Chapter 10 Family First Life Insurance: Retirement Plans

Stock purchase (Withdrawing funds from a qualified plan for the purpose of purchasing stocks or other securities would trigger a 10% tax penalty.)

All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT

defined contribution plan ( A defined contribution plan is considered a tax-qualified plan.)

An example of a tax-qualified retirement plan would be a(n)

A local electrical supply company with 12 employees (On the other hand, nonprofits like church and government do NOT as well as companies from other countries like Canadian companies working in the US)

Which of the following employers is required to follow ERISA regulations?

It is temporary (A retirement plan will not qualify for favorable tax treatment if it is temporary.)

Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment?

59 1/2 and owned account for a minimum of 5 years (To be able to make tax-free withdrawals from a Roth IRA, an account owner should be AT LEAST age 59 1/2 and have held the account for at least 5 years.)

A Roth IRA owner must be at least what age in order to make tax-free withdrawals?

Not tax deductible (Contributions made to a Roth IRA are not tax deductible.)

How are contributions made to a Roth IRA handled for tax purposes?

Income (When a beneficiary inherits a traditional IRA, an income tax is paid when money is withdrawn)

Mike has inherited his father's traditional IRA. As beneficiary, he will pay ____ taxes on any money withdrawn.

Deferred compensation option (A deferred compensation option enables an employee to defer current receipt of income and have it paid at a later date, when presumably the employee will be in a lower income tax bracket.)

Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?

Qualified retirement annuity

Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered?

59.5 (An individual can begin to receive distributions from an IRA at age 59.5 without a tax penalty)

Erica is 35 years old and owns an IRA. At what age can she begin to receive distributions without a tax penalty?

Gains (Gains are the taxable portion of the distributions of qualified plans.)

When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable?

Employee must be able to make unlimited contributions (A qualified plan does not allow the employee to make unlimited contributions.)

Which of the following (must benefit a broad cross-section of employees, employee must be able to make unlimited contributions, vesting schedule must be defined, and employer establishes the plan) is NOT a federal requirement of a qualified plan?

Roth IRA

Which of these retirement plans (SIMPLE plan, traditional IRA, Keogh plan, roth IRA) do NOT qualify for a federal income tax deduction?

Earnings are taxable when withdrawn (upon distribution) (Traditional IRA earnings are taxable when withdrawn. Interest earned on a traditional IRA is taxed upon distribution at ordinary income tax rates)

Which of these statements concerning Traditional IRAs is CORRECT?

The self-employed (Keogh plans were designed to provide pension benefits for self-employed individuals)

Who were Keogh plans designed to provide pension benefits for?

60 (To avoid tax consequences, a rollover from a Traditional IRA to another IRA must be done within 60 days.)

Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?

60 (As you receive funds from your IRA, you have 60 days to complete the rollover to another IRA)

Within how many days must a rollover be completed in order to avoid being taxed as current income?