Module 4 Quiz (Retirement)

Which of the following regarding a SIMPLE is CORRECT? I. A SIMPLE requires ADP testing of employee elective deferral contributions. II. SIMPLE IRAs are subject to top-heavy rules. III. A 25% early withdrawal penalty may apply to distributions taken within the first two years of participation in the SIMPLE IRA plan. IV. The maximum annual elective deferral contribution to a SIMPLE 401(k) is $19,500 (2020) for an employee who has not attained age 50. A) I, II, III, and IV B) I, II, and IV C) III only D) II and III

C) III only

For tax-exempt employers that do not want to implement a Section 457 plan and desire a plan funded strictly by employee elective deferrals, a good alternative would be A) a SEP plan. B) a Section 403(b) plan. C) a profit-sharing plan. D) a SARSEP plan.

B) a Section 403(b) plan.

David is age 47 and qualifies for a Section 457 plan through his job with the state. David's salary is $37,500. What is the maximum salary deferral that David can contribute to the Section 457 plan in 2020? A) $19,500 B) $6,500 C) $13,500 D) $9,375

A) $19,500

Ronald, age 44, works for two private tax-exempt employers. One has a Section 403(b) plan and one maintains a nongovernmental Section 457 plan. If Ronald defers $10,000 into the Section 403(b) plan in 2020, what is the maximum amount he may defer into the Section 457 plan? A) $19,500 B) $9,000 C) $13,500 D) $47,000

A) $19,500

Which one of the following types of employers can offer either a 403(b) plan or a 457(b) plan? A) Any employer that can offer a Section 403(b) plan could also sponsor a Section 457(b) plan. B) A state university or college could offer either or both a Section 403(b) and a Section 457(b) plan. C) Churches and qualified church-controlled organizations may offer either or both a Section 403(b) and a Section 457(b) plan. D) Any employer with less than 1,000 employees can offer either or both a Section 403(b) and a Section 457(b) plan.

B) A state university or college could offer either or both a Section 403(b) and a Section 457(b) plan.

Which of the following retirement plans, maintained by an eligible employer, would also permit the employer to establish a SIMPLE IRA? A) Section 403(b) plan B) Money purchase pension plan C) Traditional Section 401(k) plan D) Union plan bargained in good faith

D) Union plan bargained in good faith

Which of the following statements with respect to simplified employee pension (SEP) contributions made by an employer is CORRECT? A) Contributions are currently excludible from the employee's gross income. B) Contributions are subject to FICA and FUTA. C) Contributions are capped at $19,500 for 2020. D) Contributions are subject to income tax withholding.

A) Contributions are currently excludible from the employee's gross income.

Which of the following statements regarding the basic provisions of tax-sheltered annuities (TSAs)/Section 403(b) plans is NOT correct? A) The special catch-up provision for eligible Section 403(b) participants allows up to a $39,000 (2 × $19,500 in 2020) elective deferral in the last 3 years of employment before retirement. B) An eligible employee may be able to use both a special catch-up provision and an over-age-50 catch-up provision in the same year. C) TSAs are available to all eligible employees of Section 501(c)(3) organizations who adopt such a plan. D) If an employee has at least 15 years of service with an eligible employer, an additional catch-up contribution may be permitted.

A) The special catch-up provision for eligible Section 403(b) participants allows up to a $39,000 (2 × $19,500 in 2020) elective deferral in the last 3 years of employment before retirement.

Which of the following are reasons a small business might choose the SIMPLE over a Section 401(k) plan? A) The employer expects that it could not satisfy the Section 401(k) nondiscrimination test. B) Because a SIMPLE is less costly to operate, it is generally the better choice if the employer is not concerned about the design constraints of the plan. C) A Section 401(k) plan would be top heavy (benefits for key employees will exceed 60% of total benefits), and the employer wants to minimize employer contributions. D) All of these are reasons.

D) All of these are reasons.

Which of the following retirement plans, maintained by an employer, would also permit an eligible employer to establish a SIMPLE? A) Section 457 plan B) Section 403(b) plan C) Section 401(k) plan D) SEP plan

A) Section 457 plan

All of the following statements regarding simplified employee pension (SEP) plans are correct except A) employer contributions are discretionary. B) SEP plans can be established by any form of business entity. C) all part-time employees can be excluded. D) the major advantage is the simplicity of the plan.

C) all part-time employees can be excluded.

Which of the following statements regarding TSAs/Section 403(b) plans is CORRECT? I. The sponsor must be a tax-exempt organization that meets the requirements of Section 501(c)(3), a governmental organization, or public educational organization. II. Lump-sum distributions may be eligible for special long-term capital gain treatment. III. In-service withdrawals may be permitted. IV. The plan can invest in individual stocks and bonds, but not options or futures. A) I, II, and III B) I, III, and IV C) II, III, and IV D) I and III

D) I and III

Which of the following are permitted investments in tax-sheltered annuity (TSA) plans? I. Individual stocks II. Group or individual annuity contracts III. Custodial accounts invested in mutual funds A) I, II, and III B) II and III C) I only D) I and II

B) II and III

Which of the following statements regarding the basic provisions of Section 403(b) plans is CORRECT? I. A special catch-up provision is available to employees of Section 501(c)(3) organization employers who have at least 1 year of service. II. An eligible employee may be able to use both a special catch-up provision and an over-age-50 catch-up provision in the same year. III. TSAs are available to all eligible employees of Section 501(c)(3) organizations who adopt such a plan. IV. If an employee has at least 15 years of service with an eligible employer, an additional catch-up contribution may be permitted. A) II only B) II, III, and IV C) I and II D) I, II, and III

B) II, III, and IV

All of the following retirement plans permit employees to make elective deferrals except A) profit-sharing plans with Section 401(k) provisions. B) SEP plans. C) Section 401(k) plans. D) SIMPLE 401(k)s.

B) SEP plans.

Which of the following types of plans is typically used by religious, charitable, educational, and other Section 501(c)(3) entities or public school systems? A) SIMPLE B) Section 403(b) plan/TSA C) Section 457 plan D) SEP plan

B) Section 403(b) plan/TSA

Max, age 47, has been participating in his employer's SIMPLE IRA for one year. If he withdraws $1,000 from this plan this year and the withdrawal is not covered by an exception to the penalty tax on premature withdrawals, he will owe a penalty tax of A) $250. B) $0. C) $100. D) $400.

A) $250.

For which of the following plans does the employee bear the investment risk in the plan? SIMPLE 401(k) Traditional profit-sharing plan SEP IRA SIMPLE IRA A) I, II, III, and IV B) II only C) I and II D) I, III, and IV

A) I, II, III, and IV

A savings incentive match plan for employees (SIMPLE) can be which of these? I. It can be established as an IRA. II. It can be established as a Section 401(k) plan. II. It can be established as a Section 403(b) plan. IV. It can be offered by employers who have 100 or fewer employees. A) I, II, and IV B) II and IV C) I and II D) I, II, and III

A) I, II, and IV

Which of the following statements regarding TSAs and Section 457 plans is CORRECT? I. Both plans may be funded entirely by participant contributions. II. Participation in either a TSA or a Section 457 plan will cause an individual to be considered an active participant for purposes of phasing out the deductibility of traditional IRA contributions. III. Both plans allow net unrealized appreciation tax treatment for lump-sum distributions. IV. Both plans must meet minimum distribution requirements that apply to qualified plans. A) II, III, and IV B) I and IV C) I, III, and IV D) I only

B) I and IV

Which of the following statements regarding Section 403(b) plans is CORRECT? I. Section 403(b) plans must comply with many of the same reporting and auditing requirements that apply to Section 401(k) plans. II. Certain eligible participants in a Section 403(b) plan may defer as much as much as $29,000 into the plan in 2020. III. Section 403(b) plans may provide for plan loans to participants. IV. Funding for Section 403(b) plans is limited to mutual funds and annuities. A) III and IV B) I, II, III, and IV C) I, II, and III D) I and II

B) I, II, III, and IV

How does simplified employee pension (SEP) plan participation affect an employee's IRA contributions? I. The deductibility of an active participant's IRA contribution depends upon his MAGI. II. SEP plan participation does not reduce or eliminate an employee's ability to fund an IRA. III. Employees who participate in a SEP plan are considered active participants in an employer-sponsored retirement plan for the tax year in which an employer contribution is made. IV. Employees who participate in a SEP plan are not considered active participants in an employer retirement plan for the tax year in which an employer contribution is made. A) I and II B) I, II, and III C) I, II, and IV D) II and III

B) I, II, and III

Which of the following statements describes a basic provision or use of a savings incentive match plan for a SIMPLE IRA? A) A SIMPLE IRA is primarily suitable for large, corporate-type employers. B) Only employers that average fewer than 200 employees can establish a SIMPLE IRA. C) One contribution formula an employer can use in a SIMPLE IRA is to make a 2% nonelective contribution on behalf of eligible employees. D) A SIMPLE IRA must satisfy special nondiscrimination tests in addition to general rules.

C) One contribution formula an employer can use in a SIMPLE IRA is to make a 2% nonelective contribution on behalf of eligible employees.

Margaret is a 29-year-old attorney with her own law practice. She has hired four part-time employees over the past five years to assist her. Each of these employees works approximately 200 hours per year, earning an average annual salary of $4,000. Margaret would like to establish a retirement plan that would allow her to begin saving for her own retirement, with little administrative costs. Which one of the following plans would be most appropriate for Margaret? A) Traditional Section 401(k) plan B) SEP plan C) SIMPLE IRA D) Section 457 plan

C) SIMPLE IRA

Tom, age 54, is the sole proprietor of a small business. He is interested in adopting a retirement plan for the business. His primary goals are to make large contributions to his own retirement account and to minimize the expense and paperwork associated with the plan. Which of the following retirement plans would you recommend for Tom's business? (He makes $50,000 of self-employment income and has three part-time employees who earn $15,000 each.) A) SEP plan B) Traditional defined benefit pension plan C) SIMPLE IRA D) Section 401(k) plan funded by employee elective deferrals

C) SIMPLE IRA

George is a plumbing contractor and has implemented a retirement plan for his employees. The plan must cover all employees who are at least age 21 and have worked for George for three of the last five years (including part-time employees). Contributions must be made for employees who earned at least $600 in the prior year. The plan can exclude union members if they have their own retirement plan. Which type of plan has George selected? A) Section 403(b) plan B) SARSEP plan C) Simplified employee pension (SEP) plan D) SIMPLE IRA

C) Simplified employee pension (SEP) plan

Which one of the following requirements is a possible disadvantage of a simplified employee pension (SEP) for an employer? A) Employer contributions to a SEP are subject to payroll taxes. B) A SEP must have a fixed contribution formula that is nondiscriminatory. C) The vesting requirements for a SEP prohibit forfeitures. D) The SEP's trustee is subject to ERISA's prohibited transaction excise tax penalties.

C) The vesting requirements for a SEP prohibit forfeitures.

Gary was just hired by an employer that maintains a SIMPLE IRA for its employees. Which of the following statements regarding Gary's participation in the SIMPLE IRA is CORRECT? A) Covered compensation is limited to $285,000 for a SIMPLE IRA in 2020 if the employer elects a 3% match. B) Gary may only defer $6,000 into the SIMPLE IRA if he is younger than age 50. C) When Gary participates in the plan, he will be 100% vested in his employer's contributions. D) The annual employer match may be limited to 1% of employee compensation each year.

C) When Gary participates in the plan, he will be 100% vested in his employer's contributions.

Which of the following statements regarding the disadvantages to the employer of SEP plans is CORRECT? I. Employees cannot rely on a SEP plan alone to provide an adequate retirement benefit, which may hinder appreciation of the plan by employees. II. The employer bears the investment risk under the plan. III. If an employer maintains a SEP plan and a qualified plan, contributions to the SEP plan reduce the amount that may be deducted for contributions to the qualified plan. IV. The special rule for calculating deductible contributions on behalf of an owner-participant in a qualified plan also applies to a SEP plan. A) II only B) I, II, III, and IV C) III only D) I, III, and IV

D) I, III, and IV

Which of the following describes a basic provision of a SIMPLE IRA? A) A SIMPLE IRA must satisfy both the ADP and ACP nondiscrimination tests. B) Only employers that average fewer than 20 employees can establish a SIMPLE IRA. C) SIMPLE IRA plans can be arranged to allow for in-service loans for up to 50% of the account balance, but not to exceed $50,000. D) One contribution formula an employer can use under a SIMPLE IRA is to make a 2% nonelective contribution on behalf of each eligible employee with at least $5,000 in current compensation. E) An employer may add a SIMPLE IRA plan to an existing defined benefit plan to allow employees to make elective deferrals.

D) One contribution formula an employer can use under a SIMPLE IRA is to make a 2% nonelective contribution on behalf of each eligible employee with at least $5,000 in current compensation.