QUALIFIED PLANS 0820

All of the following statements are true regarding tax-qualified annuities EXCEPT A Annuity earnings are tax deferred. B They must be approved by the IRS. C Withdrawals are taxed. D Employer contributions are not tax deductible.

D Employer contributions are not tax deductible. Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred.

Which type of retirement account allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½? A Roth IRA B Flexible IRA C Standard IRA D Traditional IRA

A Roth IRA A Roth IRA allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½.

Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? A 10 B 3 C 5 D 7

B 3 Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn.

All of the following are general requirements of a qualified plan EXCEPT A The plan must be permanent, written and legally binding. B The plan must provide an offset for social security benefits. C The plan must be communicated to all employees. D The plan must be for the exclusive benefits of the employees and their beneficiaries.

B The plan must provide an offset for social security benefits. Plans must meet the general requirements established by IRS.

For a retirement plan to be qualified, it must be designed for the benefit of A Employer. B IRS. C Employees. D Key employee.

C Employees. Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.

If a company has a Simplified Employee Pension plan, what type of plan is it? A An undefined contribution plan for large businesses B A qualified plan for a small business C The same as a 401(k) plan D The same as an IRA, with the same contribution limits

B A qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? A Employer contributions are not included in the employee's gross income. B SEPs are suitable for large companies. C SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income. D SEPs have a higher tax deductible contribution limit than an IRA.

B SEPs are suitable for large companies. An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

How are contributions to a tax-sheltered annuity treated with regards to taxation? A They are taxed as income for the employee, but are tax free upon withdrawal. B They are not included as income for the employee, but are taxable upon distribution. C They are never taxed. D They are taxed as income for the employee.

B They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

An IRA purchased by a small employer to cover employees is known as a A Defined contribution plan. B 403(b) plan. C Simplified Employee Pension plan. D 401(k) plan.

C Simplified Employee Pension plan. A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? A Taxes must be paid in full. B Employer's matching contribution can be 50% of employee's salary. C 75% of employee's contributions are taxed. D They are tax deferred until withdrawn.

D They are tax deferred until withdrawn. Taxation is deferred on both contributions and earnings until funds are withdrawn.

Which of the following is NOT true regarding a nonqualified retirement plan? A Contributions are not currently tax deductible. B It can discriminate in benefits and selecting participants. C Earnings grow tax deferred. D It needs IRS approval.

D It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

Under the 401(k) bonus or thrift plan, the employer will contribute A 30% of what the employee contributes. B 75% of what the employee contributes. C An undetermined percentage for each dollar contributed by the employee. D All of the money to the plan.

C An undetermined percentage for each dollar contributed by the employee. Under the bonus or thrift plan, the employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute.

Which of the following is TRUE of a qualified plan? A It has a tax benefit for both employer and employee. B It does not need to have a vesting schedule. C It may discriminate in favor of highly paid employees. D It may allow unlimited contributions.

A It has a tax benefit for both employer and employee. A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

Which of the following applicants would NOT qualify for a Keogh Plan? A Someone who works for a self-employed individual B Someone who works 400 hours per year C Someone who has been employed for more than 12 months D Someone who is over 25 years of age

B Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.

All of the following would be eligible to establish a Keogh retirement plan EXCEPT A A sole proprietor of film development store with no employees. B A hair dresser who operates her business at her house. C The president and employee of a family corporation. D A sole proprietor of a service station who employs four employees.

C The president and employee of a family corporation. Keogh plans are for self-employed individuals and their employees.

In a defined contribution plan, A The benefit is known and the contribution is unknown. B The contribution and the benefit are unknown. C The contribution and the benefit are known. D The contribution is known and the benefit is unknown.

D The contribution is known and the benefit is unknown. In a defined contribution plan the contribution is defined (known) and the benefit is undefined (unknown).

Which of the following describes the tax advantage of a qualified retirement plan? A Distributions prior to age 59½ are tax deductible. B Employer contributions are deductible as a business expense when the employee receives benefits. C Employer contributions are not taxed when paid out to the employee. D The earnings in the plan accumulate tax deferred.

D The earnings in the plan accumulate tax deferred. Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis.

All of the following apply to defined benefit plans EXCEPT A They are qualified plans and cannot discriminate. B Contributions are tied to the company profits. C Benefits are based on a specified formula that incorporates years of service, salary and age of retirement. D The employer is responsible for providing promised retirement benefits.

B Contributions are tied to the company profits. Defined benefit plans are not tied to the employing company's profit; however, the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service.