Chapter Exam - Retirement Plans

Premature IRA distributions are assessed a penalty tax of:

10% (Premature distributions from an IRA are subject to a 105 penalty tax)

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted?

If Tom's employment is terminated, 20% of the funds would be forfeited ( in this situation, 80% "vested" means that 20% of the funds could be forfeited if tom's employment is terminated.)

Which plan is intended to be used by a sole proprietor and the employees of that business?

Keogh Plan (may be used by a sole proprietor only if the employees of the business are included.)

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

none (There is no tax withheld on an IRA transfer)

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?

20% is withheld for income taxes (a plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)

An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age?

59 1/2 (Traditional Individual Retirement Account (IRA) withdrawals are normally subject to a tax penalty if they are made before the owner reaches age 59 1/2)

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.)

How long does an individual have to "rollover" funds from an IRA or qualified plan?

60 Days (In IRA's and qualified plans, the time limit for rollover funds in 60 days, or the funds could be subjected to income taxes and penalty tax.)

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

Ordinary income tax and 10% tax penalty for early withdrawal (income tax and a penalty tax general assessed when a participant receives retirement saving from an IRA before reaching age 59 1/2)

A qualified Profit-sharing plan is designed to:

allow employees to participate in the profits of the company (One of the purposes of a qualified profit-sharing plan is to distribute a portion of company earnings to employees.)