All Past Quiz + Exam Questions Flashcards
TRUE OR FALSE:
An employee, age 40, cannot defer more than $22,500 for 2023 of their compensation into a SARSEP in a single year.
True
TRUE OR FALSE:
To establish a SARSEP, an employer had to have a minimum of 25 employees.
False
TRUE OR FALSE:
A 55-year-old individual can contribute a maximum of $6500 to an IRA in 2023.
False
TRUE OR FALSE:
Annual contributions to an IRA are limited to the lesser of a single individual individuals earned income or the annual limit in effect.
True
TRUE OR FALSE:
Individuals who do not have any earned income are never permitted to contribute to an IRA.
False
TRUE OR FALSE:
IRA contributions that exceed the contribution limits are subject to an excise tax of six percent.
True
TRUE OR FALSE:
Individuals who are active participants in a qualified retirement plan or SEP may be subject to a reduced maximum deductible IRA contribution.
True
TRUE OR FALSE:
Lump sum IRA distributions may be taken at any time without being subject to penalty.
False
TRUE OR FALSE:
The savers credit is generally available to all taxpayers who saved in a 401(k) plan or an IRA regardless of income.
False
TRUE OR FALSE:
The distribution rules for IRA and annuities are the same as for traditional IRAs.
True
TRUE OR FALSE:
As with traditional IRA, Roth IRAs may not be funded after the owner obtain the age of 70.5.
False
TRUE OR FALSE:
An individual may contribute to a Roth IRA if they fall within prescribed earned income limits.
True
TRUE OR FALSE:
Individuals with high taxable incomes are permitted to convert traditional IRAs to Roth IRAs.
True
TRUE OR FALSE:
A backdoor Roth may be used by a taxpayer with high income to funnel contributions from a traditional IRA to a Roth IRA without incurring additional income tax.
True
TRUE OR FALSE:
Cash, stock, bonds, life insurance, and collectibles are all permitted investments for IRAs.
False
TRUE OR FALSE:
Funds in an IRA may be transferred to a qualified plan.
True
TRUE OR FALSE:
IRAs are exempt from creditor’s claims by ERISA.
False
TRUE OR FALSE:
Loans from an IRA are considered prohibited transactions.
True
TRUE OR FALSE:
Requirements for coverage in a SEP include an employees performance of service for three of the last five years.
True
TRUE OR FALSE:
Part-time employees are exempt from being included in a SEP.
False
TRUE OR FALSE:
Employer contributions to SEPs are discretionary and do not have to be made each year.
True
TRUE OR FALSE:
Employer contributions to a SEP are always 100% vested.
True
Axle, who is currently age 52, made his only contribution to his Roth IRA in 2023 in the amount of $6500. If he were to receive a total distribution of $11,000 from his Roth RA in the year 2028 to purchase a new car, how would he be taxed?
A. Since Axle waited, five years, the distribution will be classified as a qualified distribution and will therefore not be taxable or subject to the 10% early distribution penalty
B. Since Axel waited, five years, the distribution will be classified as a qualified distribution and will therefore not be taxable, but will be subject to the 10% early distribution penalty
C. Although Axel waited, five years, the distribution will not be classified as a qualified distribution and will therefore be taxable and will be subjecting the 10% or late distribution penalty
D. Although Axel waited five years, the distribution will not be classified as a “qualified distribution” and will therefore be taxable to the extent of earnings and will be subject to the 10% early distribution penalty on the amount that is taxable
D. Although Axel waited, five years, the distribution will not be classified as a qualified distribution and will therefore be taxable to the extent of earnings and will be subject to the 10% early distribution penalty on the amount that taxable
Gloria, divorced and age 55, received taxable alimony of $72,000 in 2023. In addition, she received $7000 in earnings from a part-time job. Gloria is not covered by a qualified plan. What is the maximum deductible IRA contribution that Gloria can make for 2023?
A. $2000
B. $3000
C. $6500
D. $7500
C. $6500
Robbie and Robyn, both age 45, are married and filed a joint return for 2023. Robyn earned a salary of $100,000 in 2023 and is covered by her employer’s 401(k) plan. The employer made a 2% non-elective contribution to the plan on her behalf in 2023. Robbie and Robyn earned interest of $40,000 in 2023 from a joint savings account. Robbie is not employed, and the couple had no other income. On April 15, 2024, Robyn contributed $6500 to an IRA for herself and $6500 to an IRA for Robbie. The maximum allowable IRA deduction on the 2023 return is:
A. $0
B. $5,850
C. $6,500
D. $13,000
C. $6,500
David took a lump-sum distribution from his employer’s qualified plan at age 56 when he terminated his service. He rolled over his distribution using a direct rollover to an IRA. Assuming David has met 10-year forward averaging requirements, which of the following is/are correct regarding tax treatment of the transaction?
- If at age 59 he distributes the IRA, he benefits from 10-year forward averaging.
- If he rolls the entire IRA to a new employer’s qualified plan, he may be eligible for forward averaging treatment in the future.
- If he rolls over a portion of the IRA to a new employer’s qualified plan, he may preserve any eligibility for forward averaging on that portion that was rolled over.
- If David immediately withdraws the entire amount from his IRA, he may benefit from 10-year forward averaging.
A. 3 only
B. 2 and 3
C. 2, 3, and 4
D. 1, 2, 3, and 4
B. 2 and 3
Which statements are generally correct regarding penalties associated with IRA accounts in 2023?
- Distributions made prior to age 59 1/2 hour subject to the 10% premature distribution penalty.
- There is a 25% access tax. I am required minimum distribution, not made by April 1 of the year following the year in which age 73 is attained.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
C. Both 1 and 2
TRUE OR FALSE: Plan selection should only focus on the needs of the company and should never focus on the knees of the small business owner as this would be a conflict of interest.
False
TRUE OR FALSE: While an employee census is generally essential, it may not be critical if the only objective is to provide a savings vehicle for employee contributions.
True
TRUE OR FALSE:
An employer with fluctuating cash flows will generally choose a pension plan.
False
TRUE OR FALSE: To take a deduction for contributions for a particular year, the qualified plan must be adopted by the due date of the tax return for the plan year including extensions.
True
TRUE OR FALSE: Notification of the adoption of a qualified plan may be made in person, via email, or by posting notice at the place of business.
True
TRUE OR FALSE: If the plan sponsor shifts the investment responsibility to the plan participants, then the sponsor no longer has any fiduciary responsibility.
False
TRUE OR FALSE: Defined benefit plans must make quarterly installment payments of the required contributions.
True
Excess IRA contributions are subject to a/an __________ excise tax on excess contributions for each year the excess contribution remains in the account.
A. 10%
B. 1.45%
C. 6%
D. 6.2%
C. 6%
TRUE OR FALSE: Based on legislative changes, traditional and/or Roth IRA contributions can be made after age 70½ assuming other eligibility criteria (e.g., earned income) are met.
True
Regardless of a taxpayers Adjusted Gross Income and/or active plan participation, anyone with earned income is allowed to __________ to a traditional IRA, up to the maximum allowable contribution.
A. make contributions
B. deduct contributions
A. make contributions
To which of the following participant accounts would an employer be required to make a SEP-IRA contribution?
A. J.R., an eligible plan participant who died in June of the plan year.
B. LaDonna, a former employee, who worked until September of the plan year.
C. Damien, age 20, who has been employed by the company for the last two years.
D. Choices a and b only
D. Choices a and b only
Your long-time client has reached their Required Minimum Distribution age. Though required to make distributions, they are philanthropic, would like to make a donation to their favorite non-profit organization, and they do not need the money to fulfill their own needs. Which distribution strategy might you recommend?
A. Hardship Withdrawal
B. Indirect Rollover
C. Direct Rollover
D. Qualified Charitable Distribution
D. Qualified Charitable Distribution
TRUE OR FALSE: Traditional IRA contributions must be made by the due date of the individual’s tax return, including extensions.
FALSE – Always by April 15th (tax return filing date)
An individual may be able to fund a Roth IRA through which of the following methods:
I. Non-deductible contributions
II. Conversion of existing, traditional IRA accumulations
III. Backdoor Roth
IV. Deductible contributions
A. I, II, and IV
B. I and IV
C. I, II, and III
D. All of the choices are ways I which a Roth IRA can be funded.
C. I, II, and III
An IRA owner could choose to invest their portfolio in each of the following except:
A. Stocks
B. Life Insurance
C. Bonds
D. Options, if allowed by the custodian.
B. Life Insurance
TRUE OR FALSE: IRAs are afforded all the same protections as qualified plans under ERISA.
False
Tristan is single, aged 47, and an active plan participant. His adjusted gross income, or AGI, for 2024 is $82,000. Based on the 2024 phase out range of $77,000 - $87,000 for single filers who are active plan participants, how much of a full $7,000 traditional IRA contribution can Tristan deduct for tax purposes, if any for 2024?
A. $7,000
B. $0
C. $5,000
D. $3,500
D. $3,500
Deduction = $7000 x [($82,000 - $77,000) / $10,000]
TRUE OR FALSE: When evaluating qualified plans, it is important to remember that pension plans may best suit employers with unpredictable cash flows due to their discretionary funding feature.
False
TRUE OR FALSE: A qualified plan for a self-employed person might also be called a Keogh plan.
True
One of the purposes of a retirement plan is to accumulate retirement assets. Increases in retirement assets are a result of contributions by employers and employees as well as investment earnings on the retirement assets. Which of the following is correct regarding the investment management of retirement assets?
A. The primary reason that employees are given the right to self-direct plan assets is to empower them.
B. Employers can commingle assets from employees’ retirement accounts and have the assets managed by a third-party asset manager or manage the assets in-house.
C. Employers eliminate fiduciary responsibility by allowing employees to self-direct their retirement accounts.
D. The employer cannot manage assets in a 401(k) plan.
B. Employers can commingle assets from employees’ retirement accounts and have the assets managed by a third-party asset manager or manage the assets in-house.
Which of the following are acceptable reasons for an employer to terminate a qualified retirement plan?
- The employer is not profitable and cannot afford to make plan contributions.
- The employer wants to reduce the cost of retirement benefits. As a result, the employer terminates a defined benefit plan and replaces it with a 401(k) plan.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 or 2
C. Both 1 and 2
When designing qualified retirement plans, which of the following methods is usually the most costly?
A. Individually designed plans
B. Prototype plans
C. Master Plans
D. Volume Submitter Plans
A. Individually designed plans
Sebastian operates a small business with his wife Ariel. They have no other employees. They have $340,000 of assets in the plan. Which of the following forms must they file?
A. Form 5500-EZ
B. Form 5500-SF
C. Form 5500
D. They do not have to file form 5500.
A. Form 5500-EZ
How frequently are defined benefit pension plans required to make installment payments of their required contributions?
A. Annually
B. Semi-annually
C. Bi-annually
D. Quarterly
D. Quarterly
The first step in qualified retirement plan selection is:
A. Prepare an employee census.
B. Identify the types of plans that can meet both qualitative and quantitative objectives.
C. Establish the objectives of the plan.
D. Assess each plan’s financial characteristics.
C. Establish the objectives of the plan
Communication of certain information to eligible employees is a mandate for qualified plans. Which of the following is not a required document when certain plans are established, a participant becomes eligible to participate, plan changes are made, or on a recurring basis as a plan overview?
A. Summary Annual Report
B. Consolidated Financial Statement
C. Summary of Material Modification
D. Summary Plan Description
B. Consolidated Financial Statement
Contributions to a defined contribution plan over the annual limits are known as excess annual additions. Which of the following is not an option a plan sponsor can use to correct excess annual additions?
A. Invest the excess in capital improvement projects.
B. Make corrective distributions
C. Hold excess annual additions in a separate account and allocate in future years.
D. Make corrective distributions.
A. Invest the excess in capital improvement projects.
Excess IRA contributions are subject to a/an __________ excise tax on excess contributions for each year the excess contribution remains in the account.
A. 10%
B. 1.45%
C. 6%
D. 6.2%
C. 6%
TRUE OR FALSE: Based on legislative changes, traditional and/or Roth IRA contributions can be made after age 70½ assuming other eligibility criteria (e.g., earned income) are met.
True
Regardless of a taxpayers Adjusted Gross Income and/or active plan participation, anyone with earned income is allowed to __________ to a traditional IRA, up to the maximum allowable contribution.
A. make contributions
B. deduct contributions
A. make contributions
To which of the following participant accounts would an employer be required to make a SEP-IRA contribution?
A. J.R., an eligible plan participant who died in June of the plan year.
B. LaDonna, a former employee, who worked until September of the plan year.
C. Damien, age 20, who has been employed by the company for the last two years.
D. Choices a and b only
D. Choices a and b only
Your long-time client has reached their Required Minimum Distribution age. Though required to make distributions, they are philanthropic, would like to make a donation to their favorite non-profit organization, and they do not need the money to fulfill their own needs. Which distribution strategy might you recommend?
A. Hardship Withdrawal
B. Indirect Rollover
C. Direct Rollover
D. Qualified Charitable Distribution
D. Qualified Charitable Distribution
TRUE OR FALSE: Traditional IRA contributions must be made by the due date of the individual’s tax return, including extensions.
False
An individual may be able to fund a Roth IRA through which of the following methods:
I. Non-deductible contributions
II. Conversion of existing, traditional IRA accumulations
III. Backdoor Roth
IV. Deductible contributions
A. I, II, and IV
B. I and IV
C. I, II, and III
D. All of the choices are ways I which a Roth IRA can be funded.
C. I, II, and III
An IRA owner could choose to invest their portfolio in each of the following except:
A. Stocks
B. Life Insurance
C. Bonds
D. Options, if allowed by the custodian.
B. Life Insurance
TRUE OR FALSE: IRAs are afforded all the same protections as qualified plans under ERISA.
False
Tristan is single, aged 47, and an active plan participant. His adjusted gross income, or AGI, for 2024 is $82,000. Based on the 2024 phase-out range of $77,000 - $87,000 for single filers who are active plan participants, how much of a full $7,000 traditional IRA contribution can Tristan deduct for tax purposes, if any for 2024?
A. $7,000
B. $0
C. $5,000
D. $3,500
D. $3,500
Apostolia has a target, gross retirement income of $75,000 per year. Using the 4% per year approach to distribution planning, what does she need the total balance of her portfolio to be at retirement to achieve this level of income?
A. $4 million
B. $7.5 million
C. $1.5 million
D. $1.875 million
D. $1.875 million
Lionel earns $120,00 as an employee of a corporation. He is subject to Social Security and Medicare taxes, and he saves 10% of his gross salary each year. Using the top-down approach to estimating Lionel’s Wage Replacement Ratio (WRR), what percentage of Lionel’s income might he need to replace during retirement? Round to the nearest dollar.
A. 82%
B. 90%
C. 92%
D. 100%
A. 82%
TRUE OR FALSE: Retirement planning should only be done on a pre-tax, or gross basis.
False
Which of the following are factors affecting retirement planning?
I. Savings
II. Annual Income Needs
III. Investment Returns
IV. Retirement Life Expectancy
A. I and III only
B. I, III, and IV
C. II and IV only
D. All the above are factors affecting retirement planning.
D. All the above are factors affecting retirement planning.
Karlee began her full-time career at age 22. She is now 32 and plans on retiring at age 60. What is Karlee’s Work Life Expectancy, or WLE?
A. 38
B. 10
C. 60
D. 28
A. 38
TRUE OR FALSE: The top-down approach to estimating an individual’s Wage Replacement Ratio (WRR) is better served for individuals closer to retirement because expenses are not as likely to change as much, and this approach reviews each current expense to evaluate which preretirement expenses are needed during retirement.
Karlee began her full-time career at age 22. She is now 32 and plans on retiring at age 60. What is Karlee’s Remaining Work Life Expectancy, or RWLE?
A. 38
B. 10
C. 60
D. 28
D. 28
Which of the following Capital Needs Analysis calculation methods assumes an individual’s last dollar is spent on their last day of life?
A. Capital Preservation Model
B. Purchasing Power Preservation Model
C. Annuity Method
D. Capitalization of Earnings Model
C. Annuity Method
Severo saved diligently during his working years and accumulated $2.2 million. Using the 4% per year approach to distribution planning, how much income could he estimate his portfolio might provide?
A. $22,000 per year
B. $88,000 per year
C. $44,000 per year
D. $66,000 per year
B. $88,000 per year
Which of the following investments may be considered low risk using standard deviation as a measure of risk, but may also not keep up with inflation, especially when taxes are considered?
A. Small-Capitalization Stocks
B. U.S. T-Bills
C. Large-Capitalization Stocks
D. All the above may be considered low risk using standard deviation as a measure of risk, but may also not keep up with inflation, especially when taxes are considered.
B. U.S. T-Bills
TRUE OR FALSE: Under normal circumstances, the maximum allowable loan from a qualified plan is the greater of $50,000 or 1/2 of the participant’s vested account balance.
False
Which is the following is NOT true regarding Qualified Domestic Relations Orders (QDRO)?
A. A QDRO could be related to child support.
B. A QDRO may specify a distribution option not outlined in the plan document.
C. A QDRO may be pursuant to a divorce.
D. A distribution pursuant to a QDRO deposited into an IRA or qualified plan is non-taxable.
B. A QDRO may specify a distribution option not outlined in the plan document.
TRUE OR FALSE: Taxable distributions from a qualified plan are subject to a mandatory 10% income tax withholding.
False
Under current legislation, the Required Minimum Distribution age is _____ and is set to increase to _____ for individuals born in 1960 and later.
A. 70.5, 73
B. 72, 73
C. 73, 75
D. None of the above are the correct RMD ages.
C. 73, 75
Anthony turned 73 this year. His account value at the beginning of last year, when Anthony was 72, was $400,000. By the end of last year (December 31) the value had grown to $500,000. The distribution period according to the IRS table for an individual age 72 is 27.4. The distribution period for an individual age 73 is 26.5. To calculate Anthony’s Required Minimum Distribution this year, you would __________
A. Divide $500,000 by 26.5
B. Divide $400,000 by 27.4
C. Divide $500,000 by 27.4
D. Divide $400,000 by 26.5
A. Divide $500,000 by 26.5
TRUE OR FALSE: Generally, distributions from qualified plans are classified as ordinary income. Ordinary income tax rates are the same rates applied to earned income, like income reported on a W-2.
True
Cassidy has a 401(k) balance of $100,000. $80,000 of the balance is vested. Cassidy would like to take a loan, has not taken a loan in the last 12 months, and has no other qualified plan loans outstanding. What is the maximum loan Cassidy could request from her 401(k)?
A. $80,000
B. $50,000
C. $100,000
D. $40,000
D. $40,000
TRUE OR FALSE: One benefit of converting taxable dollars into a Roth plan is that the transition of taxable assets to tax-free assets could ultimately provide a reduction in estate taxes.
True
Which of the following is NOT traditionally a distribution option from a pension plan after attainment of normal retirement age?
A. Single Life Annuity
B. Qualified Joint and Survivor Annuity
C. Lump Sum
D. All the above are traditionally distribution options from a pension plan after attainment of normal retirement age.
D. All the above are traditionally distribution options from a pension plan after attainment of normal retirement age.
Michayla has $250,000 in her traditional IRA. Since all her savings is currently taxable at ordinary income rates, she would like to implement a strategy to provide tax diversification. Which of the following would be a strategy Michayla could implement to create tax diversification for her portfolio?
A. Make a tax-deductible IRA contribution.
B. Consolidate her traditional IRA into a tax-deferred 401(k) offered by her current employer.
C. Enroll in her employer’s 401(k) and contribute 10% of her salary on a pre-tax basis towards retirement.
D. Convert some or all of her traditional IRA to a Roth IRA.
D. Convert some or all of her traditional IRA to a Roth IRA.
Randolph is retiring early from his position as CEO of BIG Co. BIG is providing him with a lucrative severance package for early retirement. Which of the following is the name of this type of benefit?
A. Golden Handcuff
B. Golden Parachute
C. Golden Retriever
D. Golden Handshake
D. Golden Handshake
Which of the following is subject to IRC Section 409A?
A. ESOPs
B. ESPPs
C. ISO plans
D. 457(f) plans
D. 457(f) plans
Qualified plans, ESPPs, ISOs are all excluded from coverage, in most cases. 457(f) plans are subject to 409A.
Chloe is a consultant who issues an invoice December 18th. The company she works for always pays within ten days, including the time for the check to be mailed. If Chloe checks her mailbox on January 1st
and the check is there, which of the following tax rules would cause it to be taxable in the prior year?
A. Substantial risk of forfeiture.
B. Tax triads.
C. Constructive receipt.
D. Economic benefit doctrine.
C. Constructive receipt.
Acme Corporation has created a deferred compensation plan (Plan) for 50 key executives (participants), all of whom are highly compensated employees. Acme contributes each year on behalf of each participant to a trust, T. The trust is not and never has been a qualified trust under §401(a) and is not
exempt from taxation under §501(a). T’s assets are not subject to the claims of Acme’s creditors. Separate accounts that reflect the participant’s share of the net trust assets and income are maintained
for each participant.
A participant’s entire interest in T becomes vested upon completion of three years of service with Acme beginning on the date the individual first becomes a participant in the plan. Participants or their
beneficiaries are entitled to receive their vested interest in the net assets of T, net of applicable withholding and other taxes, on death, disability, or termination of employment. In addition, T is required to distribute to each participant each year an amount that the trustee reasonably estimates will be equal to the amount of federal, state, and local income and employment taxes payable by the participant with respect to the increase in the participant’s vested accrued benefit in T during such year.
T is permitted to make the distribution in part as a distribution of cash to the participant, and in part in
the form of applicable employment tax withholding under federal, state, or local law.
What type of plan is
this?
A. Rabbi trust
B. Unfunded plan
C. Wrap plan
D. Secular trust
D. Secular trust
Which of the following plans is typically subject to a substantial risk of forfeiture as a result of funds being available to creditors upon liquidation of the employer?
- Secular trust.
- Rabbi trust.
- Unfunded promise to pay.
A. 1 and 2
B. 1 and 3
C. 2 and 3
D. 1, 2 and 3
C. 2 and 3
Non-qualified deferred compensation plans often use life insurance for funding within the plan. Why is this?
A. Life insurance investment products typically have higher returns.
B. Life insurance products have tax advantages.
C. Life insurance provides an additional layer of avoidance for constructive receipt.
D. Life insurance limits the liability of the company sponsor for the NQDC plan.
B. Life insurance products have tax advantages.
ISOs are a common benefit for executives. Which of the following statements is not correct regarding ISOs?
A. ISOs can only be granted to an employee of the corporation issuing the ISOs.
B. The exercise of the ISO is limited to a 10-year period.
C. To the extent that the aggregate fair market value of stock with respect to which ISOs are exercisable for the 1st time by any individual during any calendar year exceeds $100,000, such options shall be treated as NQSOs.
D. To qualify as an ISO, the executive must hold the stock for either two years from the grant of the ISO or one year from the date of exercise of the ISO.
D. To qualify as an ISO, the executive must hold the stock for either two years from the grant of the ISO or one year from the date of exercise of the ISO.
On January 15, Year 1, Oscar, a Senior Vice President for Meyer Corporation, is granted 20,000 ISOs at an exercise price of $5. On February 6, Year 2, he exercises all his options when the price of Meyer stock is
$22. When can Oscar sell the ISO shares and avoid a disqualifying disposition?
A. January 16, Year 3.
B. January 16, Year 4
C. February 7, Year 3
D. February 7, Year 4
C. February 7, Year 3
REASON: For a qualifying disposition, he must wait two years from the date of grant and one year from the date of exercise.
On January 15, Year 1, Buddy, a Senior Vice President for Creative Cake Corporation (CCC), is granted 20,000 ISOs at an exercise price of $5. On February 6, Year 2, he exercises all his options when the price
of CCC stock is $22. He sells the ISO shares three years later when CCC stock is trading at $42 per share.
What is his long-term capital gain per share?
A. $20
B. $22
C. $37
D. $42
C. $37
REASON: His basis of the ISO shares (for regular tax) is $5. Thus, the difference between $42 and $5 is the capital gain.
Paris was awarded 1,000 shares of restricted stock of Diamond Corporation at a time when the stock price was $7. Assume Paris properly makes an 83(b) election at the date of the award. The stock vests
three years later at a price of $19 and Paris sells it then. What are Paris’s tax consequences in the year she sells the stock?
A. Paris has W-2 income of $19,000.
B. Paris has a long-term capital gain of $12,000.
C. Paris has W-2 income of $12,000.
D. Paris has a $19,000 long-term capital gain.
B. Paris has a long-term capital gain of $12,000.
REASON: At the time Paris makes the 83(b) election, the value of the stock at that date will be included in her taxable income. Thus, Paris will have W-2 income of $7,000 ($7 x $1,000)in the year the stock was awarded. Any gain beyond that will be capital. Thus, $12,000 will be capital gain.
TRUE OR FALSE: Approximately 80% of men work past age 65.
False
TRUE OR FALSE: The RLE is that time period beginning at retirement and ending at death.
True
TRUE OR FALSE: As the RLE increases because of early retirement, there is generally both an increase in need of funds to finance the RL and the shortened WLE in which to save and accumulate assets.
True
TRUE OR FALSE: Our society tends to save at a rate that is adequate for retirement planning.
False
TRUE OR FALSE: Fixed-income securities generally provide the best hedge against inflation and loss of purchasing power.
False
TRUE OR FALSE: Individuals must considerably impact of inflation when projecting retirement needs.
True
TRUE OR FALSE: The WRR is an estimate of the percentage of an annual income needed during retirement compared to income earned prior to retirement.
True
TRUE OR FALSE: The two methods for calculating WRR or the top-down approach and the budgeting approach.
True
TRUE OR FALSE: Retirees generally rely on Social Security, private pension plans, and personal savings to fund their retirement incomes.
True
TRUE OR FALSE: Social Security is an adequate wage replacement for most individuals.
False
TRUE OR FALSE: Personal savings as a source of retirement income is most influenced by the individual.
True
TRUE OR FALSE: Needs analysis is the process of calculating the amount of investment needed at retirement to maintain the retirement lifestyle.
True
TRUE OR FALSE: The annuity method assumes that the individual will die at the expected life expectancy with a retirement account balance of zero.
True
TRUE OR FALSE: The capital preservation model, the purchasing power preservation model, and the capitalization of earnings are used to medicate the risk of our living retirement funds.
True
TRUE OR FALSE: Sensitivity analysis eliminates the risk of retirement planning.
False
TRUE OR FALSE: Monte Carlo analysis predicts particular events.
False
TRUE OR FALSE: Simulations allow for an unlimited number of simultaneous ranging variable.
True
Which of the following expenditures will most likely increased during retirement?
A. Clothing costs
B. Travel
C. FICA
D. Savings
B. Travel
Gemma a 35-year-old client who earns $45,000 a year pay 7.65% of her gross pay and Social Security payroll, taxes, and saved 8% of annual gross income. Assume that Gemma wants to maintain her exact priest retirement lifestyle. Calculating Gemma’s weight replacement ratio using the top down approach (rounded to the nearest percent) and using pretax tax dollars.
A. 70%
B. 80%
C. 84%
D. 90%
C. 84
Omar would like to determine his financial needs during retirement. All of the following are expenditures, he might eliminate in his retirement needs calculation except:
A. The $200 per month he spends on dry cleaning for his work suits.
B. The $1500 mortgage payment he makes that scheduled to end five years into retirement.
C. The FICA taxes he pays each year
D. The $2000 per month he puts in the savings
B. The $1500 mortgage payment he makes that scheduled to end five years into retirement.
Scarlet has the following expenditures during the current year.
- Health Care – $800
- Savings – $4,000
- Travel – $500
- Gifts to Grandchildren – $1,000
Which of these expenditures would you expect to decrease during Scarlet’s retirement?
A. 2 only
B. 1 and 3
C. 2 and 4
D. 1, 2, 3, and 4
A. 2 only
Nales and Daphne are near retirement. They have a joint life expectancy of 25 years of retirement. Daphne anticipates their annual income in retirement will need to increase each year at the rate of inflation, which they assume is 4%. Based on the assumption that their first year of retirement needs begin on the first day of retirement, for an annual income will be $85,000, of which they have $37,500 available from other sources, and an annual after tax rate of return of 6.5%. Calculate the total amount that needs to be in place when Nils and Daphne begin their retirement.
A. $743,590.43
B. $859,906.74
C. $892,478.21
D. $906,131.31
D. $906,131.31
REASON:
N = 25
i = [(1.065 ÷ 1.04) - 1] x 100 = 2.4038
PMT = 85,000 - 37,500 = 47,500
FV = 0
PV = -906,131.3080
TRUE OR FALSE: SIMPLE plans may operate on a calendar or fiscal year basis.
False
TRUE OR FALSE: SIMPLE IRA plans are permitted for tax-exempt employers and governmental entities.
True
TRUE OR FALSE: SIMPLE plans can only be established for businesses that employ 100 or fewer employees.
True
TRUE OR FALSE: Employers who sponsor a SIMPLE IRA must make either matching contributions or non-elective contributions.
True
TRUE OR FALSE: Distribution from non-Roth SIMPLE IRAs are generally taxed like traditional IRAs.
True
TRUE OR FALSE: Employers that sponsor SIMPLE 401(k) plans must allow for catch-up contributions for participants age 50 and older.
False
TRUE OR FALSE: Employers or individuals can establish a 403B plan.
False
TRUE OR FALSE: 403(b) plans may be covered under ERISA.
True
TRUE OR FALSE: Additional catch-up contributions to a 403(b) plan may be after-tax contributions from the employee.
False
TRUE OR FALSE: For 403B plans the “most recent year service” is always based on a calendar year of service.
False
TRUE OR FALSE: 403(b) plans generally provide for 100% immediate vesting of contributions.
True
TRUE OR FALSE: Churches may established 457 plans.
False
TRUE OR FALSE: A 457 plan may accept after tax contributions from employees.-
False
TRUE OR FALSE: The 457 deferral limit for 2023 is $22,500.
False
TRUE OR FALSE: 457 plans have a special final three-year catch-up provision that allows employees to contribute up to 100% of their compensation in the last three years.
False
TRUE OR FALSE: For 2023, an employer can contribute an additional $22,500 to a 547 plan in addition to the employee deferral contribution of $22,500.
False
TRUE OR FALSE: Distributions from a 457 plan maybe subject to the 10% penalty for early withdrawal prior to age 59.5.
True
Monique, age 42, earns $350,000 annually as an employee for CTM Inc. Her employer sponsors a SIMPLE IRA retirement plan and matches all employee contributions made to the plan dollar for dollar up to 3% of compensation. What is the maximum contribution (employer and employee) that can be made to Monique’s SIMPLE account in 2023?
A. $19,800
B. $21,000
C. $26,000
D. $31,000
C. $26,000.
REASON: The maximum total contribution is $26,000. ($15,500 maximum employee contribution for 2023 + $10,500 employer match). The maximum employee contribution for 2023 is $15,500. The employer has chosen to make matching contributions of up to $10,500 ($350,000 compensation x 3%). Note that the annual compensation limit of $330,000 (2023) does not apply with the SIMPLE IRA match (but does apply with a nonelective contribution).
Which of the following is/are correct regarding SIMPLE plans?
- A SIMPLE plan does not require an annual testing.
- A SIMPLE IRA must follow a three-year cliff investing schedule if the plan is top-heavy.
- A 25% early withdrawal penalty may apply to distributions taken within the first two years of participation in a SIMPLE plan
- The maximum elective deferral contribution to a SIMPLE 401(k) plan is $22,500 for 2023 and $30,000 for 2023 for an employee who has attained the age of 50.
A. 3 only
B. 1 and 3
C. 1, 2, and 3
D. 2, 3, and 4
B. 1 and 3
REASON: Statement 1 is correct. Statement 2 is incorrect. A SIMPLE plan is not subject to vesting rules, and contributions are always a 100% vested. Statement 3 is correct. The early withdrawal penalty is 25% for distributions taken within the first two years of participation. Statement 4 is incorrect. The maximum deferral to a SIMPLE plan is $15,500 for 2023. Employees who have attained age 50 by the end of the tax year will also be eligible to make a catch-up contribution ($3,500 for 2023).
All of the following statements is/are correct regarding tax, sheltered annuities (403b plans) except:
- The non-age based catchup provision is available to employees of all 501(c)(3) organization employers that sponsor a TSA
- Active employees who take withdrawals from TSAs prior to 859.5 or subject to a 10% penalty tax
- TSAs are available to all employees of 501(c) three organization to adopt such a plan
- If an employee has had at least 15 years of service with an eligible employer, an additional catch-up contribution may be allowed
A. 1 only
B. 1 and 2
C. 1, 2, and 3
D. 2, 3, and 4
A. 1 only
REASON: Statement 1 is incorrect. The catch-up provision requires specified service and the correct kind of employer. Statements 2, 3, and 4 are correct.
Which of the following statements is/our correct regarding TSAs and 457(b) deferred compensation plans?
- Both plans require contracts between an employer and an employee
- Participation in either a TSA or a 457 plan will cause an individual to be considered in “active participant“ for purposes of phasing out the deductibility of traditional IRA contributions
- Both plans allow a special final three-year catch-up contribution
- Both plans must meet minimum distribution requirements that apply to qualify plans
A. 1 only
B. 1 and 4
C. 2, 3, and 4
D. 1, 2, and 4
B. 1 and 4
REASON: Statements 1 and 4 are correct. Statement 2 is incorrect because a 457 plan is a deferred compensation arrangement that will not cause a participant to be considered an “active particiapnt”. Statement 3 is incorrect. Only 457(b) plans allow a “final 3-year” catch-up contribution. TSAs have a different special catch-up contribution for employess with at least 15 years of service.
Rex works for New Orleans Museum of Art, which sponsors a 403(b) plan. If Rex is 45 years old and has worked at the museum for the last 20 years, what is his maximum elective deferral for 2023?
A. $22,500
B. $25,500
C. $30,000
D. $33,000
a. $22,500.
REASON: The salary reduction for 2023 is $22,500. An additional catch-up contribution of $7,500 is allowed for individuals who have attained age 50. The other type of catch-up contribution is not available to employees of employers such as museums.
In May 2023, Seth converts $100,000 in this traditional IRA to a Roth IRA. The value of the assets in the Roth IRA drops by 40% due to a significant decline in the stock market that occurs in October 2023. The Roth conversion results in Seth incurring $100,000 of taxable income, when he could’ve waited and converted only $60,000 (after the 40% drop). Which of the following statements is correct?
A. Seth cannot re-characterize the conversion
B. Seth can re-characterize as long as it is done within six months from the date of the conversion
C. Seth can re-characterize after December 31, 2023
D. Seth can re-characterize at any time before the due date of his tax return, including extensions
A. Seth cannot re-characterize the conversion
REASON: Prior to 2018, taxpayers had the ability to recharacterize a Roth conversion up to the due date of the income tax return, including extensions. As a result of The TCJA 2017, Roth conversions cannot be recharacterized after 2017.
Laura, age 43, has several retirement accounts and wants to know what accounts can we rolled over to other accounts. Which of the following statements regarding rollover’s is not correct?
A. She could take a distribution from her SEP IRA and roll it over to a qualified plan without incurring a 20% withholding.
B. She could roll over her government 457(b) plan to her new employer’s qualified plan.
C. She could roll over the funds from her employers qualified plan to our new employer, who sponsors a 401(k) plan with a Roth account, and will be able to convert the funds in an in-plan Roth rollover.
D. She could roll over her traditional rate to her designated Roth account in her 403(b) plan.
D. She could roll over her Traditional IRA to her designated Roth account in her 403(b) plan.
Owen turned 73 on November 1 of 2024 and must receive a minimum distribution from his qualified plan. The account balance had a value of $437,989 at the end of 2023. The distribution period for a 73 year-old is 26.5, and for a 74-year-old it is 25.5 under the uniform lifetime table effective for distribution years after 2021. If Owen takes a $15,000 distribution on April 1, 2025. What is the amount of the minimum distribution tax penalty associated with his first year’s distribution (assume that Owen does not correct the failure, if any, within the correction window)?
A. $0
B. $382
C. $544
D. $764
C. $544
REASON: The required minimum distribution for Owen is $16,528 ($437,989 divided by 26.5) because he is 73 years old as of December 31, 2024. Owen only took a distribution of $15,000, therefore, the minimum distribution penalty (25%) would apply to the $1,528 balance. Therefore, the minimum distribution penalty is $382 (25% of the $1,528). Under the SECURE 2.0 Act, beginning in 2023, the penalty tax for failure to take a required minimum distribution was reduced from 50 percent to 25 percent. The 25 percent penalty is further reduced to 10 percent if the distribution failure is corrected within a specified correction window which ends on the earlier of 1) the date the IRS issues a notice of deficiency, 2) the date the IRS assesses the excise tax, or 3) the last day of the second taxable year that begins after the end of the year in which the tax is imposed.
Viola, who is 75 years old, requested from the IRS at waiver of the 60 day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently move the funds into a taxable account. Viola did not make the request of the IRS until five years after the mistake was made. Will the IRS permit the waiver?
A. No. The IRS never waves this requirement, except under the most extreme of circumstances.
B. Yes. The mistake was the fault of the financial advisor and the IRS regularly granted waivers in these circumstances.
C. No. Viola waited beyond the one year period for filing such a request.
D. No. Viola waited in unreasonable amount of time before filing the request.
D. No. Viola waited in unreasonable amount of time before filing the request.
Which of the following distributions from the qualified plan would not be subject to the 10% early withdrawal penalty, assuming the participant has not attained to age 59.5?
- A distribution made to his file under a qualified domestic relations order (QDRO).
- A distribution from a qualified plan used to pay the private health insurance premiums of a current employee of Clinical Trials Company.
- A distribution to pay for a costs of higher education.
- He should be made immediately after separation from service at age 57.
A. 1 and 2
B. 1 and 3
C. 1 and 4
D. 2 and 3
C. 1 and 4
TRUE OR FALSE: Pension plans generally provide a lump sum distribution.
False
TRUE OR FALSE: A qualified joint and survivor annuity and qualified pre-retirement survivor annuity are required for pension plans.
True
TRUE OR FALSE: Profit-sharing plans may allow for in-service withdrawals.
True
TRUE OR FALSE: Rollovers can consist of distributions of any kind, including those from a qualified plan that are part of a series of substantially equal periodic payments.
False
TRUE OR FALSE: Distributions from qualified plans are always treated as ordinary income.
False
TRUE OR FALSE: QDROs allow retirement benefits to be distributed to a payee spouse without triggering a tax consequence.
False
TRUE OR FALSE: Loans from qualified plans can never exceed 50% of the participant’s vested account balance.
False
TRUE OR FALSE: Loans from qualified plans must always be repaid within five years.
False
TRUE OR FALSE: The loan requires loans from qualified plans to be repaid upon the participant’s termination of employment from the plan sponsor.
False
TRUE OR FALSE: Sam has a vested account balance in her employer-sponsored qualified profit-sharing plan of $18,000. Sam had an outstanding loan balance within the prior 12 months of $9000 that has been reduced to $6000. The maximum loan Sam could take from this qualified plan is $4,000.
True
TRUE OR FALSE: Distributions before a participant attains the age of 59.5 will generally be subject to a 10% penalty.
True
TRUE OR FALSE: If the participants are already separated from service due to retirement, and they wait until they attain age 55 to begin distributions, then they will not be subject to the 10% penalty.
False
TRUE OR FALSE: The first minimum distribution must always be no later than April 15 of the year following the year the participant at the age of 72, 73, or 75 (depending on year of birth).
False
TRUE OR FALSE: Designated beneficiaries for minimum distributions are determined on September 30 of the year following the year of the participant’s death.
True
TRUE OR FALSE: With regard to minimum distributions, a surviving spouse receives more favorable options than any other type of beneficiary in the event of the owner’s death.
True
TRUE OR FALSE: Stretch IRAs are available for all designated beneficiaries.
False
TRUE OR FALSE: For deaths prior to January 1, 2020, stretch IRAs or best accomplished by choosing young beneficiaries.
True
TRUE OR FALSE: Leaving an IRA to a spouse could be a better way to stretch an IRA then leaving it to a child.
True
TRUE OR FALSE: The eligible beneficiaries of an inherited IRA will use the life expectancy of the youngest beneficiary on the account.
False
TRUE OR FALSE: Inherited IRAs or protected in bankruptcy because they are IRAs.
False
TRUE OR FALSE: Trusteed IRAs allow IRA owners to control how much distributions from the IRA will be paid out into whom the assets will pass to after the death of the primary beneficiary.
True
TRUE OR FALSE: See-through trusts are the same as trusteed IRAs.
False
TRUE OR FALSE: Social Security benefits are not payable until an individual reaches full retirement age.
False
TRUE OR FALSE: Social Security contributions are placed in the following trust funds: OASI, DI, and SMI.
False
TRUE OR FALSE: “Fully insured” means that a worker has earned a certain number of quarters (generally 40) of coverage under the Social Security system.
True
TRUE OR FALSE: Social Security benefits can be paid to the dependent parents of a deceased insured worker at age 62.
True
TRUE OR FALSE: Social Security benefits are based on the average of the three highest paid years for a covered worker.
False
TRUE OR FALSE: Full retirement age for Social Security is decreasing because of the trend of individuals retiring early.
False
TRUE OR FALSE: Up to 85% of an individual’s Social Security benefits may be included in their taxable income.
True
TRUE OR FALSE: Once divorced, non-working ex-spouses will not receive Social Security benefits.
False
TRUE OR FALSE: Delaying benefits to age 70 may be beneficial, even if a person does not live beyond age 80.
True
TRUE OR FALSE: A worker who receives full retirement age at age 67, can increase their benefit, without regard to a COLA, by 32% by the Lane benefits until age 70.
False
TRUE OR FALSE: Surviving spouses are entitled to 100% of the deceased worker’s benefits after the worker dies.
True
TRUE OR FALSE: Medicare Part A generally pays for “places” while Part B pays for “services”.
Trye
TRUE OR FALSE: Medicare Part C is optional and provides prescription drug coverage when purchased with Parts A and B.
True
TRUE OR FALSE: A healthy individual need not enroll in Medicare part B upon reaching age 65 since enrollment is permitted at any time without an increase in premium.
False
TRUE OR FALSE: Traditional Medicare coverage includes deductibles, coinsurance payments, and a maximum out-of-pocket provisions.
False
TRUE OR FALSE: In order to obtain Supplemental Security Income (SSI), the individual must be 62, disabled, or blind.
False
TRUE OR FALSE: Social Security beneficiaries who are United States citizens may live in both foreign countries without affecting their eligibility for Social Security benefits.
True
TRUE OR FALSE: Long-term care insurance does not cover hospice care.
False
TRUE OR FALSE: Because everyone qualifies for Medicaid, long-term care insurance is only for those who want more choices in long-term care than Medicaid offers.
False
TRUE OR FALSE: If Tito had a home worth $300,000, it is possible he could qualify for Medicaid.
True
TRUE OR FALSE: Paying for long-term care services out-of-pocket is not a wise choice for anyone.
False
Social Security is funded through all of the following except:
A. Employee payroll tax
B. Employer payroll tax
C. Sales tax
D. Self-employment tax
C. Sales tax
Brisco, now deceased, was married for 12 years. He had two dependent children, ages,10 and 12, who are cared for by their mother age 48. His mother, age 75, was his dependent and survived him. At the time of his death, he was currently but not fully insured under Social Security. His dependence are entitled to all of the following benefits except:
A. A lump sum death benefit of $255
B. Each children’s benefit equal to 75% of Brisco’s PIA
C. A caretaker’s benefit for the children’s mother
D. A parent’s benefit
D. A parent’s benefit
Medicare Part a provides hospital coverage. Which of the following persons is not covered under Part A.
A. A person 62 or older and receiving railroad retirement
B. Disabled beneficiaries, regardless of age that have received Social Security for two years
C. Chronic kidney patients who required dialysis or a renal transplant
D. A person age 65 or older entitled to a monthly Social Security check
A. A person 62 or older and receiving railroad retirement
A person receiving Social Security benefits under full retirement age can receive earned income up to a maximum threshold without producing Social Security benefits by the earnings test. Which of the following count against the earnings threshold?
A. Dividends from stocks
B. Rental income
C. Pensions and insurance annuities
D. Self-employment income
D. Self-employment income
All of the following statements concerning Social Security benefits are correct except:
A. The maximum family benefit is determined three formula based on the worker’s PIA
B. If a worker applies for retirement or survivor benefits before their 65th birthday, they must also file a separate application for Medicare.
C. People who are disabled or have permanent kidney failure can get Medicare at any age.
D. The Social Security administration is concerned with the beneficiaries’ combined income, which, on the 1040 federal tax return, includes adjusted gross income and non-taxable interest income
B. If a worker applies for retirement or survivor benefits before their 65th birthday, they must also file a separate application for Medicare.
The target benefit pension plan in the money purchase pension plan provides some employee/participant investment diversification protections by eliminating the investment amount in employer stock to less than or equal to:
A. 5%
B. 10%
C. 20%
D. 100%
B. 10%
Plans that require mandatory funding are generally funded by?
A. The employee
B. The employer
C. Both employer and employees
D. For PBGC insured plans, the employee and the employer
B. The employer
Who generally makes elected referrals to a 401(k) plan?
A. Employees only
B. Employer only
C. Both employer and employees
D. Employer, employees, and forfeitures
A. Employees only
Which of the following generally contribute to defined benefit plans, profit-sharing plans, and money purchase pension plans?
A. Employees only
B. Employer only
C. Both employer and employees
D. Employer, employees, and government
B. Employer only
Generally, which of the following are contributory plans?
A. 401(k) and money purchase pension plans
B. 401(k) and thrift plans
C. Thrift plans and ESOPs
D. Money, purchase pension, plans and profit sharing plans
B. 401(k) and thrift plans
TRUE OR FALSE: Defined benefit plans may use forfeitures to reduce plan costs or relocate them to plan participants.
False
TRUE OR FALSE: If a prohibited transaction occurs in a qualified plan, a 100% penalty may be assessed if not timely corrected.
True
TRUE OR FALSE: Qualified plans are often amended to maximize benefits to employees.
True
TRUE OR FALSE: Qualified plan amendments are difficult and require approval by ERISA.
False
TRUE OR FALSE: Qualified plans may never terminate without losing their qualified status retroactively to inception.
False
The are primarily four parties interested in retirement plans and employee benefits: employees, employers, institutions (and their professionals), and the government. Which of the following is not considered an Interested Institution?
A. Debt Relief and Consolidation Agencies
B. Banks
C. Mutual Funds
D. Insurance Companies
A. Debt Relief and Consolidation Agencies
TRUE OR FALSE: Since the 1980’s the number of Defined Benefit Plans has risen, and since the 1970’s the number of Defined Contribution plans has fallen. This is likely attributed to the higher cost, longevity risk, and potential funding shortfalls associated with defined contribution plans.
False
Which vesting schedule provides an employee full rights to the plan assets immediately upon the passage of a certain number of years of service, usually three years?
A. Graduated Vesting Schedule
B. Accelerated Vesting Schedule
C. Cliff Vesting Schedule
D. Lump Sum Vesting Schedule
C. Cliff Vesting Schedule
TRUE OR FALSE: Additional qualified plan annual contributions, above and beyond the standard contribution limits available to all eligible participants, are allowed for individuals aged 50 or over.
True
Which of the following is not true of qualified plans?
A. Costs of operating the plan are considered to be one of the disadvantages.
B. Lump-sum distributions may qualify for special taxation.
C. Qualified plans offer tax benefits to both the employer and the employee.
D. Ownership is permitted for the account owner and up to one joint owner.
D. Ownership is permitted for the account owner and up to one joint owner.
TRUE OR FALSE: Under the rules of the General Safe Harbor Coverage Test, an employer consists of 70 non-highly compensated (NHC) employees and 80 highly compensated employees. Of the 70 NHC employees, 50 are nonexcludable. 35 of the nonexcludable, NHC employees benefit from the company retirement plan. Does this plan pass the General Safe Harbor Coverage Test? Select True for “Yes, it passes.” Select False for “No, it does not pass.
True
The maximum employee compensation that may be considered for contributions to qualified plans or the accrual of benefits to a qualified plan is known as:
A. Maximum Allowable Compensation
B. Covered Compensation Limit
C. Considerable Contribution Limit
D. Excludable Compensation
B. Covered Compensation Limit
TRUE OR FALSE: If a qualified, defined benefit plan is considered top-heavy, the plan must use accelerated vesting schedules rather than the standard vesting schedule.
True
Who assumes investment risk in a Defined Contribution plan?
A. Employer
B. Insurance Companies
C. Employee
D. Banks
C. Employee
According to the Financial Independence Retire Early (FIRE) Movement, an alternative to the traditional concept of retirement, one is considered financially independent when:
A. They no longer have outstanding debt.
B. Their accumulated savings equal twenty-five times their estimated annual expenses.
C. They attain their Normal Retirement Age (NRA) as defined by the Social Security Administration.
D. Their estimated annual expenses equal twenty-five times their accumulated savings
D. Their estimated annual expenses equal twenty-five times their accumulated savings
Which of the following is NOT true about qualified pension plans?
A. They have an annual funding requirement.
B. Investment in employer securities is unlimited, meaning up to 100% of plan assets.
C. Life insurance within pension plans is allowed but limited.
D. All of the above are true about qualified pension plans.
B. Investment in employer securities is unlimited, meaning up to 100% of plan assets.
TRUE OR FALSE: Actuaries are required for all pension plans.
False
TRUE OR FALSE: One main differentiator between defined benefit and defined contribution plans is that the former, defined benefit plans, place investment risk on the employer.
True
Each of the following actuarial assumptions are directly related to pension plan cost, and expected increases in these assumptions increase plan cost EXCEPT:
A. Wages
B. Inflation
C. Expected Mortality
D. Life Expectancy
C. Expected Mortality
Which of the following plans are covered by the Pension Benefits Guarantee Corporation?
A. Defined benefit and target benefit pension plans
B. Cash balance and target benefit pension plans
C. Money purchase and defined benefit pension plans
D. Defined benefit and cash balance pension plans
D. Definied benefit and cash balance pension plans
TRUE OR FALSE: Defined contribution pension plans may only reduce use participant forfeitures to reduce plan cost.
False
ABC Tutoring is establishing a defined benefit pension plan this year. Alice, age 35, is a Lead Tutor for ABC Tutoring and has worked for the company for 10 years. Alice plans on retiring in 30 years and has no intent to leave ABC Tutoring before retirement. Is ABC Tutoring able to give Alice credit for her prior years of service, yes or no? If yes, how many years of service credits would Alice have at her target retirement age?
A. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 40 years of service credits.
B. No, defined benefit pension plans may not give credit for prior service when first establishing the plan.
C. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 30 years of service credits.
D. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 35 years of service credits.
A. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 40 years of service credits.
TRUE OR FALSE: Defined benefit and cash balance pension plans may use either the excess or offset methods of Social Security integration while target benefit and money purchase pension plans may only use the excess method.
True
Defined benefit pension plan formulas include which of the following?
I. Flat amount formula
II. Lifetime credit formula
III. Unit credit formula
IV. Variable percentage formula
A. I and IV only
B. I and III only
C. I, II, and III only
D. None of the above
B. I and III only
A defined benefit pension plan formula is as follows: 3% x Years of Service x Average of Highest Five Years of Salary. This is known as a:
A. Flat percentage formula
B. Flat amount formula
C. Salary based formula
D. Unit Credit Formula
D. Unit Credit Formula
TRUE OR FALSE: Contributions to qualifying retirement plans follow the IRC matching principle of the inclusion of income and the deduction of the expense at the time.
False
TRUE OR FALSE: The employer and employee are each responsible for their share of payroll taxes on the employee’s compensation.
True
TRUE OR FALSE: Distributions from a qualified retirement plan are generally taxable as ordinary income.
True
TRUE OR FALSE: ERISA protects qualified plan assets from all creditors.
False
TRUE OR FALSE: One disadvantage of a qualified plan is that it does not protect the employee from the employer’s wrongdoings.
False
TRUE OR FALSE: A lump sum distribution from a qualifying retirement plan may be eligible for special income tax treatment.
True
TRUE OR FALSE: Using the standard eligibility rules, an employee must be allowed to enter a qualified plan on the day after they attain the age of 21 and have completed one year of service.
FALSE (should be OR)
TRUE OR FALSE: If a company allows the two-year eligibility rule, it can still require the employee to attain the age of 21 before being eligible for participation in the qualified retirement plan.
True
TRUE OR FALSE: Tax exempt educational institutions can require participants to attain the age of 26 before being eligible to participate in the qualifying retirement plan.
True
TRUE OR FALSE: XYZ sponsors a 401(k) plan for its employees. It can include a two-year service period for employees and the plan.
False
TRUE OR FALSE: Qualified plans can exclude employees who are non-resident aliens that do not perform services in the US.
True
TRUE OR FALSE: A qualifying plan can exclude (as a class) all women from the plan.
False
TRUE OR FALSE: A person who earns $120,000 during 2023 is highly compensated for the 2024 plan year.
False
TRUE OR FALSE: Bobbie’s grandfather is the majority owner of Apex Inc. and it’s CEO. He gave Bobbie 6% of Apex and a job in the mail room making $23,000 last year. Bobbie should be qualified as a non-highly competent employee due to his income.
False
TRUE OR FALSE: If Andreea’s compensation is $200,000, then she will always be classified as a highly compensated employee.
False
TRUE OR FALSE: A retirement plan is established effective January one 2023. Sam was a 3% owner of the plan sponsor during calendar year 2022 and a 7% owner during 2023 Sam is an HCE for the 2023 plan.
True
TRUE OR FALSE: Employee contributions to a qualified retirement plan are always 100% vested.
True
TRUE OR FALSE: Employees who attain the normal retirement age as defined by their qualified retirement plan must be fully vested in that retirement plan.
True
TRUE OR FALSE: An employee who works 1000 hours in the first six months attain one year of service upon completion of the 1000 hours.
False
TRUE OR FALSE: The standard vesting schedule for a cash balance plan is the three-year cliff method.
True
TRUE OR FALSE: Jacques works for Hiral Industries, which sponsors a 401(k) plan with a 50% match and a 2-to-6 year graded vesting schedule. Jacques the first $30,000 over the last three years and has received $15,000 in matching contributions over that same time if he leaves today after three years with Hiral, and the balance in the account is $60,000 then he will forfeit $12,000 of the match and associate earnings.
True
TRUE OR FALSE: An officer with compensation of $150,000 is a key employee.
False
TRUE OR FALSE: Qualified defined benefit plans that are considered top-heavy must use a 3 to 6 year graduated vesting schedule or a three-year cliff investing schedule.
False
TRUE OR FALSE: The covered compensation limit for 2023 is $330,000.
True
TRUE OR FALSE: The defined benefit plan limit is $265,000 for 2023.
True
TRUE OR FALSE: The defined contribution plan limit per participant is the lesser of 25% of compensation or $66,000 for 2023.
False
TRUE OR FALSE: Profit, sharing plans must be established by contributions made by the due date of the tax return, including extensions for the tax year for which the employer wants to make contributions.
True
TRUE OR FALSE: A pension plan can be funded using 100% employer securities.
False
TRUE OR FALSE: A profit-sharing plan is a plan established and maintained by an employer to provide participation in the profits of the company solely for officers and shareholders.
False
TRUE OR FALSE: Permitted disparity is a method of allocate plan contributions that allows employer to make contributions only to highly compensated in individuals because they do not receive Social Security.
False
TRUE OR FALSE: Age-based profit-sharing plans use both age and compensation as the basis for allocating contributions to employee accounts.
True
TRUE OR FALSE: New comparability plans are flexible plans that allow the employer to allocate all benefits to the owners.
False
TRUE OR FALSE: A proper sharing plan can require the participants to wait three years before entering the plan but all contribution must be 100% vested.
False
TRUE OR FALSE: Profit-sharing plans must use a five-year cliff vesting schedule or a 3-to-7 year graduate vesting schedule.
False
TRUE OR FALSE: Profit-sharing plans may permit in-service withdrawals after a participant has attained two years of service in the plan.
True
TRUE OR FALSE: A tax-exempt organization cannot establish a 401(k) plan.
False
TRUE OR FALSE: Employers can establish 401(k) plans with minimal expense.
True
TRUE OR FALSE: Government entities cannot establish 401(k) plans today.
True
TRUE OR FALSE: The 401(k) eligibility rules are not the same as profit-sharing plans.
True
TRUE OR FALSE: A 401(k) must have at least four entrance dates.
False
TRUE OR FALSE: The employee 401(k) plan deferral limit is indexed for inflation after 2006.
True
TRUE OR FALSE: Employee deferral contributions to 401(k) plans are subject to payroll taxes at the time of contribution.
True
TRUE OR FALSE: An employer is not required to deposit the employee 401(k) plan deferral contributions until the 15th day of the month following the deferral.
False
TRUE OR FALSE: As a maximum an individual age 50 or older can defer $30,000 in 2023 to 401(k) plan.
True
TRUE OR FALSE: A negative election is an election. The employee can make that state that they want to participate in the plan.
False
TRUE OR FALSE: Matching contributions vest at either a 2 to 6 year graduated investing schedule or a five-year cliff vesting schedule.
False
TRUE OR FALSE: A catch up contribution can allow an eligible employee to for more than the annual audits limit of $66,000 for 2023.
True
TRUE OR FALSE: An employee can contribute the maximum deferral limit of $22,500 to the 401(k) pretax account and another $22,500 to the Roth account if both accounts are available on the plan.
False
TRUE OR FALSE: The elective deferrals the highly con compensated employees may be eliminated based on the elective defaults of the non-highly compensated employees.
True
TRUE OR FALSE: All eligible employees (each 21 and one yard service) are included in the calculations for the ADP test, including those employees who elect not to defer.
True
TRUE OR FALSE: If a CODA plan fails the ADP test, the plan will be terminated.
False
TRUE OR FALSE: Orange Co. has a non-safe harbor 401(k) plan with five NHCEs who defer 4%, 0%, 10%, 0%, and 6%. As a result, the HCEs are limited to a deferral of 8%.
False
Which of the following is not true regarding profit-sharing plans?
A. Profit-sharing plans are established and maintained by the individual employee.
B. Profit-sharing plans allow employees to derive benefits from profits of the company.
C. Profit-sharing plans cannot discriminate in favor of officers and shareholders.
D. Profit-sharing plans provide a definite predetermined formula for allocating. The contributions made to the plan among the participants and for distributing the funds accumulated under the plan.
A. Profit-sharing plans are established and maintained by the individual employee.
Which of the following statements is true?
A. Profession plans may not offer in-service withdrawals.
B. Pension and profit-sharing plans are subject to mandatory annual funding requirements.
C. Profit-sharing plans allow annual employer contributions up to 25% of the employer’s covered compensation.
D. The legal promise of a profit-sharing plan is to pay a pension at retirement.
C. Profit-sharing plans allow annual employer contributions up to 25% of the employer’s covered compensation.
Andi, the 100% owner of Andi’s Day Care, a C-corporation, would like to establish a profit-sharing plan. Andi’s Day Care’s tax year and July 31 to coincide with the school year. What is the latest day Andi can establish and contribute to the plan?
A. Andi must establish and contribute to the plan by December 31 of the year in which she would like to establish the plan.
B. Andi must establish the plan and make the contribution by May 15 of the following year assuming she filed the appropriate extensions.
C. Andi must establish the plan by July 31 of the year in which she would like to establish the plan and contribute by December 31.
D. Andi must establish the plan by December 31 of the year in which she would like to establish the plan and contribute to the plan by April 15 of the following year.
B. Andi must establish the plan and make the contribution by May 15 of the following year assuming she filed the appropriate extensions.
Which of the following statements is true regarding CODAs?
A. A 401(k) plan must be established in such a way that employers are required to contribute to the plan.
B. A CODA is allowed with a profit sharing plan, stock bonus plan, and a cash balance pension plan.
C. Contributions can only be made after tax.
D. CODAs our employee self-reliant plans.
D. CODAs our employee self-reliant plans.
All of the following are advantages of a 401(k) plan except:
A. Employers are permitted to shelter current income from taxation in a 401(k) plan.
B. Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability.
C. Earnings grow tax deferred until distributed.
D. Employers can sell 401(k) plans with minimal expense.
B. Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability.
Which of the following is not a common defined benefit plan funding formula?
A. Flat amount formula
B. Flat percentage formula
C. Unit credit formula
D. Excludable amount formula
D. Excludable amount formula
Which of the following statements regarding defined benefit plans is true?
A. A defined benefit plan can allocate forfeiture to other plant participants
B. A defined benefit plan can use forfeiture to reduce future plan costs
C. A defined benefit plan cannot give credit for prior service
D. Each participant of a defining benefit plan has an individual account
B. A defined benefit plan can use forfeiture to reduce future plan costs
A participant’s accrued benefit from a qualified defined benefit pension plan is $2000 per month. What is the maximum life insurance death benefit coverage that the plan can’t provide based on the 100-to-1 ratio test?
A. $0
B. $1,000
C. $200,000
D. $240,000
C. $200,000
Which of the following statements is true for a defined benefit plan?
A. A defined benefit plan generally favors older age entrants
B. The maximum retirement benefit payable from a defined benefit plan is the lesser of 100% of the participants compensation or $265,000 for 2023.
C. Define benefit plan with 100 employees is required to pay PBGC insurance premiums
D. All of the above
D. All of the above
Which of the following is not a characteristic of pension plans?
A. Mandatory Funding
B. In-service withdrawals for employees under the age of 59.5
C. Limited investment in life insurance
D. A limit of 10% investment in the employer’s securities
B. In-service withdrawals for employees under the age of 59.5
TRUE OR FALSE: Target benefit pension plans have the same coverage and eligibility rules as money purchase pension plans.
True
TRUE OR FALSE: A pension plan is unable to deposit. The mandatory funding amount may apply for a one-time waiver eliminating the funding needed for that particular year.
False
TRUE OR FALSE: Pension plans do not permit in-iservice withdrawals for individuals less than 62 years old.
False
TRUE OR FALSE: Pension plans may only invest up to 15% of plan assets in employer stock.
False
TRUE OR FALSE: The plan participant bear the investment risk of the assets in the defined benefit pension plan.
False
TRUE OR FALSE: Define benefit and defined contribution plans allocate all plan forfeiture in the same manner.
False
TRUE OR FALSE: If a company cannot pay a participant the benefit promise from a defined benefit pension plan the PBGC will pay the plan participant the full defined benefit amount.
False
TRUE OR FALSE: Defined benefit plans can give plan participants credit for service prior to the establishment of the plan.
True
TRUE OR FALSE: The unit credit formula helps retain employees more than either the benefit formula or the flat percentage formula.
True
TRUE OR FALSE: Defined benefit plans have separate accounts for each plan participant.
False
TRUE OR FALSE: The establishment of a defined benefit, pension plan, generally benefits, older employees, more than younger employees.
True
TRUE OR FALSE: Participants in a cash balance pension plan have separate accounts.
False
TRUE OR FALSE: The establishment of a cash balance pension plan, generally benefits, the younger employees more than older employees.
True
TRUE OR FALSE: A cash balance plan can be structured to benefit owners and higher compensated employees under certain circumstances.
True
TRUE OR FALSE: A plan sponsor cannot deduct more than 25% of their covered compensation as a contribution to a money purchase pension plan.
True
TRUE OR FALSE: Each participant has a separate account in a money purchase pension plan.
True
TRUE OR FALSE: The establishment of a money, purchase pension plan, generally benefits, older employees, more than younger employees.
False
TRUE OR FALSE: A target benefit pension plan is a defined benefit pension plan.
False
TRUE OR FALSE: EGTRRA 2001 increased the popularity of money, purchase pension plans.
False
Patrick and Kevin own Irsha Corporation and plan to retire. They would like to leave their assets to their children; therefore, they transfer 70% of the stock to a trust for the benefit of their 10 children pro rata. Patrick and Kevin then plan to sell the remaining. Irisha shares to a qualified ESOP plan. Which of the following is correct?
- The stock transfer to the ESOP is not a 50% transfer and therefore will not qualify for non-recognition of capital gains.
- Any transfer to an ESOP of less than 50% ownership may be subject to a minority discount on valuation.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
B. 2 only
Which of the following are costs of a stock bonus plan?
1. Periodic appraisals costs
2. Periodic actuarial costs
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
A. 1 only
Which of the following are requirements for a qualified stock bonus plan?
- Participants must have passed through voting right for stock held by the plan.
- Participant must have the right to demand employer securities as a distribution, even if the plan sponsor is a closely held corporation.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
C. Both 1 and 2
Rihanna sell stock several years after she received it as a distribution from a qualified stock bonus plan. When the stock was distributed, she had a net unrealized appreciation of $7500. Breanna also had ordinary income from the distribution of $29,000. The fair market value of the stock and the sale price at the time of sale was $81,000. How much of the sale price but will be subject to long-term gain treatment?
A. $7,500
B. $44,500
C. $52,000
D. $73,500
C. $52,000
TRUE OR FALSE: A stock bonus plan if a particular type of profit sharing plan, so they share many characteristics.
True
TRUE OR FALSE: A valuation of an employer’s securities is performed only at the creation of the stock bonus plan.
False
TRUE OR FALSE: A stock bonus plan may require an employee to attain six years of service before concerning the employee eligible.
False
TRUE OR FALSE: Participant of a stock bonus plan must have passed through voting rights on the employer stock held by the plan.
True
TRUE OR FALSE: The benefit provided to a plan participant under a half heavy stock bonus plan must vest at least as rapidly as a 3-year cliff or 2-to-6 you graduated investing schedule.
True
TRUE OR FALSE: A principle disadvantage of a stock loan plan is net unrealized appreciation.
False
TRUE OR FALSE: Stock bonus plans made permit plan loans.
True
TRUE OR FALSE: In a leveraged ESOP, the corporation makes after tax contributions to a trust on behalf of its employees.
False
TRUE OR FALSE: Foreign securities may qualify as qualified replacement securities.
False
TRUE OR FALSE: The creation of an ESOP may dilute ownership in the corporation.
True
TRUE OR FALSE: The majority of ESOPs are established by publicly traded corporations.
False
TRUE OR FALSE: ESOPs are privately-held corporations are not required to provide full roofing rights for shares held in the plan.
True
TRUE OR FALSE: Employer contributions to an ESOP or tax deductible.
True
TRUE OR FALSE: An ESOP is not subject to the minimum distribution rules.
False
TRUE OR FALSE: The put option protects the rank-and-file employees.
True
TRUE OR FALSE: The trustee of an ESOP must act in the best interest of the plan, participants and beneficiaries.
True
TRUE OR FALSE: An S-corporation cannot establish an ESOP.
False
The total balance of Tricia‘s 401(k) profit-sharing plan is $200,000. Of this balance $60,000 is attributable to employer profit-sharing plan contributions and $40,000 is attributable to earnings on the employer profit-sharing plan contributions. $39,000 consists of Tricia’s elected deferral contributions to the 401(k) plan and $21,000 is the earnings on Tricia‘s elective deferral contributions. The remainder of the balance consists of employer-matching contributions and earnings on the employer match. If the 401(k) plan uses a graded vesting schedule and Trish has completed two years of service with her employer, what is her vested balance in this 401(k) profit-sharing plan?
$88,000
Trisha’s Full Balance = $200,000
Tricia’s Contribution = $39,000
Earnings on Tricia’s Contributions = $21,000
Company Contributions = $60,000
Earnings on Company Contributions = $40,000
Company Match = $40,000
FIND COMPANY VESTED AMOUNT
Company Contributions of $60,000 + Earnings on Company Contributions of $40,000 = $100,000
$100,000 x 20% = $20,000
FIND PERSONAL VESTED AMOUNT
Tricia’s Contribution + Earnings on Tricia’s Contributions + Vested Employer Match ($40,000 x 20%) = $68,000
ADD BOTH TOGETHER FOR TOTAL
$88,000
Sonya will be retiring soon. All of the following expenditures could be eliminated in her retirement needs calculation except:
A. The $2,200 per year she spends on her work suits and dress clothes.
B. The $18,000 annual mortgage payment she makes that is scheduled to end seven years into retirement.
C. The FICA taxes she pays each year.
D. The $22,000 per year she contributes to her 401(k) plan.
B. The $18,000 annual mortgage payment she makes that is scheduled to end seven years into retirement.
Kendra has an account balance in her employer’s money purchase pension plan of $100,000. The plan has a 2-to-6-year graded vesting policy. She has been a participant for three and a half years and has worked for the company for five years. Assuming the plan permits loans, what is the maximum loan that Kendra could take from the plan?
A. $20,000
B. $30,000
C. $40,000
D. $50,000
C. $40,000
TRUE OR FALSE: 403(b), 457, and SIMPLE are all subject to the same annual contribution limits, including various catch-up provisions.
False
Deferred compensation plans are most often used for which of the following reasons?
- To decrease the executive’s wage replacement ratio
- To defer the executive’s compensation
- In lieu of qualified plan
A. 1 & 2
B. 1 & 3
C. 2 & 3
D. All of the options are correct
C. 2 & 3
TRUE OR FALSE: Once established, qualified plans may not be terminated.
False
Defined benefit plans may use plan forfeitures to:
A. Pay plan administrative costs
B. Reduce plan costs
C. Allocate to remaining plan participants
D. All of the above
B. Reduce plan costs
Stefan saved diligently during his working years and accumulated $1.8 million. Using the 4% per year approach to distribution planning, how much income could he estimate his portfolio might provide?
A. $72,000 per year
B. $180,000 per year
C. $90,000 per year
D. $36,000 per year
A. $72,000 per year
TRUE OR FALSE: When calculating a client’s Capital Needs Analysis, the Annuity Method assumes an individual’s last dollar is spent on their last day of life.
True
Which of the following about SIMPLE plans is NOT true?
A. They have no annual filing requirement
B. The costs associated with the plan are minor
C. Generally, no other retirement plans are permitted
D. Could be set up as a SIMPLE IRA, but almost all are SIMPLE 401(k)s
D. Could be set up as a SIMPLE IRA, but almost all are SIMPLE 401(k)s
In most cases, when selecting the appropriate qualified plan, employers conduct a/an __________ which will identify each employee, their age, compensation, number of years of employment, and any ownership interest in the company contemplating the adoption of a qualified plan.
A. Compliance Inspection
B. Financial Audit
C. Employee Survey
D. Employee Census
D. Employee Census
TRUE OR FALSE: If an employer usually experiences fluctuating cash flows, it is more advisable to select one of the qualified profit-sharing plan options because profit-sharing plans have discretionary contributions each year.
True
Johnny is 35 years old and inherits an IRA from his mother, who dies prematurely at age 60 in May 2023. Which of the following statements is correct regarding his options for the inherited IRA?
A. Johnny does not have to take distributions until he turns 75 years old.
B. Johnny can rollover the IRA into his own IRA.
C. Johnny must take out the entire account value within 10 years.
D. Johnny can take distributions over his single life expectancy.
C. Johnny must take out the entire account value within 10 years.
Jonas turns 40 in 1 month. He has accumulated $200,000 of tax deferred money within a traditional IRA. The account only includes pre-tax contributions. Jonas decides to take an international trip to commemorate his birthday and withdraws $20,000 from his traditional IRA. What are the potential tax implications associated with this withdrawal?
- Ordinary income taxes
- Capital gains taxes
- Net unrealized appreciation
- Early withdrawal penalty
A. 1 only
B. 2 only
C. 1 & 4
D. 3 & 4
C. 1 & 4
TRUE OR FALSE: Loans are permitted from a SIMPLE IRA but not from a SIMPLE 401(k).
False
Which of the following are risks to financial independence?
A. A shortened work life expectancy.
B. An extended retirement life expectancy.
C. Inadequate investment rate of return.
D. All of the above.
D. All of the above.
Benefits of Roth conversions include each of the following EXCEPT:
A. Tax avoidance at time of conversion
B. Tax diversification
C. Minimum distribution avoidance
D. Possible estate tax reduction
A. Tax avoidance at time of conversion
TRUE OR FALSE: Qualified distributions from a Roth account satisfy both a five-year rule and a distribution rule for earnings to be both tax free and penalty free.
True
All the following types of income are considered earned income for a traditional IRA contribution except:
A. K-1 income from an S corporation
B. W-2 income
C. Self-employment income
D. Alimony resulting from a divorce agreement signed June 1, 2018
A. K-1 income from an S corporation
TRUE OR FALSE: One thing that both secular and rabbi trust have in common is that they are both revocable trusts.
False
Defined contribution plans may use plan forfeitures to:
A. Pay plan administrative costs
B. Reduce plan costs
C. Allocate to remaining plan participants
D. All of the above
D. All of the above
Corey has a vested account balance in his employer-sponsored qualified money purchase pension plan of $60,000. He has two years of service with his employer and the plan follows the least generous graduated vesting schedule permitted under PPA 2006. If Corey has an outstanding loan balance within the prior 12 months of $15,000, what is the maximum loan Corey could take from this qualified plan, assuming the plan permitted loans?
A. $15,000
B. $30,000
C. $35,000
D. $50,000
A. $15,000
TRUE OR FALSE: SIMPLE plans can only be established by companies with 100 or fewer employees who earned at least $5,000 of compensation from the employer for the preceding calendar year.
True
Mike owns a yard maintenance company. He mowed his client’s lawn in November of Year 1, and he received a check in the mail for his services in December of Year 1. Mike has been successful in Year 1, earning more money than he believes he will make in Year 2. To minimize his year 1 tax bill, Mike decides to not cash the check until Year 2. Which principle/doctrine below prevents Mike from utilizing the described strategy?
A. Constructive Receipt
B. Economic Benefit
C. Substantial Risk of Forfeiture
D. Assignment of Income
A. Constructive Receipt
Karl began his full-time career at age 20. He is now 30 and plans on retiring at age 62. What is Karl’s Work Life Expectancy, or WLE?
A. 32
B. 62
C. 10
D. 42
D. 42
Ralph, a 40-year-old nurse who earns $80,000 a year, saves 14% of his annual gross income. Assume that Ralph wants to maintain his exact pre-retirement lifestyle. Calculate Ralph’s wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars.
A. 70%
B. 78%
C. 86%
D. 92%
B. 78%
TRUE OR FALSE: An IRA owner can invest assets within the account in life insurance.
False
TRUE OR FALSE: Excess IRA contributions are subject to a 6.2% excise tax on excess contributions for each year the excess contribution remains in the account.
False
When an employer is designing a qualified plan, they can individually design the plan using an ERISA attorney or the company can use an IRS-approved master or prototype plan. Individually designing a plan is usually __________ than using a master or prototype plan.
A. More Expensive
B. More Advisable
C. More Compliant
D. Less Expensive
A. More Expensive
Employers generally must file an annual report with the Department of Labor. Which of the following forms is used if the plan only provides benefits for the employer, the employer and their spouse, or one or more partners and their spouses?
A. Form 5500-EZ
B. Form 5500-SF
C. Form 5500
D. None of the above
A. Form 5500-EZ
TRUE OR FALSE: The Pension Benefit Guarantee Corporation (PBGC) provides coverage to defined contribution plans, but it does not cover defined benefit pension plans of professional services corporations with 25 or fewer participants.
False
A distribution from a tax-deferred, qualified plan was made payable to a plan participant. What strategy could the participant utilize if they want to avoid current taxation on the distribution?
A. Deposit an amount equal to the gross distribution in another tax-deferred plan within 60 days, known as a direct rollover.
B. Claim hardship as the reason for the withdrawal.
C. Deposit an amount equal to the gross distribution in another tax-deferred plan within 60 days, known as an indirect rollover.
D. No strategies exist to avoid current taxation once the distribution occurs.
C. Deposit an amount equal to the gross distribution in another tax-deferred plan within 60 days, known as an indirect rollover.
TRUE OR FALSE: Qualified plans generally offer a several distribution options including but not limited to annuities, lump-sum distributions, and in-service withdrawals.
True
TRUE OR FALSE: Defined contribution plan participants assume investment risk for the assets in their accounts.
True
A SEP can be established by which of the following entities?
- S corporation.
- LLC taxed as a partnership.
- C corporation.
A. 1 only
B. 1 & 2
C. 2 & 3
D. All of the options are correct
D. All of the options are correct
What is the earliest age that an IRA catch-up contribution can be made?
A. 45
B. 50
C. 55
D. 60
B. 50
TRUE OR FALSE: Employer contributions to a SIMPLE IRA and the related earnings are fully (100%) and immediately vested and cannot be forfeited by the employee.
True
According to the text, which of the following may establish SIMPLE plans?
- Testamentary Trusts
- Government Entities
- C Corporations
- Partnerships
A. 1 only
B. 2 & 4
C. 2, 3 & 4
D. All of the options are correct
C. 2, 3 & 4
TRUE OR FALSE: Distributions from SIMPLE IRAs before the attainment of age 59 and ½ always incur a 10% early distribution penalty.
False
Which of the following is NOT a covered employee for purposes of the rule that no deduction is allowed by a public company for a covered employee’s compensation to the extent it exceeds $1,000,000 for the year.
A. The current chief compliance officer (CCO), the 7th highest paid officer for the taxable year
B. The chief executive officer (CEO) at any time during the taxable year, or was an individual acting in such a capacity
C. The chief financial officer (CFO) at any time during the taxable year, or was an individual acting in such a capacity
D. The three highest compensated officers for the taxable year
A. The current chief compliance officer (CCO), the 7th highest paid officer for the taxable year
TRUE OR FALSE: Employers who offer a SIMPLE IRA are required to make either matching contributions on behalf of employees who make elective deferrals, or they must make nonelective contributions to all eligible employees.
True
This nonqualified deferred compensation plan involves fictional shares of stock that are initially valued at the time of the grant.
A. Stock options
B. Excess-benefit plans
C. Phantom stock plans
D. Salary-reduction plans
C. Phantom stock plans
If stock acquired after exercising an ISO is disposed of before either two years from the date of the grant or one year from the date of exercise, the sale is known as a/an __________ and some of the favorable tax treatment is lost.
A. Short sale
B. Disqualifying disposition
C. Wash sale
D. Qualifying disposition
B. Disqualifying disposition
TRUE OR FALSE: Stock Appreciation Rights (SARs) are rights that grant to the holder cash in an amount equal to the excess of the fair market value of the stock over the exercise price.
False
If still working, an individual may be eligible to contribute to which of the following plans even after the attainment of their Required Minimum Distribution age?
- Traditional IRA
- SEP-IRA
- SIMPLE IRA
A. 3 only
B. 1 & 3
C. 2 & 3
D. All of the options are correct
D. All of the options are correct
Tori is a young executive at a technology firm. She was awarded stock options several years ago with a total current exercise price of $250,000. Tori would like to exercise the options. Her financial assets include a $150,000 401(k), $20,000 in checking, $10,000 in savings, and $10,000 in government bonds she received as a gift when graduating college. With respect to the options, which of the following strategies, if available, would be most advantageous to Tori?
A. Disqualifying disposition
B. Buy put options
C. Cashless exercise
D. Sell call options
C. Cashless exercise
Which of the following are generally correct about spending during retirement years?
A. Given the length of time in retirement, it is unlikely that inflation will have a significant impact on annual spending.
B. Retirement spending, excluding healthcare costs, tends to decline during the later part of retirement.
C. Spending, on an inflation-adjusted basis, is fairly constant during retirement.
D. Healthcare costs usually decline.
B. Retirement spending, excluding healthcare costs, tends to decline during the later part of retirement.
Which of the following expenditures will most likely decrease during retirement?
A. FICA taxes (i.e., Social Security and Medicare)
B. Home maintenance
C. Health care costs
D. Vacation and travel costs
A. FICA taxes (i.e., Social Security and Medicare)
Participation in which of the following plans will not be considered active participation for purposes of IRA deductibility?
A. Tax sheltered annuity
B. Simplified employee pension
C. SIMPLE
D. 457 plan
D. 457 plan
With incentive stock options, the bargain element is __________.
A. The difference between the exercise price and the fair market value at the date of exercise
B. The difference between the exercise price and the fair market value on the date of grant
C. The difference between the fair market value on the date of grant and the year-end value the year the grant was awarded
D. The difference between the exercise price on the day of grant and the fair market value on the date of Initial Public Offering (IPO)
B. The difference between the exercise price and the fair market value on the date of grant
TRUE OR FALSE: The two methods for calculating the Wage Replacement Ratio (WRR) are the top-down approach and the bottom-up, also known as the budgeting, approach.
False
TRUE OR FALSE: Undue influence is a potential source of money conflict that arises when both spouses are not working together towards the same savings goal.
False
TRUE OR FALSE: Because of recent legislative changes, employers can now offer employee-funded savings accounts within their qualified plan.
True
TRUE OR FALSE: A cliff vesting schedule provides an employee with full rights to the plan assets immediately upon the passage of a certain number of years of service, and the maximum years of service before full rights are acquired by the plan participant are regulated and limited.
True
TRUE OR FALSE: All private industry employees have access to retirement benefits.
False
TRUE OR FALSE: Standard eligibility requirements state that an employee must be considered eligible to participate in the qualified plan after the latter of attainment of age 21 or the completion of one year of service (1,000 hours within a 12-month timeframe).
True
TRUE OR FALSE: ESOPs, unlike other stock bonus plans, do not allow for Social Security integration which allocates a higher contribution to those employees whose compensation is in excess of the Social Security wage base or selected integration for the plan year.
True
TRUE OR FALSE: Since the 1980’s the number of Defined Benefit Plans has fallen, and since the 1970’s the number of Defined Contribution plans has risen. This is likely attributed to the higher cost, longevity risk, and potential funding shortfalls associated with defined benefit plans.
True
TRUE OR FALSE: Defined benefit and cash balance pension plans are covered by the Pension Benefits Guarantee Corporation?
True
TRUE OR FALSE: If a company cannot pay a plan participant the benefit promised from a defined benefit pension plan, the PBGC will pay the plan participant, but not necessarily the amount outlined in their employer’s plan document.
True
TRUE OR FALSE: An actuary has been hired to calculate funding requirements for a qualified pension plan. Based on forecasts, the actuary anticipates inflation will increase in the future. The impact to plan cost (funding requirements) is that they will be lower due to the anticipated inflation increases.
False
TRUE OR FALSE: In a defined contribution plan, the employer bears the investment risk.
False
TRUE OR FALSE: Taking a trip that lasts an extended period, typically ranging from 2 – 6 months, often in a different part of the world, as opposed to taking a week-long vacation once a summer is known as a mini-retirement.
True
TRUE OR FALSE: If an employer chooses to include a qualified retirement plan as part of their employee benefits package, the employer is always required to include all employees in the plan.
False
TRUE OR FALSE: A pension plan may only invest up to 10% of plan assets in employer securities.
True
TRUE OR FALSE: The put option associated with ESOPs protects the rank-and-file employees by giving employees the ability to buy more shares of the employer stock at a prescribed price, normally below the fair market value.
False
TRUE OR FALSE: Stock bonus plans may vest plan participants in plan contributions using either a 5-year cliff vesting schedule or a 2-to-6-year graded vesting.
False
TRUE OR FALSE: The U.S. Government has a fundamental interest in employer sponsored retirement plans and other employee benefits. One reason is a vested interest in taxing deferred accounts.
True
TRUE OR FALSE: The Pension Benefit Guarantee Corporation is a regulatory body that exists to ensure qualified pension plans adhere to Internal Revenue Code (IRC) guidelines, disqualifying plans that fail certain guideline tests/
False
TRUE OR FALSE: Profit-sharing plans are not subject to minimum funding standards; Employers who offer profit-sharing plans are allowed to make unlimited, deductible contributions on an annual basis.
False
TRUE OR FALSE: Most Employee Stock Ownership Plans, also known as ESOPs, borrow money from a bank of other lending institution to purchase stock from the principal shareholder. These are known as leveraged ESOPs.
True
TRUE OR FALSE: Limits associated with retirement plans (e.g., annual contribution limits) are static and never change.
False
Which of the following are characteristics of defined benefit plans?
I. Participants may be given credit for prior service for the purposes of benefits.
II. Plan assets are usually held in separate accounts rather than comingled.
III. Except for professional firms with less than 25 employees, the plans are subject to Pension Benefit Guarantee Corporation (PBGC coverage).
A. II and III only
B. I and III only
C. All of the above are characteristics of defined benefit plans.
D. None of the above are characteristics of defined benefit plans.
B. I and III only
Qualified plans must abide by non-discriminatory rules. Coverage of highly compensated versus non-highly compensated employees must be evaluated to ensure non-discriminatory rule compliance. Which of the following is not one of the three coverage tests utilized for qualified retirement plans?
A. The general safe harbor test.
B. The average benefits test.
C. The ratio percentage test.
D. The average coverage test.
D. The average coverage test.
TLC Lawn and Garden is establishing a defined benefit pension plan this year. Michael, age 35, is a Project Manager for TLC Lawn and Garden and has worked for the company for 15 years. Michael plans on retiring in 30 years and has no intent to leaving TLC Lawn and Garden before retirement. Is TLC Lawn and Garden able to give Michael credit for his prior years of service, yes or no? If yes, how many years of service credits would Michael have at his target retirement age?
A. No, defined benefit pension plans may not give credit for prior service when first establishing the plan.
B. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Michael would have 30 years of service credits.
C. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Michael would have 35 years of service credits.
D. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Michael would have 45 years of service credits.
D. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Michael would have 45 years of service credits.
Stock bonus plans and ESOPs must be established by:
A. The due date of the tax return plus extensions
B. December 31st
C. The due date of the tax return
D. July 15th
A. The due date of the tax return plus extensions
401(k) plans are popular employer sponsored benefits. Which of the following is not an advantage/benefit to the employee offered by 401(k) plan participation?
A. Assumption of investment risk.
B. Shelter current income from taxation in qualified plans.
C. The ability to direct how the money is invested.
D. Earnings grow tax deferred until distributed.
A. Assumption of investment risk.
Jeremiah, your new financial planning client, is a young Associate Attorney at a high-profile law firm. He read about the Financial Independence Retire Early (FIRE) Movement, an alternative to the traditional concept of retirement. Jeremiah would like $200,000 per year in retirement income. Ignoring inflation and/or taxes and assuming a $200,000 per year income target, how much would one need to have saved to be considered financially independent if following the FIRE methodology?
A. $2 million
B. $5 million
C. $3 million
D. $4 million
B. $5 million
Employee benefits pose a cost to employers. According to the text, Retirement Planning and Employee Benefits, employee benefits may add an additional __________ to payroll costs:
A. Because of tax deductions, employee benefits do not increase payroll costs.
B. 10% - 20%
C. 50% - 60%
D. 30% - 40%
D. 30% - 40%
Each of the following plans requires actuarial services either at plan inception or annually except:
A. Defined Benefit
B. Cash Balance
C. Money Purchase
D. Target Benefit
C. Money Purchase
Which of the following are employee or employer advantages associated with qualified plans?
I. Employer contributions are not income tax deductible.
II. Employer contributions to the plan are not subject to payroll taxes.
III. Employee Retirement Income Security Act (ERISA) protection.
IV. Availability of pre-tax contributions.
A. I, II, and III
B. I, II, and IV
C. I and IV only
D. II, III, and IV only
D. II, III, and IV only
If participant’s leave an employer and unvested balances remain in their qualified plan, defined benefit pension plans ______________.
A. Must use the forfeitures to reduce plan costs.
B. May allocate the forfeitures to other plan participants.
C. May use the forfeitures to reduce plan costs, but other options exist.
D. May invest the forfeitures in capital improvement projects
A. Must use the forfeitures to reduce plan costs.
Which of the following is not one of the current 401(k) non-discrimination testing options?
A. Non-safe harbor 401(k) plan
B. Safe harbor 401(k) plan
C. Qualified AutomaticContribution Arrangement (QACA) safe harbor 401(k)
D. Defined Benefit(k), or DB(k), safe harbor plan
D. Defined Benefit(k), or DB(k), safe harbor plan
There are additional tax advantages, beyond mismatch of income and deduction, for the establishment of an ESOP. One of these is non-recognition of gain treatment. To obtain non-recognition of gain treatment, what percent of company stock must the ESOP own after the transaction?
A. At least 85%
B. Over 50%
C. At least 30%
D. At least 25%
C. At least 30%
For 2025 the maximum annual income against which Social Security tax is applied is limited to $176,100. Based on the Social Security tax of 6.2% paid by both the employee and the employer, what is the maximum Social Security tax collected (employee and employer) for an individual with an income that matches the 2025 Social Security wage base of $176,100 in 2025?
A. $21,836.40
B. $10,918.20
C. $13,471.65
D. $26,943.30
A. $21,836.40
Employer and employee payroll taxes include Social Security and Medicare (6.2% and 1.45%, respectively). The employee incurs a deduction for these taxes, and the employer also incurs a separate payroll tax for the equivalent amounts. Excluding the employer’s payroll tax cost and not taking other payroll deductions into consideration, what is the total payroll tax deduction incurred by an employee if their annual income is $100,000?
A. $6,200
B. $1,450
C. $7,650
D. $15,300
C. $7,650
In which of the following plans is the investment risk borne by the employee?
A. Target benefit
B. Money Purchase
C. 401(k)
D. All the above
D. All the above
Chen-Li is a physician in the Houston medical center. He is a participant in his employer’s defined benefit pension plan. The plan includes a 5-year cliff vesting schedule. Dr. Chen-Li has worked for the employer for 4 years (or 80% of the vesting period). What is Chen-Li’s vested percentage in the defined benefit pension plan?
A. 80%
B. 100%
C. 0%
D. Not enough data to calculate.
C. 0%
The ability to live comfortably without having to work for an income is known as:
A. Financial independence
B. Hoarding
C. Mini-retirement
D. Semi-retirement
A. Financial independence
Which of the following is not an Interested Professional when discussing qualified retirement plans and employee benefits?
A. Actuaries
B. Plan Administrators
C. Certified Public Accountants
D. All of the above are Interested Professionals
D. All of the above are Interested Professionals
Stock bonus plans:
A. Include a deductible contribution limit of 25% of covered compensation.
B. Generally make contributions in cash.
C. Distributions are generally in the form of cash.
D. All the above are characteristics of stock bonus plans.
A. Include a deductible contribution limit of 25% of covered compensation.
Kevin, a recent graduate of Texas A&M, was recently hired by what is considered the best engineering firm in the country. His new employer provides matching 401(k) contributions. The matching contributions are as follows: $1 per dollar contributed up to the first 3% of salary, and $0.50 per dollar contributed over 3% up to 6%? Kevin’s salary is $50,000 per year, and he intends on contributing 6% of his salary to his 401(k). What is the amount of the employer match?
A. $2,250
B. $1,500
C. $3,000
D. $4,500
A. $2,250
Which of the following retirement plans is available to eligible Federal employees and members of the Ready Reserve?
A. Stock Bonus Plans
B. Employee Stock Ownership Plans
C. Thrift Savings Plans
D. 401(k) Plans
C. Thrift Savings Plans
Lopez, a psychologist, participates in a defined contribution profit-sharing plan with 5-year graded vesting schedule. Dr. Lopez completed three years of employment but then leaves the company to start a private practice in the middle of the fourth year. If Dr. Lopez had a balance of $72,000 in his profit-sharing plan at time of separation, what is his vested balance?
A. $43,200
B. $72,000
C. $0
D. $57,600
A. $43,200
Rather than offering standard qualified plan eligibility, an exception exists allowing the employer to require two years of service or attainment of age 21, whichever is later. If the employer utilizes this exception, what is the main consequence to the employer?
A. Mandatory annual contributions.
B. 100% immediate vesting of accrued benefit or account balance after two years of service.
C. Loss of tax deduction.
D. Tax penalty.
B. 100% immediate vesting of accrued benefit or account balance after two years of service.
Employee Stock Ownership Plans, being largely if not entirely invested in employer stock, is inherently not diversified. However, Qualified Plan Participants may force diversification during the qualified election period. Which of the following are a Qualified Participant?
I. Xavier, age 54 with 10 years of participation under the plan
II. Tina, age 67 with 3 years of participation in the plan
III. Josiah, age 56 with 5 years of participation in the plan
A. II and III only
B. I and III only
C. III only
D. None of the above are Qualified Plan Participants
D. None of the above are Qualified Plan Participants
Which of the following statements is true?
A. The legal promise of a profit-sharing plan is to pay a pension at retirement.
B. Pension and profit-sharing plans are subject to mandatory funding requirements.
C. Profit sharing plans cannot discriminate in favor of officers and shareholders.
D. Employee Stock Ownership Plans are a type of pension plan.
C. Profit sharing plans cannot discriminate in favor of officers and shareholders.
Patricia is a participant in her employer’s 401(k) plan. As her financial professional, she called your office this morning to confirm annual contribution limits. She read online that she is eligible for both a basic annual contribution and an age-based catch-up contribution. Is what she read online true or false?
A. True, individuals over the age of 50 are eligible for an age-based catch-up contribution.
B. False, to be non-discriminatory and retain qualified status, all participants are subject to the same annual contribution limits, regardless of age.
A. True, individuals over the age of 50 are eligible for an age-based catch-up contribution.
There are additional tax advantages, beyond mismatch of income and deduction, for the establishment of an ESOP. One of these is non-recognition of gain treatment. To obtain non-recognition of gain treatment, qualified replacement property must be purchased. Which of the following investments would qualify as qualified replacement securities?
A. International Bonds
B. Domestic Stocks
C. International Stocks
D. Raw Land
B. Domestic Stocks
A company sponsors a defined benefit pension plan. The plan document outlines the plan formula as follows: 2.3% x Years of Service x Average of Highest Five Years of Salary. A retiring participant has 27 years of service with a highest five-year salary of $100,000. What would their retirement benefit be based on the plan formula and participant’s relevant data?
A. $27,000
B. $62,100
C. $23,000
D. Need additional data to calculate
B. $62,100
Which of the following is NOT a characteristic of Health Savings Accounts (HSAs)?
A) Distributions for qualified medical expenses are tax free.
B) Distributions for reasons other than qualified medical expenses are subject to ordinary income taxes and potentially a tax penalty.
C) Earnings within the account are not taxable.
D) Funds cannot be invested but are portable.
D) Funds cannot be invested but are portable.
Which of the following is NOT an attribute of group benefits (e.g., life insurance, disability insurance)?
A) Less coverage
B) Lower rates
C) Employer deductibility
D) Employee exclusion from taxable income
A) Less coverage
Which legislation was impactful in altering the deductibility of fringe benefits for tax years after 2017?
A) Employee Retirement Income Security Act (ERISA)
B) SECURE Act
C) Tax Cuts and Jobs Act
D) SECURE 2.0 Act
C) Tax Cuts and Jobs Act
An employer pays all costs for $150,000 in life insurance coverage for each employee. The premiums for how much of the insurance coverage are excludable from the employee’s gross income?
A) $0
B) $150,000
C) $50,000
D) $100,000
C) $50,000
TRUE OR FALSE: Employer-paid disability insurance premiums are deductible by the employer and excluded from the employee’s gross income unless the employee chooses to have premiums taxed so that disability insurance income benefits are tax free.
Which legislation requires an employer to continue to provide coverage to employees and qualified beneficiaries under a health plan for certain periods of time at the occurrence of qualifying events?
A) Tax Cuts and Jobs Act
B) ERISA
C) COBRA
D) SECURE 2.0 Act
C) COBRA
Which of the following was NOT cited in Chapter 13 as a fringe benefit:
A) Prizes and Awards
B) Quarterly Sales Bonus
C) Qualified Tuition Reduction Plan
D) Qualified Transportation and Parking
B) Quarterly Sales Bonus
