Ch. 11 - Retirement Plans

A description of a qualified plan's insurance contract may be found in which ERISA reporting form?

a. annual return/report (Form 5500)

b. shareholder's report

c. IRS Form 1040

d. summary report (Form 6500)

A life insurance producer's underwriting duties may include

a. approving or declining a life insurance application

b. seeking additional information requested by the insurance company

c. ordering an MIB report

d. determining the rate classification of the applicant

An employee welfare plan exempt from ERISA regulations would be

a. church plans

b. indemnity plans

c. split dollar plans

d. accident only plans

An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?

a. distribution is subject to capital gains tax

b. distribution is subject to ordinary income tax

c. distribution is subject to a tax penalty

d. distribution is subject to federal income tax withholding

Traditional Individual Retirement Account (IRA) distributions must start by

a. age 59 1/2

b. age 65

c. April 1st of the year following the year the participant age 59 1/2

d. April 1st of the year following the year the participant age 70 1/2

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

a. rollover plan

b. 403(b) plan

c. profit-sharing plan

d. salary reduction plan

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?

a. 30%

b. 40%

c. 50%

d. 60%

According to ERISA regulations, a Summary Plan Description must be provided to a new plan member within days of the member's eligibility date.

a. 30

b. 60

c. 90

d. 120

ERISA requires that a Summary Plan Description must be provided to a new plan member within how many days following the new member's eligibility date?

a. 30

b. 45

c. 90

d. 120

Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?

a. the 403(b) custodian

b. the financial institution

c. the employer

d. the participating employee

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid

a. mandatory income tax withholding on the amount transferred

b. paying transfer fees

c. paying trustee fees

d. ever playing income taxes on the distributions

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

a. are not tax-deductible

b. are restricted to minimum limits set by the IRS

c. are restricted to maximum limits set by the IRS

d. must be matched dollar-for-dollar by the employer

The IRS has a "minimum coverage" rule regarding qualified retirement plans. This rule states that each qualified plan is required to

a. benefit a broad cross-section of employees

b. benefit a minimum number of employees

c. provide a minimum amount of income per year

d. provide benefits to a company's executive team

Premature IRA distributions are subject to a penalty tax of

a. 0%

b. 10%

c. 15%

d. 20%

Which of the following is TRUE about a qualified retirement plan that is "top heavy"?

a. more than 30% of plan assets are in key employee accounts

b. more than 40% of annual additions are for key employee accounts

c. more than 50% of plan assets are in key employee accounts

d. more than 60% of plan assets are in key employee accounts

A qualified profit-sharing plan is designed to

a. allow key employees to participate in the profits of the company

b. distribute a portion of company earnings to its employees

c. keep key employees from leaving the company

d. allow employees to elect company officers

A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 for income tax withholding. Which federal taxes apply if none of the funds were rolled over?

a. only income taxes on $30,000

b. only income taxes on $24,000

c. income taxes plus a 10% penalty tax on $30,000

d. income taxes plus a 10% penalty tax on $24,000

According to the IRS, a company may NOT do which of the following in regards to funds in a qualified retirement plan?

a. transfer the funds to a new custodian

b. invest the funds in mutual funds

c. transfer vested funds to terminated employees

d. repossess the funds for business purposes

Contributions made by an employee to a qualified retirement plan are required to be

a. subject to income taxes

b. fully refundable

c. nonforfeitable

d. subject to a vesting schedule

XYZ Corp has implemented a qualified retirement plan. This plan may NOT discriminate

a. against employees under the age of 21

b. in favor of highly compensated employees

c. in favor of employees with higher seniority

d. against stockholders

Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted?

a. 20% of the funds are subject to taxes

b. 80% of the funds are invested in a separate account

c. If Tom's employment is terminated, 20% of the funds could be forfeited

d. If Tom's employment is terminated, 80% of the funds could be forfeited

Which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions?

a. qualified plan waiver

b. trustee-to-trustee transfer

c. conduit IRA

d. 1035 exchange

Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The widow qualifies for

a. the marital deduction

b. death benefits

c. Section 1035 exchange

d. capital gains taxation

In an individual retirement account (IRA), rollover contributions are

a. subject to capital gains tax

b. subject to ordinary income tax

c. partially limited by dollar amount

d. unlimited by dollar amount

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?

a. 10% is withheld for income taxes

b. 20% is withheld for income taxes

c. 30% is withheld for income taxes

d. nothing is withheld

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

a. 10% tax penalty for early withdrawal

b. capital gains tax

c. income tax and penalty tax

d. ordinary income tax

An individual working part-time has a gross income of $5,000 for this year. If this individual has an IRA, what is the maximum deductible IRA contribution allowable?

a. no deduction allowed

b. $5,000

c. $2,000

d. $1,000

First-time homebuyers are able to withdraw up to how much from their qualified IRAS without incurring the 10% early withdrawal penalty?

a. $2,500

b. $5,000

c. $7,500

d. $10,000

When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?

a. 10%

b. 20%

c. 30%

d. None

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

a. surrender charge is applied

b. the account can be rolled into the surviving spouse's IRA

c. distributions will be received tax-free if surviving is over age 59 1/2

d. future distributions are payable to the owner's estate

A Keogh plan is a(n)

a. unqualified retirement plan for large corporations

b. qualified retirement plan for the self employed

c. tax-exempt annuity for government workers

d. split dollar plan for key employees

How are qualified Roth IRA distributions normally treated for tax purposes?

a. 10% penalty tax is applied

b. taxed as ordinary income

c. capital gains is applied

d. received income tax-free

What is another name for a Keogh plan?

a. Roth IRA

b. HR 10 plan

c. Rollover plan

d. 1040 plan

An employer that offers a qualified retirement plan (as opposed to a non-qualified plan) to its employees is eligible to

a. avoid ERISA regulations

b. make tax-deductible contributions to the plan

c. make tax-deductible contributions to key employees only

d. make partial tax-deductible contributions to the plan

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

a. tax-free distributions

b. salary-deferral distributions

c. salary-deferral option

d. a defined retirement benefit

Which of these statements about traditional individual retirement accounts is accurate?

a. 10% penalty is applied to withdrawals after age 59 1/2

b. withdrawals are normally tax-free to the receipient

c. 10% penalty is applied to withdrawals prior to age 59 1/2

d. contributions are not tax deductible

Tim is retired and has recently separated from his wife. He receives benefits from a qualified retirement plan through his former employer. The plan's trustee has decided to split these benefit payments between Tim and his estranged wife. This decision is likely in violation of which IRS rule?

a. reasonable expectations

b. alienation of benefits

c. minimum coverage

d. indemnity of benefits

What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan?

a. 25

b. 50

c. 100

d. 250

Which of these is a true statement regarding survivor benefits under a qualified retirement plan?

a. survivor benefits can only be waived with the written consent of a married employee's spouse

b. survivor benefits CANNOT be waived with the written consent of a married employee's spouse

c. survivor benefits are rarely included in small company plans

d. survivor benefits do not apply to divorced employees

The time limit an individual has to "rollover" funds from an IRA or qualified plan is

a. 60 days

b. 90 days

c. 120 days

d. no limit

An officer for a corporation takes out numerous unsecured loans from the company's qualified retirement plan. Which of these rules is the plan in violation of?

a. Key employee rule

b. Top heavy rule

c. Vesting rule

d. Exclusive benefit rule

Which of the following situations would allow funds to be deposited into a rollover IRA

a. an individual receives a $100,000 inheritance

b. a family receives $1,000,000 in a wrongful death lawsuit

c. an employee quits her job and receives $50,000 from her qualified plan

d. a policyowner surrenders his life insurance policy's $25,000 cash value