Chap 9 Retirement Plans

An individual working part-time has an annual income of $25,000. If this individual has an IRA, what is the maximum IRA contribution allowable?

$2,500. In this situation, the maximum allowable IRA contribution is $2,500.

Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

The account can be rolled into the surviving spouse's IRA. A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name.

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

are restricted to maximum levels set by the IRS. Annual limits to an employee's qualified retirement plan are based on maximum limits set by the IRS.

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 withheld 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.

What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?

50%. Distributions must be made by April 1 following the year the participant turns age 70 1/2 or a 50% excise tax will be assessed on the amount that should have been withdrawn.

Traditional individual retirement annuity (IRA) distributions must start by:

April 1st of the year following the year the participant attains age 70 1/2. Distributions from a traditional IRA must be made by April 1 following the year the participant turns age 70 1/2 or an excise tax will be assessed.

What type of employee welfare plans are not subject to ERISA regulations?

Church Plans. Church plans are exempt from ERISA regulations.

A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a:

Profit-sharing plan.

Post-tax dollar contributions are found in:

Roth IRA investments. No income tax deductions can be taken for contributions made to a Roth, but the earnings on those contributions are entirely tax-free when they are withdrawn.

What does a 401 (k) plan generally provide its participants?

Salary-deferral contributions. A 401(k) plan normally provides participants with a salary-deferral option for contributions to the plan.