. B) Contributions to an individual qualified plan are deductible from income under certain conditions. C) Employer contributions are considered a deductible business expense. D) Employer contributions to a qualified plan are normally taxable to the employee in the years they are contributed.
D) Employer contributions to a qualified plan are normally taxable to the employee in the years they are contributed. Employer contributions to a qualified plan are NOT currently taxable to the employee in the years they are contributed. However, they are taxable when they are paid out as a benefit. This typically occurs during retirement when at a lower tax bracket.
Which of the following would be eligible for an IRC Section 457 Plan? A) Teacher. B) Self-employed contractor. C) Manager of a restaurant. D) Mayor of a small town.
D) Mayor of a small town. Deferred compensation plans for employees of state and local governments and nonprofit organizations became popular in the 1970s. Congress enacted Internal Revenue Code Section 457 to allow participants in such plans to defer compensation without current taxation as long as certain conditions are met.
Which of the following scenarios pertaining to IRAs is NOT correct? A) Walter is age 60. He may take a distribution from his IRA without having to worry about an early withdrawal penalty. B) June has accumulated $30,000 in her IRA. At age 53 she withdraws $2,500 to take a vacation. She will have to include the $2,500 in her taxable income for the year and pay a $250 penalty. C) Bradley, age 72, is covered by an employer sponsored retirement plan. He cannot establish a traditional IRA. D) Peter inherits $15,000 in IRA benefits from his father, who died in 2008. Peter can set up a tax-favored rollover IRA with the money and defer current income tax on the benefits received.
D) Peter inherits $15,000 in IRA benefits from his father, who died in 2008. Peter can set up a tax-favored rollover IRA with the money and defer current income tax on the benefits received. Only the person who established an IRA is eligible to benefit from the rollover treatment. A surviving spouse who inherits IRA benefits is the only exception.
Tax advantages of 401(k) plans include? A) required employer matching funds. B) deferral of federal income tax on contributions. C) deferral of federal income tax on distributions. D) avoidance of federal estate taxes.
B) deferral of federal income tax on contributions. The 401(k) tax advantage is a deferral of federal income tax on contributions.
All of the following types of plans are reserved for small employers EXCEPT? A) 401(k)s. B) SIMPLE IRAs. C) SARSEPs. D) SIMPLE 401(k)s.
A) 401(k)s. 401(k)s are retirement plans designed for an employee to utilize, not the employer. Small business owners have other plans they can take advantage of, such as Keogh plans, SEP plans, and IRA's.
All of the following should be eligible to establish a Keogh (HR-10) retirement plan EXCEPT? A) A major stockholder-employee in a corporation. B) Partners in a furniture store. C) A sole proprietor of a jewelry store. D) A dentist in private practice.
A) A major stockholder-employee in a corporation. A Keogh plan is a retirement plan designed for the self-employed and smaller, unincorporated businesses only.
All of the following statements about SIMPLE plans are correct EXCEPT? A) An employer must make dollar for dollar contributions up to 10% of the employee's compensation. B) They can be structured as an IRA or as a 401(k) cash or deferred arrangement. C) Only employers with no more than 100 employees can establish SIMPLE plans. D) An employer may establish a SIMPLE plan if another qualified plan is not already in place.
A) An employer must make dollar for dollar contributions up to 10% of the employee's compensation. This is not accurate. In SIMPLE plans, the employer matches dollar for dollar contributions made by the employee up to an amount of 3% of the employee's annual compensation.
Which law sets forth standards for funding, participating, vesting, disclosure, and tax treatment of retirement plans? A) The Employee Retirement Income Security Act of 1974. B) The Pension Protection Act of 2006. C) The State Insurance Code (Title 37). D) State Taxation and Finance Statutes (Title XIV).
A) The Employee Retirement Income Security Act of 1974. ERISA sets forth standards for funding, participating, vesting, disclosure, and tax treatment of retirement plans.
Which law made sweeping reform of pension laws by improving the system and increasing opportunities to fund retirement plans? A) McCarren-Ferguson Act. B) Pension Protection Act of 2006. C) IRC Section 457. D) Employee Retirement Income Security Act (ERISA).
B) Pension Protection Act of 2006. The Pension Protection Act provided the most sweeping reform of America's pension law in over 30 years. It encourages workers to increase their contributions to employer-sponsored retirement plans and helps them manage their investments.
SIMPLE plans are available for businesses that employ no more than how many employees? A) 50. B) 25. C) 100. D) 75.
C) 100. SIMPLE plans allow eligible employers to set up tax-favored retirement savings plans for their employees without needing to address many of the usual and burdensome qualification requirements.
Which type of employer retirement plan involves a tax-sheltered annuity? A) 1040 plan. B) HR-10 plan. C) 403(b) plan. D) 401(k) plan.
C) 403(b) plan. A 403(b) plan is a tax-sheltered annuity which qualifies as a special tax -favored retirement plan made available to certain groups of employees.
To comply with ERISA minimum participation standards, qualified retirement plans must allow the enrollment of all employees? A) over age 25, with no limitation on service. B) over age 21 with one year service. C) over age 21 with five years of service. D) over age 25, with five years service.
B) over age 21 with one year service. Over age 21 with one year of service is needed to comply with ERISA minimum participation standards.
Which type of employer retirement plan involves a tax-sheltered annuity? A) 1040 plan. B) 401(k) plan. C) HR-10 plan. D) 403(b) plan.
D) 403(b) plan. A 403(b) plan is a tax-sheltered annuity which qualifies as a special tax -favored retirement plan made available to certain groups of employees.
All of the following employed persons who have no employer-sponsored retirement plan would be eligible to set up and contribute to a traditional IRA EXCEPT? A) Jack, age 60, plumber. B) Miriam, age 26, secretary. C) Brent, age 40, medical technician. D) Edna, age 72, nurse.
D) Edna, age 72, nurse. Anyone under the age of 70 1/2 may open a traditional IRA and contribute up to the contribution limit.