Retirement

Bill age 72 and Jane age 69, married and filing jointly, want to contribute to a Roth IRA. He earns $18,000 per month. They normally have limited itemized deductions. How much can they contribute? A. $0 B. $5,000 C. $5,500 D. $10,000 E. $11,000

$0. Their AGI is too high. The phaseout is $183,000 to $193,000. The only number you have been given is monthly income. Their AGI is around $200,000 ($18,000 x 12 = $216,000).

The IRA minimum distribution required was $5,000. The individual only took a $3,000 distribution. What is the penalty? A. $1,000 B. $1,500 C. $2,000 D. $3,000

$1,000 50% of the whatever you did not withdraw.

Mr. Hale becomes 70 on April 1 of this year. His IRA account has a value of $96,000. He is married, and his wife's combined life expectancy IRS factor is 24. If Mr. Hale only takes a $2,000 distribution by next April 1st, what will be his tax penalty? A. $0 B. $500 C. $1,000 D. $1,500

$1,000. He was 70 1/2 on October 1st. He should have taken the distribution by April 1st of the next year. If the factor is given (24), then use it. His wife could be 20 years younger.

Brad and Gloria are married. Brad, age 71, and Gloria, age 69, are retired on his pension of $48,000 per year and their Social Security payments. Brad does some teaching at the local community college and is paid $10,000 per year. How much can they contribute to Roth IRAs in the current year? A. $ -0- B. $5,500 C. $6,500 D. $10,000 E. $13,000

$10,000 He has earned income. Each one of them could do a Roth IRA, contributing $5,500. Yes, if he had made $13,000 (not $10,000), then the catch-up would have been $1,000 each or total of $13,000.

Tom is age 70 1/2 at the end of the first distribution year. His IRA account balance was $250,000 at the beginning of the first year. He takes his first distribution by April of the next year. What is the required distribution he must take by 12/31 of the second year if the account balance is $265,000 at the beginning of the second year? Uniform Lifetime Table Age Distribution Period 70 27.4 71 26.5 72 25.6

$10,000. $265,000 ÷ 26.5 = $10,000 (2nd year), $250,000 ÷ 27.4 (1st year)

Tina, a widow age 70, decides to go back to work. She has been collecting Social Security payments of $1,000/month. She expects to make $30,000 in salary. She receives $1,000 in dividends, $3,000 in CD interest, and $5,000 in municipal bond interest. Will her Social Security payments become taxable if she goes back to work? A. No, she is over 70 years old. B. Her benefits will no longer be reduced by $1 for every $2 earned over a threshold. C. $6,000 of Social Security income will be taxable income. D. $10,200 of Social Security income will be taxable income.

$10,200 of Social Security income will be taxable income. Do not get caught up with Answer A. You do not lose any benefits after NRA. If her modified AGI (including municipal bond interest) exceeds $25,000, 50% of the Social Security benefits will be included in income (Answer C). If her modified AGI exceeds $34,000, 85% of the Social Security benefits are included ($12,000* x .85 = $10,200). Answer B is true, but her MAGI is $45,000. (Don't forget to add in 1/2 of her Social Security benefits when calculating MAGI.) Answer D is the best answer. *$12,000 is her Social Security payment of $1,000 per month times 12.

Harry is granted $250,000 of ISO options that vest in one year. Next year he exercises $150,000 of the options. What will be the result of this exercise? A. $100,000 will be treated as ISOs; $50,000 will be treated as NSOs. B. $50,000 will be treated as ISOs; $100,000 will be treated as NSOs. C. $75,000 will be treated as ISOs; $75,000 will be treated as NSOs. D. $150,000 will be treated as NSOs.

$100,000 will be treated as ISOs; $50,000 will be treated as NSOs. A company cannot grant more than $100,000 of ISOs (based on exercise price) that are vested in the same year to any one employee if favorable ISO treatment is desired. If more than $100,000 of such ISOs that vest in the same year are granted, the excess options, once exercised, are treated as NSOs (for tax purposes).

A defined benefit plan has incidental life insurance using the 100 to 1 test. Tom died prior to retiring. His wife received two checks during the year: $200,000 pure death benefit and $20,000 cash value. How much will not be taxable this year? A. 0 B. $20,000 C. $200,000 D. $220,000

$200,000. The pure life insurance death benefit will be tax-free. The employee is charged with the cost of the pure death benefit of the life insurance. The cash value will be taxable

Mr. Gold, at age 51, moved $120,000 from a traditional IRA to a Roth in 1998 using a four-year income-spreading provision (taxable at $30,000 per year). How would you explain his taxable situation for the year 2016 if the account is closed and he withdraws $250,000? A. $120,000 is subject to a 10% penalty. B. $130,000 is subject to income taxes. C. $130,000 is subject to income tax and a 10% penalty. D. $250,000 is tax free.

$250,000 is tax free. He met the 5-year holding period; the $120,000 in conversion money is received tax-free. He also meets the earnings test (5-years and age 59-1/2) age. He is now over age 63.

Barney is a participant in his employer's ESOP. The company makes a contribution of stock worth $40,000 ($4/share) to Barney's account. Twenty years later, Barney retires and takes a lump-sum distribution of the company stock and rolls the balance of the account (the cash portion) into an IRA. The market value of the stock is $100,000 ($10/share). After two years of retirement, he sells the stock for $150,000. What are the tax implications? A. $150,000 taxed as ordinary income at retirement B. $40,000 as ordinary income at retirement, $110,000 as long-term capital gain at the sale C. $110,000 as ordinary income at retirement, $40,000 as long-term capital gain at the sale D. $100,000 as ordinary income at retirement, $50,000 as long-term capital gain at the sale

$40,000 as ordinary income at retirement, $110,000 as long-term capital gain at sale. Basis of employer stock is treated as ordinary income at time of distribution regardless of whether the stock is sold or not. NUA is always treated as long-term capital gain regardless of holding period. There are two assets in the plan, the company stock and cash. He takes a lump sum of the company stock, then that qualifies for NUA treatment. The noncompany stock portion which in this case was cash can be rolled over into the IRA. If he rolls the company stock into the IRA, then it losses its NUA.

If Bob's company's pension plan provides a life annuity equal to 1.5% of earnings up to 30 years of service, how much could Bob ($150,000 average annual compensation) receive as annual pension after 20 years of service? A. $35,000 B. $45,000 C. $46,000 D. $67,500 E. $150,000

$45,000. 1 1/2% x 20 years x $150,000 = $45,000. The question says "after" 20 years of service.

Seth is age 42 and married. He is an active participant in his employer's governmental 457 plan. Seth and his spouse's joint AGI is $106,000 (before making the maximum allowable 457 deferral). How much can he contribute to his IRA (and deduct) this year (2016)? A. $2,750 B. $4,000 C. $5,000 D. $5,500 E. $11,000

$5,500. The phaseout for married plan participants is $98,000 to $118,000. If someone is an active participant, IRA deductibility depends on whether the MAGI is within the phase-out range. HOWEVER, a 457 plan (any type) does not count as active participation, so he can make a deductible contribution. It only asked about his contribution, not hers.

Jane divorces Bill. She is age 42. Per the divorce agreement (QDRO), she decides to take a direct distribution of Bill's qualified plan money ( $1,000,000) now. If she gets half, what will be the amount of her check from the plan administrator? A. $500,000 B. $500,000 (less 10%) C. $500,000 (less 20%) D. $500,000 (less 30%) E. $250,000

$500,000 less 20%. There is no 10% early penalty (QDRO), but the plan will deduct 20% (withholding) when a direct distribution is paid.

Tim works two jobs, and both provide SIMPLE plans. He wants to maximize his deferrals and matches. At Company A he defers $6,000. How much can be deferred at Company B? A. None as an employee can only have one SIMPLE plan B. $12,500 at Company B C. $6,500 at Company B D. $12,500 at Company B ($18,000 total)

$6,500 at Company B. Multiple plan deferrals are generally aggregated. In case of SIMPLE/SIMPLE, the limit is $12,500 total. A worker having two employers, both of which offer a SIMPLE plan, may participate in both plans but may only defer $12,500 (total) in the aggregate.

Bill works for two related employers. Each employer has a 401(k) plan. With one employer he makes $50,000, and with the second employer he makes $60,000. If both plans allow for a 6% deferral and a 3% match, how much can he defer in 2016? A. $3,000 B. $3,600 C. $6,600 D. $9,900 E. $18,000

$6.600. 6% of a total of $110,000 = $6,600. The plan only allows for a 6% deferral. He cannot defer $18,000.

Nate, a sole proprietor, is going to contribute to a SEP. His net income is $50,000. What is the maximum he can contribute? A. $6,059 B. $9,295 C. $10,000 D. $11,000 E. $12,500

$9,295. 25% short-cut method $50,000 x 18.59% = $9,295 He is self-employed.

Hal, age 63, decides to take Social Security retirement benefits 30 months early. How much will his PIA be reduced? A. 10% B. 12% C. 13.333% D. 16.667% E. 20%

16.667% His benefits will be reduced by 30/180 or 16.667%.

T.T. Long owns Long Manufacturing, Inc. Due to the low wages he is always experiencing high employee turnover. Only a few employees have four years of service. He has been able to retain key employees by offering them above normal wages for simple basic responsibilities. He wants to adopt a 401(k) plan but he does not want to provide employees with benefits for short service years. Which of the following vesting schedules would you recommend to T.T. Long in light of his objectives? A. 2-year eligibility 100% benefit B. 3-year cliff with one year eligibility C. 5-year cliff with one year eligibility D. 2-6 year graded/gradual with one year eligibility

2-6 year graded/gradual with one year eligibility 401(k) cannot have a 2-year eligibility (Answer A). One year eligibility is the maximum. Answer C is only available in a non-top heavy DB plan. You may want to keep this simple using the 3-year cliff (0% or 100%) but that may not help to retain employees. Answer D will help retain employees. This is covered in the prestudy. Very subjective question/answer.

Quick Manufacturing, Inc. always has a top-heavy profit-sharing plan because of employee turnover due to layoffs. Which vesting schedule should they adopt if the company feels this will be an on-going situation? A. 3-year cliff B. 5-year cliff C. 2- to 6-year graded D. 100% - 2 years eligibility

3-year cliff. The employees will be eligible after one year, but unless they stay three years, the employees will forfeit all contributions made to the plan. The forfeitures will be allocated to the long-term employees (probably the HCEs) allowing them to potentially get up to 100% of compensation or $53,000 annual additions. There is no indication the company wanted to retain employees (2-6 year graded). The 100% vested plan (2-year eligibility) is not an advantage over the 3-year cliff in the situation.

A man, age 66, receives $1,000 in monthly Social Security payments and continues to be actively employed. What is the maximum that his Social Security could be taxed? A. $0 B. The benefit is reduced $1 for every $3 earned C. 50% of the Social Security payment will be subject to income tax D. 85% of the Social Security payment will be subject to income tax

85% of the Social Security payment will be subject to income tax. Remember, over $34,000 of MAGI (single) means that 85% of the benefits could be taxed. The $1 for every $3 rule only affects people under NRA (normal retirement age) 66. The key phrase is "could be."

Tom Sellers is self-employed. He has no other employees. His income after expenses is $100,000. Which of the following plans provides the maximum allowable contribution? A. SEP B. SIMPLE 401(k) C. SIMPLE IRA D. Keogh

A SEP. A SEP is easy to install. The SEP contribution would be $100,000 x 18.59% = $18,590. The SEP is subject to the Social Security calculation like a Keogh for self-employed. SIMPLE IRA and SIMPLE 401(k) contributions are $12,500 + $3,000 (3%) = $15,500. There is some paperwork with a SIMPLE because of deferrals, catch-up and match. It is not simple. You cannot do any other plan when you do a SIMPLE. Keogh is not enough of an answer. It should say Keogh defined benefit or money purchase plan.

On what is the maximum deductible contribution in a target benefit plan based? A. An actuarial determination B. The minimum-participation rule C. A maximum of 25% of the aggregate eligible compensation of all covered participants D. A maximum of 25% of the firm's total payroll

A maximum of 25% of the aggregate eligible compensation of all covered participants. A target benefit plan is a defined contribution plan. Although an actuarial calculation is made when a target benefit plan is first installed, the maximum deductible contribution is always limited by Answer C. This is true even if the actuarial calculation calls for a larger contribution (likely if there are many older highly compensated employees and relatively few lower-paid rank-and-file employees). Answer D is wrong. It is not total payroll but eligible compensation or payroll.

Joe Langford, age 45, ended a nasty divorce. Although Joe and his ex-wife did not have any children, she hired a top-notch divorce attorney. Joe's wife never completed high school and never worked. So based on her lack of skills to make a living, she took most of their assets. Now Joe only feels he has 15 good years to build his retirement funds up. Joe has a good job at a company that has a 401(k) plan with a 50% match. He is deferring almost $1,500 a month. With no plans to get remarried he is considering a second job. He has specialized skills and a couple of companies feel they can use him at least 20-30 hours a week. Besides salary considerations, what kind of retirement plan would work best for him?

A money purchase plan. He is already at maximum deferral. The question says "almost $1,500" ($1,500 x 12 = $18,000). Answers A and B will eliminate any additional deferral and the match. With a money purchase plan the company will make a contribution. He will get the contribution because the employers are not related. There is no indication that his employer is a governmental or a non-governmental. He cannot do a 457 deferral.

John, a high-performing sales manager for ABC Auto Parts (C Corporation), is unhappy with the company's 401(k) program. The $265,000 compensation cap and the ADP test are limiting contributions. ABC, in an effort to keep John, should offer him which of the following? A. A salary continuation plan using a variable annuity policy B. An increase in company contributions to the 401(k) C. A secular trust D. A split-dollar policy E. A pure deferred compensation arrangement using a VUL policy

A salary continuation plan using a variable annuity policy. A salary continuation plan uses only employer contributions. Pure deferred compensation uses a portion of the employee's current compensation. The question did not indicate a need for life insurance (Answers D and E).

Apex, Inc. wants to reward its employees but does not have cash to contribute for year-end 2016. The company feels it will be in a very profitable position during the year 2017. What would you suggest Apex do? A. Adopt a profit-sharing plan and, in lieu of a cash contribution, give the plan a promissory note. B. Adopt a profit-sharing plan and borrow the necessary contribution from a bank. C. Adopt an ESOP and fund the contribution with company stock. D. Do not start the plan until 2016

Adopt a profit-sharing plan and borrow the necessary contribution from a bank. This option allows Apex to put money in the plan now and get a tax deduction now. Answer C is a good answer, but there is no indication in the question that Apex is interested in using company stock. This is the best answer (subjective).

Four doctors own 100% of Labs, Inc., a support organization. The ownership percentages are 80%, 10%, 5%, and 5%. The doctors have their own practice, a personal service corporation with no employees, and each has his own defined benefit plan. Which type of controlled group would Labs, Inc. fall under? A. Parent-subsidary controlled group (80% combined) B. Brother-sister controlled group (80% combined) C. Affiliated service group D. Leased employees

Affiliated service group. The IRS defines this as an affiliate service group. The 80% factor may lead you to answer this as brother - sister.

Sam's corporation established a SARSEP prior to 1997. Which of the following are correct? I. The 415 limits apply (total additions equal to the lesser of $53,000 or 25% of compensation) II. New employees, as they join the firm, can be added to the plan up to 25 total employees. III. The maximum deferral is $18,000 (not including catch-up) IV. All contributions are 100% vested

All of the above. Answers I through IV are true. SARSEPs are subject to the contribution limit (the lesser of 25% of compensation or $53,000). New employees can be enrolled in the plan. A new plan cannot be started, but existing plans may continue.

When may a SEP or SARSEP account balance be withdrawn by a participant? A. Upon separation of service B. At normal retirement age C. At age 59 1/2 D. All of the above

All of the above. Participants must be given the opportunity to withdraw the account balance at any time (for any reason). Of course, there may be a 10% penalty in some situations.

What type of employee would most benefit from a target benefit plan? A. A younger well-paid employee B. An older lower paid employee C. A younger lower paid employee D. An older well-paid employee

An older well-paid employee. A target benefit plan targets a benefit no mater the age. An old employee would get a percentage of his/her salary (example 30%) as would a younger employee. However, an older employee would have to get a larger company contribution to achieve the ultimate benefit. He/she would benefit the most.

Todd wants to defer his money purchase distributions as long as possible. He works for RJ, Inc. RJ wants him to stay beyond mandatory retirement age 65. If he continues to work beyond 70 and contribute to the plan, what is the very latest he can take a distribution and not be penalized? A. 70-1/2 B. By April 1st of the year after he turns 70-1/2 C. When he retires D. By April 1st of the year after he retires

By April 1st of the year after he retires He is a participate in a qualified plan and not a 5% owner. This is the best answer considering the words "very latest." It is the only possible answer based on the information.

Todd wants to defer his pension distributions as long as possible. He works for RJ, Inc. RJ wants him to stay beyond the normal retirement age of 70. If he works beyond the normal retirement age, what is the latest he can take a distribution and not be penalized? A. 70 1/2 B. By April 1st of the year after he turns 70 1/2 C. When he retires D. By April 1st of the year after he retires

By April 1st of the year he retires. There is no indication that he owns stock in RJ, Inc. Therefore, the best answer is "by April 1st of the year after he retires".

When can a Roth account be closed with no adverse tax consequences? A. Immediately B. When it's a special purpose distribution C. After the individual has had the Roth IRA for five years D. After age 59 1/2 E. C and D combined

C & D. Earnings must meet the five-year rule, and the person must be 59 1/2 to be tax-free.

Which of the following type of plan is subject to PBGC? A. Target benefit pension plan B. Cash balance pension plan C. Money purchase pension plan D. ESOP

Cash balance pension plan. Defined benefit plans are generally subject to PBGC insurance program. Answers A, C and D are defined contribution plans.

Bill is single. He has a MAGI of $110,000 He is in his late 60's and is concerned with his upcoming RMDs and the potential tax he will have to pay yearly for the rest of his life. What would you suggest he do with his $500,000 IRA if he is in the low portion 25% tax bracket? A. Annuitize the payouts using a single life expectancy B. Convert some of his IRA to a Roth IRA C. Start taking distributions this year D. Continue to work so he will not have to take RMDs until he retires

Convert some of his IRA to a Roth IRA A Roth will avoid RMDs. Bill's concern with upcoming RMDs. I should try to solve his concern. He will still have to pay an income tax on the conversion only converting some each year), but he can avoid taking some RMDs. The conversions may only be taxed at 25%. Subjective - client case/evalution question. Answer C is not a bad answer. Answer D is false. this is IRA money. There is no indication of a life insurance need (Answer E).

Which of the following qualified plan distributions is exempt from the 10% early withdrawal penalty? A. Hardship withdrawal B. Distribution due to a husband and wife legal separation C. Distribution for purchase of principal residence D. Distribution due to separation from service at age 55

Distribution due to separation from service at age 55. Legal separation, even a divorce, does not prevent the penalty. A QDRO is necessary to avoid the 10% early withdrawal penalty. Principal residence distributions are not exempt from the penalty. For IRAs, it is first home not primary residence.

If an IRA participant dies at age 55 and has named a 30-year-old child as the beneficiary, what must happen in order to ensure that distributions can be made over the child's life expectancy? A. Because a distribution for a child does not need to start before age 40, nothing must happen. B. Distributions must begin by the end of the year following the year of death. C. Distributions must begin by April1 of the year following the year of death. D. Because distributions can begin at the child's RBD, nothing must happen.

Distributions must begin by the end of the year following the year of death. Answer B is true. Otherwise, distributions are over a 5-year period.

What entity or regulation imposes extensive reporting and disclosure requirements on a defined benefit plan? A. PBGC B. ERISA C. Department of Labor D. IRS

ERISA. A defined benefit plan is subject to mandatory insurance by the PBGC. Benefit levels are guaranteed by the PBGC. However, the plan is subject to all the ERISA requirements for qualified plans (participation, funding, vesting, etc.) and the ERISA reporting and disclosure requirements. This information is disclosed to the plan participants and/or filed with the IRS or the Department of Labor.

ABC, Inc. has a defined benefit plan. Due to a reversal of fortune, the company cannot afford any type of pension plan. What should ABC, Inc. do? A. Adopt a cash balance plan B. Adopt a money purchase plan C. Adopt a target benefit plan D. Freeze the defined benefit plan

Freeze the defined benefit plan. The company can no longer afford any type of pension plan.

Your client has $500,000 in her IRA at Mutual Fund A, and she withdraws $100,000 of that IRA. Before 60 days pass, she deposits $100,000 in an IRA at Bank B. When can she take another 60-day withdrawal? A. From Mutual Fund A or Bank B after 12 months B. From Bank B anytime (no penalty)

From Mutual Fund A or Bank B after 12 months. The withdrawal affected both accounts. You only get one 60-day rollover per person per one-year interval per IRA account. The law is now one per person per one-year interval.

Gail, an employee of Quick, Inc., is given an ISO of 1,000 shares of stock at $20 per share. Three years later, she exercises them when the stock is $30 per share. Then, two years later, she sells the stock at $35 per share. Which of the following is true? A. Gail's taxable gain will be $5,000 of capital gain. B. Quick, Inc will get a deduction of $10,000 when Gail exercises her option. C. Gail's taxable gain will be $15,000 of capital gain. D. Gail's taxable gain will be $10,000 when she exercises her option and a $5,000 capital gain when she sells the shares.

Gail's taxable gain will be $15,000 of capital gain. With an ISO, the corporation will not receive a tax deduction when the shares are exercised.

Tony Adams after being laid off for over a year was hired by a new firm. Tony had just about exhausted all of his savings and retirement funds. The new firm has a 401(k) profit sharing plan with a 6 month wait. Tony realizes he is way behind the retirement saving curve so he plans to enroll as soon as possible. What will happen when he is eligible? A. The employer will notify him. B. He will be given a 401(k) profit sharing summary plan description per the DOL/ERISA rules. C. He will be allowed to defer which will reduce his taxable income but not his FICA taxes. D. He can defer a maximum of $18,000 plus $6,000 in the first year using make-up provisions.

He will be given a 401(k) profit sharing summary plan description per the DOL/ERISA rules. This document must be given to participants when they join the plan and to beneficiaries when they receive benefits. Among other things, the SPD must include information about: When and how employees become eligible to participate in the 401(k) plan; The contributions to the plan; How long it takes to come vested; When employees are eligible to receive their benefits; How to file a claim for those benefits; and Basic rights and responsibilities participants have under the Federal retirement law, the Employee Retirement Income Security Act (ERISA). The SPD should include an explanation about the administrative expenses that will be paid by the plan. SPDs must also be redistributed periodically during the life of the plan.

Which investment is the least suitable for an IRA account for a young single client with a moderate risk tolerance? A. High-yield municipal bonds B. Individual stocks C. Variable annuity (growth) D. Growth mutual fund

High-yield municipal bonds. The least suitable is the municipal bonds.

Dr. Hill, a 50-year-old divorced dentist, is incorporated as a personal service corporation. He is interested in increasing employee retention. He has approached you with the following question for tax year. Dr. Hill's corporation currently has a 401K plan in force. He only matches $.50 on a dollar up to 3% of salary. As a result of this formula and employee turnover, he has been severely limited in the amount he can contribute as a key employee. Dr. Hill has heard that you can have a qualified plan and still make a deductible IRA contribution. He has asked you what combinations of events would allow him such a deduction in 2015. I. If there are no annual additions to the year, he can do a deductible IRA. II. If Dr. Hill has a modified AGI of less than $61,000, he can do a deductible IRA. III. If Dr. Hill provides the same IRA benefit to all his existing employees, he can do a deductible IRA. IV. If Dr. Hill retires at age 55, takes annual distributions from his pension plan, and then works part-time (self-employed) making $120,000, he can do a deductible IRA. V. Dr. Hill pays alimony. His wife has him deposit $5,500 directly into her IRA as part of his alimony payment. He can declare the $5,500 as a deductible IRA.

I, II If no annual additions are added to his account, he can do a deductible IRA. The 2016 IRA threshold for single is $61,000. Dr. Hill is divorced. He can do a deductible IRA. Although IV is true, it does not answer the question. The question is asking about a deductible IRA in 2016, not 5 years from now. Picky. V is wrong. Alimony is alimony. His wife will get to deduct the IRA contribution.

A QDRO is any judgment, decree, or court order relating to which of the following? I. Child support II. Alimony payment III. Marital property rights IV. An IRA account

I, II, III This is the definition of a QDRO. It affects Answer I, II, and III. QDROs only apply to qualified plans not IRA accounts (Answer IV). Yes, an IRA break-up can be part of the divorce settlement but the QDRO does not trigger the break-up.

Which of the following is(are) an exception(s) to the 10% early withdrawal penalty for IRAs? I. Medical expense in excess of 10% of AGI II. Substantially equal payments III. Early termination from employment IV. Distributions used to pay medical insurance premiums after separation from employment (Unemployment compensation has been received for at least 12 weeks and the withdrawal was made in year of unemployment or year immediately following unemployment).

I, II, IV. Substantially equal payments can start at any age, but they must be over the owner's life expectancy. The 10%* floor for medical care does not apply to health insurance premiums if unemployment compensation has been received for at least 12 weeks and the distribution occurs in the year unemployment payments are received or the year after. Test taking tip. If II is true and III is false, the answer has to be A. Even if you did not know whether IV is true or not, it did not matter. * NOTE: The 10% rule will apply if the question does not indicate age. 7 1/2% only applies if the person is age 65 or older.

XYZ business wants to do a retirement plan for employees. The employees are requesting plan loan be made available. Which of the following plans would allow plan loans? I. Defined benefit II. Money purchase III. SIMPLE IRA IV. SEP V. Profit sharing

I, II, V The qualified plans including DB, allow for plan loans. IRAs do not allow plan loans.

Which of the following retirement plans can be integrated with Social Security? I. Stock bonus II. ESOP III. SEP IV. Defined benefit V. Target benefit

I, III, IV, V. A SEP and a stock-bonus plan can be integrated with Social Security. An ESOP cannot be integrated.

John has a choice between nonqualified stock options or incentive stock options. The option price is $5/share, and he will exercise when the share price is $10/share. (The options vest a year and a day after the grant date.) The option is for 10,000 shares. What is the tax ramification with each option if he sells the shares for $15/share and more than one year after he exercises them? I. Under the ISO, $50,000 is an add back item, and $100,000 is capital gains. II. Under the ISO, $50,000 is an add back item, and $50,000 is ordinary income. III. Under the NSO, $50,000 is ordinary income, and $50,000 is capital gains. IV. Under the NSO, $100,000 is ordinary income.

I, III. If John is subject to the alternative minumum tax (on the ISO), his basis in the stock for AMT purposes will be increased by the amount included in income (unkown). If the stock is sold before the one-year holding period, John will lose preferential long-term capital gains treatment. 10,000 shares ISO exercise $10 $100,000 ISO option price -5 -50,000 (paid) ISO add back $5 $50,000 ISO sold $15 $150,000 ISO option price -5 -50,000 ISO capital gain $10 $100,000 With the NSO, at exercise the basis is $10/share, the option price ($5) plus the ordinary income ($5).

A large financial organization wants to hire Tom. Tom is a successful financial planner with a large practice. To entice Tom, the company is proposing a large nonqualified stock grant. The grant will be based on Tom's ability to build the financial planning division over the next five years. When will the grant be taxable to Tom? I. The grant will be taxable in five years when the substantial risk of forfeiture expires. II. The grant will be taxable now. III. The grant will be taxable when Tom can freely transfer the stock. IV. The grant of restrictive stock will not be taxable until Tom sells the stock.

I, III. The two major determinants of taxation are the following. - the free transferability of the employee's interest and - the presence of a "substantial risk of forfeiture"

Mr. Pierce died at age 69. Match up his IRAs to the correct distributions. His wife Mrs. Pierce is the beneficiary of one IRA. I. Take distributions at the owner's RBD based on the spouse's single life expectancy recalculated each year II. Roll into beneficiary's IRA; take distributions based on beneficiary's RBD (new uniform lifetime table) III. Take distributions over the beneficiary's life expectancy by December 31st of the year after the owner's death IV. Take distributions at least as rapidly as under the schedule in effect

I,II.

Which of the following statements are true concerning a rabbi trust? I. The rabbi trust provides complete protection. II. The rabbi trust is informally funded. III. The employer may fund the rabbi trust from the general assets of the company. IV. Employer contributions to the rabbi trust are not subject to payroll taxes. V. The rabbi trust assets may be used for purposes other than discharging the obligations of the employee.

II, III, IV, V. The assets are always subject to the company's creditors. The employer may fund the the trust from general assets. Contributions are not subject to payroll taxes, but distributions are subject to withholding and FICA. The rabbi trust offers no protection in case of bankruptcy or financial obligations of the company.

Sally, age 62, dies. She is a fully-insured worker. Who will receive Social Security benefits when she dies? I. Daughter, age 19, in college II. Ex-husband, age 62, married to her from 1984-2000, never remarried III. Son, age 15, in high school IV. Current husband, age 60 (Sally married him 12 years ago) lives with current husband

II, III, and IV. Both the ex-husband and current husband are eligible. The current husband also has a child in care under age 16.

In which of the following retirement plans may forfeitures increase account balances of plan participants? I. Defined benefit plan II. Profit-sharing plan III. Money purchase plan IV. Cash balance plan

II, III. Forfeitures in defined benefit plans and cash balance plans must reduce plan costs or contributions. Money purchase plan forfeitures may (not must) be allocated to employee account balances. Forfeitures in a profit-sharing plan normally are allocated to the plan participants.

In 2011, James converted his $25,000 IRA to a conversion Roth IRA. By 2016, his conversion Roth IRA has grown to $31,000, and he takes a full withdrawal. None of the special purposes has been met. Which of the following are true? I. The $25,000 conversion is not subject to income tax or early withdrawal penalty. II. The $25,000 conversion is subject to a 10% early withdrawal penalty. III. The $25,000 conversion is subject to a 10% early withdrawal penalty and a 10% conversion penalty tax. IV. The $6,000 of earnings is subject to income tax and a 10% early withdrawal penalty. V. The $6,000 of earnings is subject to a 10% early withdrawal penalty.

II, IV. 5 years have not passed and none of the special purposes have been met.

Mr. Pierce died at age 69. Match up his IRAs to the correct distribution. His son Tim is the beneificiary of one IRA. I. Take distributions at the owner's RBD based on the spouse's single life expectancy recalculated each year II. Roll into beneficiary's IRA; take distributions based on beneficiary's RBD (new uniform lifetime table) III. Take distributions over the beneficiary's life expectancy by December 31st of the year after the owner's death IV. Take distributions at least as rapidly as under the schedule in effect

III.

XYZ's pension plan has the following investments. Which investment(s) may produce UBTI income? I. Real property rents II. Gain from sale of capital assets III. Equipment leasing program (containers) IV. Annuities V. Whole life insurance

III. Equipment leasing programs are normally limited partnerships.

Dr. Hill, a 50-year-old divorced dentist, is incorporated as a personal service corporation. He is interested in increasing employee retention. He has approached you with the following question for tax year 2016. Dr. Hill's corporation currently has a 401k plan in force. He only matches $.50 on a dollar up to 3% of salary. As a result of this formula and employee turnover, he has been severely limited in the amount he can contribute as a key employee. If he elects to adopt a pension plan in lieu of the 401K, which of the statements is true regarding his benefits? I. He will be able to contribute 25% of his salary if he elects a money purchase plan. II. He will be able to deposit $210,000 (2016) if he elects a defined benefit pension plan. III. The money purchase and defined benefit plan will be covered by the PBGC. IV. If he elects a defined benefit plan and cannot maintain the contribution level, he could switch to a cash balance plan. V. Money purchase and profit-sharing plans are subject to the minimum funding standards.

IV I. Money purchase has a contribution limit of $53,000 (2016). Without the limit being shown, the statement is false. II. This statement uses the word deposit rather than benefit. $210,000 is the benefit, not the contribution. III. Only defined benefit plans are covered by PBGC. V. Profit sharing (401k) plans are not subject to the minimum funding standard.

Which of the following is true about plan loans from a 401(k)? A. They are prohibited because the plan accepts employee elective deferrals. B. Interest is never deductible. C. If married, the spouse never needs to consent. D. They do not have to be secured. E. If a plan allows loans, they must be made available to all participants without discrimination.

If a plan allows loans, they must be made available to all participants without discrimination. Interest paid on a plan loan for a principal residence may be deductible. If the plan is subject to QPSA/QJSA and if the loan is secured with plan assets, both spouses must sign off on the loan. In all cases, the loans must be adequately secured (with plan assets or other collateral acceptable to the plan administrator).

Which of the following is true concerning vesting in a SIMPLE plan? A. It is similar to vesting in qualified plans. B. It is vested after 2 years of eligibility plan assets. C. It is fully vested at all times. D. It increases to 25% during the first 2 years of participation.

It is fully vested at all times. SIMPLE is an IRA. IRA have no vesting provisions. They are always 100% vested.

Esther is eligible for her company's money purchase plan. She is married to Jim. She has two children: Danny and Suzi. Whom can she name as a beneficiary? A. Anyone she wishes B. Her estate C. Jim D. Danny E. Suzi

Jim. The participant, Esther, can only name another beneficiary if Jim consents. The question must say "he waived his right" to choose for the other answers to be correct. Applies to pension plans only (DB, CB, MP and TB) not profit-sharing.

Sally plans to get married and have children in the future. Can she make a loan from a TSA for college education purposes? A. She can make a hardship loan. B. Loans are only available from qualified plans and are not permitted in TSAs. C. Loans, with qualified plan requirements, are available from TSAs. D. The loan will be treated as a taxable distribution.

Loans, with qualified plan requirements, are available from TSAs. Qualified plan loan rules apply to TSAs.

If the plan was adopted on 12/31/2016 for the plan year 2016, which employee would be eligible under 21 and one? A. Ned, date of birth 1/1/1996 B. Seth, date of employment 1/10/2016 C. Martha, date of birth 10/21/1984, date of employment 7/1/2013, works 1,500 hours per year part time D. Beth, date of birth 6/28/1994, date of employment 2/1/2012, works 750 hours per year part time

Martha, date of birth 10/21/1984, date of employment 7/1/2013, works 1,500 hours per year part time Ned is age 20 (plan year 2016). Seth's age isn't known. He may or may not qualify under the one-half year rule. Beth works part-time (less than 1,000 hours each year).

Which of the following plans has the maximum allowable contribution and a mandatory contribution? A. Money purchase B. SEP C. Profit-sharing D. SIMPLE 401(k) E. TSA

Money purchase plan. A money purchase plan can allow for a $53,000 contribution and is subject to the minimum funding standard (mandatory contribution). A SEP or a profit-sharing plan can allow for a $53,000 contribution, but the contribution isn't mandatory.

Can a retired 71-year-old man make a contribution to a Roth IRA? A. No, he can't B. Yes, he can C. No, he is too old D. Yes, but it isn't deductible E. Yes, but he can only if he is divorced and paying alimony

No, he can't. You MUST have earned income to be able to contribute to a Roth IRA. If no earned income is shown, you cannot assume he has earned income. The question says he is retired. The alimony was paid, not received. Alimony received would have been compensation.

Tony's, a specialty deli, has a SIMPLE plan. They would like to provide more retirement benefits to their employees. Which plan can they adopt in addition to the SIMPLE plan? A. Money purchase plan B. SEP C. 403(b) D. None of the above

None of the above. Having a SIMPLE precludes Tony from having another plan.

What is the maximum contribution amount to a defined benefit plan? A. $53,000 B. $210,000 C. $265,000 D. $400,000 E. None of the above

None of the above. It is the amount necessary to fund the benefit. However, the benefit can only be based on compensation up to $265,000 (2016). How much has to be in an account to fund a benefit of $210,000 that will last for 25 years? Maybe $3,000,000 - $4,000,000. This means if there is only 10 years to fund the benefit the contribution could easily be $300,000 - $400,000.

Arthur and Beth are getting a divorce. Arthur has an IRA with an account value of $500,000. Under QDRO, Beth has which of the following rights? A. None B. 50% of the value of the account C. 50% of the value of the account when Arthur turns 59 1/2 D. A QJSA equal to 50% of the value of the account

None. QDROS only apply to qualified plans, 403(b)s, and governmental 457s - not IRAs.

If you had to suggest a plan to an employer, which plan would provide the employer the maximum contribution and the maximum deductible contribution flexibility? A. Defined benefit plan B. Profit-sharing 401(k) plan C. Money purchase plan D. Cash balance

Profit-sharing 401(k) plan. All the other plans require a contribution to be made each year. With a profit-sharing 401(k), the employer could contribute nothing at all or the maximum 415 limit. This would allow maximum flexibility and maximum contributions be made.

Which statement is true regarding profit-sharing plans? A. A company must show a profit in order to make a contribution for a given year. B. Profit-sharing plans should make contributions that are "substantial and recurring" according to the IRS. C. Forfeitures in profit-sharing plans must be credited against future years' contributions. D. Employer deductions for plan contributions are limited to 15% of the participant's total compensation.

Profit-sharing plans should make contributions that are "substantial and recurring" according to the IRS. The company doesn't have to show a profit to make a contribution. Forfeitures are normally reallocated to the plan participants. Employers can contribute for each participant up to the lesser of 100% of compensation or $53,000 (compensation maximum $265,000). However, the employer is still bound by the overall deduction limit of 25% of total plan compensation.

Which of the following plans would be least appealing to an employer looking to 1) maximize benefits for older employees, 2) give long-term employees a secure and specified retirement income, and 3) tie employees to the company through the benefit program? A. Defined Benefit pension plan B. Cash-balance pension plan C. Target-benefit pension plan D. Profit sharing

Profit-sharing. For meeting the three listed objectives, A is the best answer, followed by B (also a DB plan), and finally by C (a DC plan that shares some of the characteristics of a DB).

Which of the following qualified plan distributions would be exempt from the 10% early withdrawal penalty? A. Distributions following a separation from service B. Distributions for a temporary, partial disability C. Qualified plan loan D. Higher education cost for a participant's child

Qualified plan loan. Distributions following separation from service must give a year (e.g., age 55). Higher education costs are exempt under IRA rules only. Total, long-term disability is exempt; partial and/or temporary disability does not qualify for the exemption. Plan loans are available at any age tax-free. There is no 59 1/2 rule with plan loans.

How are qualified plans and traditional IRAs most similar? A. Funding limits B. Required minimum distributions C. Participation qualifications D. Vesting requirements

Required minimum distributions. Both have required minimum distribution requirements.

Gabby Hayes owns a small saw mill corporation. Now at age 50 he has come to you for retirement advice. He is taking a salary of $20,000 per month. His employees come and go and rarely last more than a year. He says he really does not care about the employees. Some years ago he really updated the mill to operate by a computer program. He has outsourced the tech servicing problems of the mill. He wants the maximum benefits. Which plan do you suggest? A. A defined benefit plan with a 3-year cliff vesting and one year eligibilty B. SEP IRA C. A profit sharing plan with a 2-6 year graded vesting and one year eligibility D. A profit sharing plan 401(k) plan using a 21 and 1 year eligibilty

SEP IRA. Unless it says the corporation is profitable, the defined benefit is an overkill. Relative to the SEP simple investment, the profit sharing 401(k) is an administrative nightmare. Granted he could contribute an extra $6,000 under the 401(k) catch-up provisions. Answer C is a good answer but again the SEP will work with its 3-year eligibility requirement.

Which plan contributions are not subject to FICA and FUTA? A. SEP B. SARSEP C. 403(b) D. SIMPLE IRA E. SIMPLE 401(k)

SEP. In the deferral-type plans, the employee contribution is subject to FICA and FUTA.

Which retirement plan is best for a woman who is a consultant (self-employed) and makes $150,000. She wants to put away 10%. A. Keogh B. SEP C. IRA D. Roth IRA

SEP. The SEP allows for up to 18.59% (self-employed). It is simple. A Keogh answer by itself isn't enough of an answer. It should say Keogh DB, MP or PS.

Joseph Mills, owner of Mills Manufacturing, has seen excessive employee turnover. He would like some kind of retirement plan. The number of employees on the payroll averages 50-60 yearly. He wants a simple plan. He will match to a limited extent. Which plan would you suggest? A. SIMPLE IRA B. Profit-sharing 401(k) C. SIMPLE 401(k) D. SEP

SIMPLE IRA. The SIMPLE IRA has a special election under the 100% match on the first 3%. Under a SIMPLE IRA, the employer may elect a 1% match in no more than 2 years of any 5-year period. The SIMPLE 401(k) may not have a special match election. It has an extremely rigid plan design. The SIMPLE 401 (k) and the PS 401(k) are ERISA plans. They are subject to all the normal ERISA requirements (not simple plans). SEPs do not allow for matching.

Which of the following statements correctly describes a SIMPLE? A. Employee deferrals are limited to $12,500, and employer contributions are limited to 25% of compensation. B. An employer can offer a SIMPLE and a money purchase plan. C. Salary deferrals are subject to FICA and FUTA. D. Participant accounts are subject to vesting.

Salary deferrals are subject to FICA and FUTA. Answer A is incorrect there is a 3% match. If a company does a SIMPLE it cannot offer another plan. There is no vesting with IRA type accounts.

Mrs. Fitch recently retired. She took a 100% distribution from her retirement plan. Her employer did not take a 20% mandatory withholding. What kind of plan did she have? I. Defined benefit II. 403(b) III. Defined contribution IV. Profit-sharing 401(k) V. SIMPLE IRA

Simple IRA. A direct distribution from a qualified plan requires the plan administrator to withhold 20%. A SIMPLE is not a qualified plan; a SIMPLE 401(k) is a qualified plan. 403(b) distributions that are not directly rolled over are subject to mandatory withholding. Answer C is the best choice.

Client comes into your office for a third meeting. Here is some of the data you have collected. She is age 55 and looking to leave her job for early retirement in a year. Her IRA account is valued at $150,000 and is invested in growth mutual funds. She also has a 401k account with a value of $1,200,000 invested in target date mutual funds. She is counting on this these assets to meet her income needs. She would like to roll the 401k account into her IRA as others have suggested. What should you do? A. Complete a Risk Tolerance questionnaire to determine how to invest the rollover B. Have her contact her company's HR department to find how to do a Rollover from the 401k into her IRA C. Focus only on the IRA account D. Tell her to keep the 401k as is, as she can withdraw funds without a 10% early withdrawal tax E. Complete an income distribution plan for her, up to her life expectancy of 93.

Tell her to keep the 401k as is, as she can withdraw funds without a 10% early withdrawal tax Tell her to keep the 401k as is, as she can withdraw funds without a 10% early withdrawal tax. While a risk tolerance questionnaire is important to ensure assets are allocated appropriately, and an income distribution plan should be completed-the first and most important question is where to hold the funds once retired. As she is currently 55 and looking to retire at 56, by keeping the funds in the 401k plan, she can take withdrawals without a 10% penalty tax, which would be imposed should she roll the funds into an IRA account. From ages 56-59½, the best place for the funds is the 401k. After age 59½, when penalty free withdrawals are allowed from IRA account, a rollover could be considered. This is also an area regulators are beginning to focus much more on in a desire to not have advisors overuse rollovers for revenue generation.

Jack, age 40, is employed by Bet-On-Us. The company recently established a SIMPLE. Jack has been a participant fewer than two years. He contributed $3,000, and his employer matched $600. He has decided to leave the company and take all the money as a distribution. Which of the following is true? A. The $3,000 will be taxable as ordinary income plus a 10% early withdrawal penalty. B. The $600 will be forfeited and allocated to the remaining employees; the remaining $3,000 will be taxed at ordinary income tax rates plus a 10% penalty. C. The $3,600 will be taxable as ordinary income plus a 10% early withdrawal penalty. D. The $3,600 will be taxable as ordinary income plus a 25% early withdrawal penalty. E. Jack cannot take any distributions for two years.

The $3,600 will be taxable as ordinary income plus a 25% early withdrawal penalty. Employer contributions are nonforfeitable. The 10% penalty is increased to 25% for distributions taken within two years of the employee's first participation.

Lori, age 67, feels good about retirement. She will get about $2,500 from Social Security per month (paid in maximum over 35 years). She also elected to take a single life payout from an old defined benefit program (frozen) of $5,000.00 per month. When the defined benefit plan was frozen some years ago, the company opted to do a profit-sharing 401(k). She is not planning to take any distributions from the 401(k) at this time. To supplement her income and allow her to ease into retirement, she is working part-time and making $3,000 per month. Her CPA has told her 85% of her Social Security will be taxable. How would you respond? A. The CPA is right. B. No, she will have to return half of her $2,500 a month Social Security payment. C. No, the maximum tax rate is 39.6%. D. No, she is beyond age 66.

The CPA is right. Her income puts her above $34,000 MAGI. 85% of her benefits will be taxed. Her age is above NRA and the $1 for $2 rule and the $1 for $3 rule do not apply.

Gloria Goodlooking has just been promoted to a senior marketing position. Now she is wondering if her increased salary will actually put more money in her pocket. She is being hit with the extra .9% and 3.8% Medicare tax and the 39.6% tax bracket. The company she works for does not have a retirement plan. She is wondering if she should put $5,500 in her IRA or invest in a low income housing program that would produce a $5,500 credit. Which would benefit her most tax wise? A. The IRA B. The low income housing program C. Without knowing about the investment potential of the IRA or the low income housing program plus her risk tolerance, there is no answer. D. They produce the same tax effect.

The low income housing program. Even if she hits a 50% income tax bracket, the IRA will only produce a $2,750 tax deduction. ($5,500 x 50%)

If a defined benefit plan is terminated by the employer, which of the following is true? A. The 10% penalty (59-1/2 year rule) will not apply to distributions. B. The account balance must be rolled over into an IRA account. C. The plan is 100% vested. D. The plan is fully funded.

The plan is 100% vested. The 10% penalty may or may not apply depending on the participant's age. The plan is fully funded at normal retirement age, not necessarily at a premature termination. The participant would get the account balance. It would be fully vested.

Lucy, age 32, asked you which factor least affects her ability to retire at age 60. She is a participant in a profit sharing plan. A. Her age B. Her investment risk tolerance C. Future inflation D. The plan's assumed investment return

The plan's assumed investment return. Age and investment returns will affect the future account balance. Inflation will affect salary levels and therefore contributions. There is no assumed return in a Profit Sharing plan.

What is the maximum retirement benefit for a participant in a target benefit plan? A. $53,000 per year B. 100% of the participant's salary ($265,000 cap) C. The actuarial value D. The value of the participant's account at retirement

The value of the participant's account at retirement. The question asked for the retirement benefit not the contribution. The retirement value is the account value.

Which of the following statements regarding Roth salary deferral accounts is false? A. A TSA [(403b)] may be offered as a Roth account. B. Current 401(k) sponsors may offer Roth 401(k) accounts. C. Governmental 457 accounts may be offered as Roth accounts. D. There are income restrictions associated with a Roth 401(k).

There are income restrictions associated with Roth 401(k). Only current 401(k), 403(b) and 457(b) sponsors may offer a "qualified Roth contribution program". There are no income restrictions like with Roth 401(k) phaseouts ($183,000 - $193,000).

Bob and Sally, married filing jointly, have an AGI of $200,000. Neither Bob nor Sally has a retirement plan at work. What IRA options are available to them? A. They can both start deductible IRAs. B. They can both start Roth IRAs. C. They can either start deductible IRAs or Roth IRAs. D. The can't start deductible IRAs or Roth IRAs.

They can both start deductible IRAs. Their AGI is too high to do Roth IRAs, but since neither has a pension plan, they can both do deductible IRAs.

Which of the following investment vehicles may not be used to fund a TSA? A. Open-end investment management companies B. Mutual funds C. Annuities with incidental life insurance D. U.S. operating company stock (cannot be passive)

U.S. operating company stock (cannot be passive) Answer A is a different name for Answer B. Any type of annuity is an acceptable investment. Incidental life insurance within the annuity is also acceptable. A TSA cannot be funded with common stock.

The employee's final-average monthly salary is $4,800. To arrive at the employee's benefit, multiply 1.25% by the $4,800 final-average monthly salary by 25 ( the number of years of service). The employee's monthly retirement benefit will be equal to $1,500 paid in the form of a life annuity. This is an example of what type of benefit formula? A. Flat-percentage-of-earnings B. Flat-amount-per-year of service C. Unit-benefit D. Flat-benefit-percentage

Unit-benefit. Answer C is also known as percentage-of-earnings-per-year of service. Answer D is nonsense.

Sally Adams works for ABC, Inc. ABC has a 401(k) that Sally has been contributing to. ABC does a 3% match. Sally is upset with the plans performance. Her personal financial planner has suggested she transfer money out of the 401(k) and into an IRA while she is still working at ABC. Can this adviser help this employee? A. No, it could be construed as a violation of the adviser's fiduciary duty to keep her in the plan. B. Yes, as long as it is an arm-length transfer C. No, in-service withdrawals are never allowed D. Yes, the funds are just going from one retirement account to another

Yes, as long as it is an arm-length transfer. First, in service withdrawal are allowed in some plans. As you read on you can see how touchy the question could get. Some may select Answer A. In an advisory opinion issued in 2005, the DOL said that an adviser not connected to a plan can recommend that a participant roll over plan funds to an individual retirement account he or she manages without triggering fiduciary-duty rules under the Employee Retirement Income Security Act of 1974. The situation is more complicated when an adviser works for a plan. "If a fiduciary exercises control over plan assets to cause the participant to take a distribution and then to invest the proceeds in a IRA account managed by the fiduciary, the fiduciary may be using plan assets in his or her own interest, in violation of ERISA," the DOL opinion stated.

Sally, a widow, continues to work past age 70 1/2. She continues to add to her 401(k). She has $100,000 in her IRA and $150,000 in her 401(k). Does she have to take minimum distributions? A. Yes, from both plans B. Yes, from her IRA C. Yes, from her 401(k) D. No

Yes, from her IRA. She must take RMDs from her IRA. Distributions from the 401(k) can wait until she retires.

Can a corporation that issues qualifying stock options (ISOs) receive a tax deduction for the ISOs at any time? A. Never B. Always C. Yes, if the ISO is disqualified D. Yes, if the ISO is qualified E. Yes, if $100,000 worth of ISO stock is granted

Yes, if the ISO is disqualified If the stock is sold before the two year /one year holding period, the excess of the fair market value of the shares at the time of exercise over the exercise price is treated as compensation (a deduction by the corporation).

Husband (Phil) and wife (Tamara) (second marriage for both) want to make sure the surviving spouse is taken care of, but both want their assets to go to their own children from prior marriages. Tamara's (age 60) IRA still has her first husband listed as her beneficiary. He died 5 years ago. Can Tamara name her QTIP trust as the primary beneficiary? A. No, only her revocable trust can be a named beneficicary. B. Yes, but it only can be a contingent beneficiary not a primary beneficiary. C. Yes, if the requirements for a trust to be a beneficiary are met, she can name her QTIP trust as the beneficiary. D. No, only a natural person can be a beneficiary.

Yes, if the requirements for a trust to be a beneficiary are met, she can name her QTIP trust as the beneficiary. This is an IRA account, not a qualified plan.

May an individual with two IRA accounts satisfy the minimum distribution rules by taking a distribution from only one plan? A. No, proportional amounts must be taken out of each account. B. Yes, the first step is to calculate the required minimum distribution from the aggregate IRA values and then take the total required distribution from one plan. C. Yes, the first step is to calculate the required minimum distribution from each plan separately and then take one of the distributions. D. No, the IRS has specifically ruled against taking distributions from only one plan.

Yes, the first step is to calculate the required minimum distribution from the aggregate IRA values and then take the total required distribution from one plan. If answer B is accomplished, then the distributions can be made from either or both plans.

Brad, a school teacher, takes a summer job with a local government agency each summer. Brad is contributing $18,000 into his 403(b)/TSA. Can he defer a portion of his salary into the local government agency's Section 457 plan? A. Yes, up to $18,000 B. Yes, up to one-third of his compensation C. No, he has already exceeded $18,000 of aggregate deferrals D. No, he has to be a full-time employee

Yes, up to $18,000. Under the new rules, he can defer the lesser of $18,000 or 100% of compensation.

Mr. Pope age 55 is a sole proprietor. He wants to establish an uncomplicated retirement plan to put away the maximum allowable per year. He has no employees, and his net profit is always in excess of $250,000. Which type of plan should he adopt? A. SIMPLE 401(k) B. Profit-sharing C. SIMPLE D. SEP E. uni-401(k)

uni-401(k) With the uni-401(k) he can defer $18,000 plus add employer contributions to a cap of $53,000 plus catch-up of $6,000 (page 3-7). The SIMPLE and SIMPLE 401(k) would only allow for $12,500 plus 3% of compensation. The profit-sharing and SEP would allow him to do $53,000 but no catch-up.