Chapter 10 Retirement Plans

When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?

None-There is no tax withheld on an IRA transfer that directly involves two IRAs.

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

Income Tax and penalty tax

What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan?

100-An employer can have a maximum of 100 employees earning at least $5,000 to be eligible for a SIMPLE retirement plan.An employer can have a maximum of 100 employees earning at least $5,000 to be eligible for a SIMPLE retirement plan.

In a qualified retirement plan, the yearly contributions to an employee's account

are restricted to maximum limits set by the IRS-

ERISA requires that a Summary Plan Description must be provided to a new plan member within how many days following the new member's eligibility date?

90-New employees must receive a copy of their plan sponsor's latest Summary Plan Description within 90 days after becoming covered by the plan.

Contributions made by an employee to a qualified retirement plan are required to be

subject to a vesting schedule

An individual working part-time has a gross income of $5,000 for the year. If this individual has an IRA, what is the maximum deductible IRA contribution allowable?

5,000- In this situation, the maximum allowable IRA contribution is $5,000.

The time limit an individual has to "rollover" funds from an IRA or qualified plan is

60 days- In IRAs and qualified plans, the time limit for rollover funds is 60 days, or the funds could be subjected to income taxes and a penalty tax.

A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 for income tax withholding. Which federal taxes apply if none of the funds were rolled over?

Income taxes plus a 10% penalty tax on $30,000-All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.

According to the IRS, a company may NOT do which of the following in regards to funds in a qualified retirement plan?

Repossess the funds for business purposes They can : Transfer the funds to a new custodian, Invest the funds in mutual funds, Transfer vested funds to terminated employees

Which of these is a true statement regarding survivor benefits under a qualified retirement plan?

Survivor benefits can only be waived with the written consent of a married employee's spouse

Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The transfer of Rick's IRA account balance to his surviving spouse qualifies for

The Marital Deduction- The transfer of a decedent's IRA account balance to a surviving spouse qualifies for the Unlimited Marital Deduction, which generally exempts the transfer from estate taxes.

Premature IRA distributions are subject to a penalty tax of

10%

First-time homebuyers are able to withdraw up to how much from their qualified IRAs without incurring the 10% early withdrawal penalty?

10,000- First-time homebuyers are able to withdraw up to $10,000 from their qualified IRAs without incurring the 10% early withdrawal penalty.

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid

mandatory income tax withholding on the amount transferred-There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made.