Chapter 10: Retirement Plans and Other Tax Advantaged Accounts

Question 1

______ plans require IRS approval and the dollars invested are before-tax dollars (contributions are deductible), creating a zero cost basis for the investor. Therefore, when the investor takes the money out at retirement, the entire withdrawal is taxable.

Answer 1

Qualified

Question 2

______ plans are not allowed to discriminate between employees, meaning that no one who meets the minimum requirements for inclusion in the plan can be left out.

Answer 2

Qualified

Question 3

______ plans may discriminate and do not need IRS approval. The dollars that are invested in nonqualified plans are generally after-tax dollars, which establish the investor’s cost basis. When money is withdrawn at retirement, the investor pays taxes on the amount of the withdrawal that exceeds the cost basis.

Answer 3

Nonqualified

Question 4

All investments grow ______, so the investor is not taxed on any gains until money is withdrawn at retirement.

Answer 4

Tax-Deferred

Question 5

______ Retirement Plan

IRS Approval: Required
Discrimination: CANNOT
Contributions: Tax deductible
Accumulation: Tax deferred
Withdrawals: All taxed

Answer 5

Qualified

Question 6

______ Retirement Plan

IRS Approval: NOT required
Discrimination: CAN
Contributions: NOT tax deductible
Accumulation: Tax deferred
Withdrawals: Taxed on portion above cost basis

Answer 6

Nonqualified

Question 7

______ is a type of nonqualified plan in which the employer promises to pay compensation to the employee in the future.

Answer 7

Deferred Compensation

Question 8

A(n) ______ plan is a nonqualified, tax-deferred account that is made available to employees of public institutions, such as state and local governments, and to private, or nongovernmental, tax-exempt organizations, such as hospitals.

Answer 8

457(b)

Question 9

Currently, 457(b) plans are not available to ______.

Answer 9

Churches

Question 10

______ 457 plans are required to be funded and the funds are held in trust for the sole benefit of the plan participants or their beneficiaries.

Answer 10

Public Governmental

Question 11

______ 457 plans generally only allow a select group of employees designated by the employer to participate in the plan and are funded by a trust or annuity.

Answer 11

Private

Question 12

In ______ plans, employees set aside current compensation into the account on a pretax basis through a salary deferral agreement with the employer. Contributions are not taxed because the employee has not received the income - it is ______.

Answer 12

1. 457(b)

2. Deferred Income

Question 13

As with other retirement plans, withdrawals from a 457(b) plan must begin by age ______. Unlike other plans, there is no ______ on early withdrawals made before age ______ or after terminating employment.

Answer 13

1. 72
2. 10% Penalty
3. 59 1/2

Question 14

Summary of features of a(n) ______ plan:

1. Contributions currently are not tax-deductible because the employee has not “received” the money.
2. Plan does not require IRS approval.
3. Employer may discriminate in plan offering (therefore, it is a nonqualified plan).
4. Funds in the plan grow on a tax-deferred basis.
5. Any excess over the cost basis is taxed when received.

Answer 14

Deferred Compensation

Question 15

______ are a common form of employee noncash compensation. A(n) ______ allows the employee to purchase company stock in the future at a predetermined price.

Answer 15

1. Employee Stock Option Plans (ESOPs)

2. ESOP

Question 16

A(n) ______ is similar to a stock warrant in that it is long term and at issue its exercise price is above the stock’s current market value.

Answer 16

Employee Stock Option

Question 17

______ are generally given to executives and firm management as an incentive toward the employer’s future growth. These may also be granted to nonemployees who are important to the company, such as nonemployee directors, attorneys, and key suppliers.

Answer 17

Employee Stock Option Plans (ESOPs)

Question 18

Employee stock options are granted with a(n) ______, which is the systematic ownership transfer to the employee.

Answer 18

Vesting Schedule

Question 19

A(n) ______, also called a(n) ______, is a tax-qualified employee stock purchase plan. This plan is similar to an ESOP, except there is no employee tax liability when the option is exercised.

Answer 19

1. Incentive Stock Option

2. Qualified Stock Option

Question 20

To meet IRS guidelines for incentive stock options, stock must be held for at least ______ from exercise and at least ______ from the date the option was granted.

Answer 20

1. 1 Year

2. 2 Years

Question 21

Incentive stock options may trigger ______.

Answer 21

Alternative Minimum Tax (AMT)

Question 22

Because incentive stock options are tax qualified, the plan must be approved by company shareholders ______ prior to the plan taking effect.

Answer 22

1 Year

Question 23

Additional details of a(n) ______ plan include:

1. Only employees are eligible; independent contractors and board members may not participate.
2. Options are exercisable up to 10 years after they are granted.

Answer 23

Incentive Stock

Question 24

For incentive stock options, if an employee is a(n) ______ or greater owner in the company, the strike price must be at least ______ of the stock’s market value at the time of the grant, and the exercise term is limited to ______.

Answer 24

1. 10%
2. 110%
3. 5 Years

Question 25

Corporate pension plans can be divided into two categories:

1. ______ plans.
2. ______ plans.

Answer 25

1. Defined Benefit

2. Defined Contribution

Question 26

Under a(n) ______, the employer specifies an amount of benefits promised to the employee at his or her normal retirement date. The payments are based on a specified formula that considers age, years of service and salary history, and is adjusted each year for inflation.

Answer 26

Defined Benefit Plan

Question 27

In ______, the employer is responsible for maintaining adequate funds to provide the promised benefit, and an actuarial calculation is required to determine the annual deposit for each year.

Answer 27

Defined Benefit Plans

Question 28

______ favor older employees nearing retirement age, and allow for higher benefits for high-salaried owners and key employees.

Answer 28

Defined Benefit Plans

Question 29

______ are generally more flexible and less expensive for employers to administer. These plans are focused on contributions rather than on the benefits they will pay out. These plans favor young employees just starting out, with many years to retirement.

Answer 29

Defined Contribution Plans

Question 30

Annual contributions to a defined contribution plan are limited to the greater of ______ of the employee’s gross compensation, or the maximum dollar amount set by the IRS (currently ______). This annual limit includes employer and employee total contributions.

Answer 30

1. 25%

2. $58,000

Question 31

In a(n) ______, employer contributions are required without regard to the company’s profitability in a given year.

Answer 31

Defined Contribution Plan

Question 32

A(n) ______ is a type of tax-qualified retirement plan. Anyone who has earned income is allowed to contribute to a(n) ______.

Answer 32

1. Individual Retirement Account (IRA)

2. Traditional IRA

Question 33

The contribution to a(n) ______ may or may not be deductible, depending on whether the individual qualifies for a retirement program through an employer and the level of earned income.

Answer 33

Traditional IRA

Question 34

The maximum amount an individual can contribute annually to an IRA is the lesser of the two following amounts:

1. ______ (younger than age 50) or ______ (catch-up provision for age 50 and older).
2. ______ of earned income.

Answer 34

1. $6,000
2. $7,000
3. 100%

Question 35

Anyone who is working and has earned income can contribute to a(n) ______, regardless of age.

Answer 35

Traditional IRA

Question 36

IRA contributions must be made in ______ (or ______) in order to be tax deductible. The term ______ includes any form of money, such as cash, check or money order.

Answer 36

1. Cash
2. Cash Equivalents
3. Cash

Question 37

The money invested in ______ can be used to buy stocks, bonds, mutual funds, or annuities. It cannot be used to purchase life insurance policies or collectibles such as art, antiques, or stamps.

Answer 37

Individual Retirement Accounts (IRAs)

Question 38

Investors cannot trade ______ in an IRA account.

Answer 38

On Margin

Question 39

In a marriage where only one spouse has earned income and has contributed to an IRA, the nonwage earning spouse may also contribute to a(n) ______ if the earned income from the wage-earning spouse is greater than the total contributions to both IRAs.

Answer 39

Spousal IRA

Question 40

For a spousal IRA, each spouse must maintain a(n) ______ not exceeding the individual limit.

Answer 40

Separate Account

Question 41

Taxpayers who are ______ or older are entitled to make additional “catch-up” contributions. Currently, the taxpayers may contribute up to an additional ______ each year, making their total contribution ______.

Answer 41

1. Age 50
2. $1,000
3. $7,000

Question 42

There are two ways to move money from qualified plan to qualified plan:

1. A(n) ______.
2. A(n) ______.

Answer 42

1. Rollover

2. Custodian-to-Custodian Transfer

Question 43

A(n) ______ describes a cash and/or asset contribution to a new IRA by an individual within ______ of receiving an eligible ______ distribution from an old plan. The individual may roll over all or any part of the actual amount received.

Answer 43

1. Rollover
2. 60 Days
3. Rollover

Question 44

During a rollover, the individual is subject to ______ federal withholding on the distribution from the old plan. However, the individual must then deposit the ______ rollover amount into the new plan within ______. The individual then files for a refund of the ______ withholding in their next federal income tax return.

Answer 44

1. 20%
2. Full
3. 60 Days
4. 20%

Question 45

A rollover can be done no more than once every ______, and if the rollover is not completed within ______, the withdrawal is considered a permanent distribution and subject to ordinary income tax and a(n) ______.

Answer 45

1. 12 Months
2. 60 Days
3. 10% Penalty

Question 46

A(n) ______ describes a movement of cash and/or assets that takes place directly between the trustee/custodian of an old plan and the trustee of a new plan.

Answer 46

Transfer

Question 47

By directly transferring the distribution from one custodian to another, the individual can avoid the ______ federal income tax withholding since he or she never touches the money.

Answer 47

20%

Question 48

There is ______ annual limit on the permissible number of direct transfers.

Answer 48

No

Question 49

In many cases, individual contributions to traditional IRAs are ______ for the year of the contribution.

Answer 49

Tax Deductible

Question 50

Any eligible person not participating in a(n) ______ can take a full deduction from taxable income up to the maximum limit. If an individual is a participant in a(n) ______, there are income limitation tests to determine how much, if any, of the individual’s IRA contribution is tax deductible.

Answer 50

Qualified Retirement Plan

Question 51

Contributions into an IRA for the current tax year can be made up to ______ of the following year.

Answer 51

April 15

Question 52

Anyone with ______ may contribute to an IRA, even if the contributions are not tax deductible.

Answer 52

Earned Income

Question 53

If an individual’s IRA contribution exceeds the maximum allowable amount, a(n) ______ is assessed on the excess contributions every year until it is removed from the plan. The excess contribution is not deductible, and earnings on the excess portion do not accumulate tax-deferred.

Answer 53

6% Penalty

Question 54

All investment income and pretax contributions are taxed as ______ in the year received. After-tax contributions are not taxed when distributed.

Answer 54

Ordinary Income

Question 55

If both tax deductible and nondeductible contributions were made to the IRA, each distribution is partially ______ and partially ______. The IRS requires the IRA owner to complete a special tax form annually that figures the ______ and ______ distributions.

Answer 55

1. Taxable
2. Nontaxable
3. Taxable
4. Nontaxable

Question 56

If withdrawals from an IRA are made prior to age ______, they are considered premature distributions, and a(n) ______ is assessed by the IRS. The amount of the premature withdrawal is also taxed as ______ to the recipient in the year received.

Answer 56

1. 59 1/2
2. 10% Early Withdrawal Penalty
3. Ordinary Income

Question 57

The following circumstances determine how a(n) ______ premature distribution can occur from a Traditional IRA:

1. Death of the account owner.
2. Permanent disability of the owner.
3. Unreimbursed medical expenses in excess of ______ of adjusted gross income (______ if over age 65).
4. Distributions are made in equal periodic installments for a minimum of ______ or until the recipient reaches age 59 1/2, which period is greater.
5. Education expenses for the owner or the owner’s immediate family.
6. Down payment on a first-time home purchase of the primary residence of the owner, limited to a lifetime amount of ______.
7. Childbirth or adoption expenses up to ______.

Answer 57

1. Penalty-Free
2. 10%
3. 7.5%
4. 5 Years
5. $10,000
6. $5,000

Question 58

A(n) ______ is a top choice for immediate tax savings because contributions can be deducted from that year’s taxable income.

Answer 58

Traditional IRA

Question 59

An IRA owner must begin taking annual required minimum distributions (RMDs) no later than ______ of the year following the year in which the participant turns ______.

Answer 59

1. April 1

2. 72

Question 60

If the first RMD is taken in April, the individual will have to a second RMD by December 31 of ______, and every year thereafter.

Answer 60

The Same Year

Question 61

Failure to take an RMD results in a(n) ______ levied on the amount of the required distribution that was not taken.

Answer 61

50% Tax Penalty

Question 62

For the year of the account owner’s death, the RMD is based on the RMD the ______ would have received. For the year following the owner’s death, the RMD will depend on the identity of the ______.

Answer 62

1. Account Owner

2. Designated Beneficiary

Question 63

______ may take their distributions over the beneficiary’s life expectancy. A(n) ______ includes a(n):

1. Surviving spouse.
2. Disabled individual.
3. Minor child.
4. Individual who is not more than 10 years younger than the deceased IRA owner.

Answer 63

Eligible Designated Beneficiaries

Question 64

Minor children must still take the remaining distributions within ______ of reaching age 18.

Answer 64

10 Years

Question 65

A surviving spouse beneficiary may delay the start of distributions until, the later of, the end of the year that the IRA owner would have attained ______ or the ______’s required beginning date.

Answer 65

1. Age 72

2. Surviving Spouse

Question 66

Designated beneficiaries, who are not ______, such as a non-spouse heir, must withdraw the entire account within ______ of the IRA owner’s death.

Answer 66

1. Eligible Designated Beneficiaries

2. 10 Years

Question 67

______, also known as a “nonperson entity”, must withdraw the entire account within ______ of the IRA owner’s death if distributions had not begun prior to death.

Answer 67

1. Non-Designated Beneficiaries

2. 5 Years

Question 68

Roth IRA contributions and all earnings may be withdrawn ______ as long as the account is open for at least ______, and if certain requirements are met.

Answer 68

1. Tax Free

2. 5 Years

Question 69

______ must be funded with after-tax dollars.

Answer 69

Roth IRAs

Question 70

MAGI phase-out ranges for Roth IRA Contributions:

1. Single or Head of Household: ______ to ______
2. Married Filing Jointly: ______ to ______
3. Married Filing Separately: ______ to ______

Answer 70

1. $125,000 to $140,000
2. $198,000 to $208,000
3. $0 to $10,000

Question 71

______ contributions are not tax deducible and are made with after-tax dollars. An individual can contribute ______ of earned income up to a specified maximum which is indexed for inflation.

Answer 71

1. Roth IRA

2. 100%

Question 72

A(n) ______ can be converted to a(n) ______ if a person’s adjusted gross income is less than the applicable limit. The converted funds are considered ______, and therefore taxed at income tax rates applicable in the year of the rollover.

Answer 72

1. Traditional IRA
2. Roth IRA
3. Income

Question 73

Unlike a traditional IRA, Roth IRA eligibility is phased out based on the individual’s ______ level.

Answer 73

Earned Income

Question 74

Participation in an employer’s retirement plan does not affect a person’s eligibility for a(n) ______.

Answer 74

Roth IRA

Question 75

Rollovers from an employer’s pre-tax qualified plan cannot be directed to ______. Rollovers must be directed to ______. That ______ may subsequently be rolled into a(n) ______.

Answer 75

1. Roth IRAs
2. Traditional IRAs
3. Traditional IRA
4. Roth IRA

Question 76

The following circumstances determine how a(n) ______ premature distribution can occur from a Roth IRA:

1. Death of owner - payable to the estate or beneficiary.
2. Disabled owner.
3. Unreimbursed medical expenses or health insurance if unemployed.
4. Distribution in substantially equal payments for a minimum of ______ or until the owner reaches age ______, which period is greater.
5. First-time homebuyer (subject to a lifetime cap, currently ______).
6. Qualified higher education expenses for the owner, owner’s spouse, children, or grandchildren.

Answer 76

1. Penalty-Free
2. 5 Years
3. 59 1/2
4. $10,000

Question 77

______ include distributions made after the age of 59 1/2 and are not subject to the 10% penalty for early withdrawals. ______ are subject to ordinary income tax and a 10% early withdrawal penalty.

Answer 77

1. Qualified Distributions

2. Nonqualified Distributions

Question 78

Any Roth IRA distributions that are a return of regular ______ and any ______ are not included in the individual’s gross income, meaning they are excluded from federal income tax.

Answer 78

1. Contributions

2. Qualified Distributions

Question 79

The following are considered qualified distributions:

1. Payments made after a(n) ______ holding period beginning with the 1st taxable year for which a Roth IRA contribution was made.
2. Payments made on or after the date the individual reaches age ______.
3. Payments are made because the individual becomes ______.
4. Distributions made to a beneficiary or the estate after the individual’s ______.
5. Distributions made as a down payment on the first home up to ______.

Answer 79

1. 5-Year
2. 59 1/2
3. Disabled
4. Death
5. $10,000

Question 80

______ are an excellent choice for future tax savings. Distributions, including investment gains, are not taxed when withdrawn.

Answer 80

Roth IRAs

Question 81

______ plans are qualified plans that allow self-employed individuals (or small self-employed groups) to contribute to their retirement in amounts greater than are available with traditional IRAs.

Answer 81

Simplified Employee Pension (SEP)

Question 82

______ plans are written plans that allow the individual to make contributions toward their own (if self-employed) and employees’ retirement without getting involved in a more complex qualified plan.

Answer 82

Simplified Employee Pension (SEP)

Question 83

Under a(n) ______, an employer contributes directly to traditional individual retirement accounts (______) for all eligible employees, including the employer.

Answer 83

1. Simplified Employee Pension (SEP)

2. SEP-IRAs

Question 84

SEP-IRAs are set up for each ______, at a minimum. A(n) ______ is an individual who meets all the following requirements:

1. Has reached age ______.
2. Has worked for the same employer in at least ______ of the last ______.
3. Has received at least IRS-specified amount in ______ from the employer.

Answer 84

1. Eligible Employee
2. Eligible Employee
3. 21
4. 3 of the last 5 Years
5. Compensation

Question 85

For a(n) ______, the employer may use less restrictive participation requirements than those listed, but not more restrictive requirements.

Answer 85

Simplified Employee Pension (SEP)

Question 86

The following employees can be excluded from coverage under a(n) ______:

1. Employees covered by a union agreement.
2. Nonresident alien employees who have received no U.S. source compensation.

Answer 86

Simplified Employee Pension (SEP)

Question 87

Contributions to SEP-IRAs are fully _____ and all earnings grow on a(n) ______ basis until withdrawn.

Answer 87

1. Tax Deductible

2. Tax-Deferred

Question 88

______ plans allow flexibility of contributions. That is, employers do not need to contribute the same percentage each year. However, for any given year, contributions for all employees must be based on the same percentage.

Answer 88

Simplified Employee Pension (SEP)

Question 89

Employer’s contributions to each employee’s SEP-IRA , or contributions for self-employed individuals, cannot exceed the lesser of ______ of their gross earnings or the maximum annual contribution limit (______ for 2021).

Answer 89

1. 25%

2. $58,000

Question 90

There is no catch-up provision for ______.

Answer 90

SEP-IRAs

Question 91

If a self-employed person has any ______ as defined by IRS standards, contributions must be made in an individual account for each employee at the same ______ of earnings as the employer’s contributions.

Answer 91

1. Full-Time Employees

2. Percentage

Question 92

All contributions made under a(n) ______ are employer contributions. An employee cannot defer a portion of his her salary and contribute it to a(n) ______.

Answer 92

1. Simplified Employee Pension (SEP)

2. SEP-IRA

Question 93

SEP plans have several advantages for small employers:

1. Contributions are ______, and the business does not pay any taxes on the earnings on the investments.
2. Employers are not locked into making ______; they can decide each year whether, and how much to contribute to the employees’ plans.
3. ______ and ______ can set up a SEP.
4. Low ______ costs.

Answer 93

1. Tax-Deductible
2. Annual Contributions
3. Sole Proprietors and Partnerships
4. Administrative

Question 94

A(n) ______ plan is available to small businesses that employ not more than 100 employees.

Answer 94

Savings Incentive Match Plan for Employees (SIMPLE)

Question 95

To establish a(n) ______ plan, the employer must not have a qualified plan in place.

Answer 95

Savings Incentive Match Plan for Employees (SIMPLE)

Question 96

______ plan funding comes from voluntary employee salary deferral with no salary percentage limit, but with a maximum annual deferral up to a specified amount, which periodically increases for inflation.

Answer 96

Savings Incentive Match Plan for Employees (SIMPLE)

Question 97

For SIMPLE plans, there is a mandatory employer dollar-for-dollar match of up to ______ of the employee’s salary (only for employees who voluntarily elect to participate). The employer may lower the percentage to ______ for any ______ out of every 5-year period.

Answer 97

1. 3%
2. 1%
3. 2 Years

Question 98

As an alternative contribution method in a SIMPLE plan, the employer can choose to contribute ______ of salary for ______ eligible employees, whether they voluntarily participate or not.

Answer 98

1. 2%

2. All

Question 99

Participants in a SIMPLE plan are ______ ______ in employer contributions.

Answer 99

1. Immediately

2. 100% Vested

Question 100

In a SIMPLE plans, no ______ are permitted and there is a(n) ______ waiting period before assets can be rolled into an IRA.

Answer 100

1. Loans

2. 2-Year

Question 101

______ plans allow employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also match the employee’s contribution, whether it is dollar-for-dollar or on a percentage basis.

Answer 101

401(k)

Question 102

Under a(n) ______ plan, contributions into the plan are excluded from the individual employee’s gross income through a payroll deduction up to a specified maximum (currently ______).

Answer 102

1. 401(k)

2. $19,500

Question 103

______ plans also allow a larger contribution, known as a catch-up contribution, for participants age ______ and older.

Answer 103

1. 401(k)

2. 50

Question 104

______ plans permit early withdrawal for specified hardship reasons such as death or disability. Loans are also permitted in certain instances up to ______ of the participant’s vested accumulated balance or a specified maximum.

Answer 104

1. 401(k)

2. 50%

Question 105

All distributions made from a 401(k) plan are considered ______ to the employee and taxable at their applicable tax bracket. In the event distributions are taken prior to age ______ and have not met one of the plan’s hardship provisions, a(n) ______ premature distribution penalty would also apply.

Answer 105

1. Ordinary Income
2. 59 1/2
3. 10%

Question 106

A(n) ______ is a type of defined contribution plan where employers are allowing their employees to share in the profitability of the company. The company, however, does not need profits in order to make contributions.

Answer 106

Profit-Sharing Plan

Question 107

The most common method of determining each participant’s allocation in a profit-sharing plan is the ______ method: the employer first calculates the sum of all employees’ compensation (______), then divides the individual employee’s compensation (______) by the ______, and finally multiples each employee’s fraction by the amount of the employer contribution.

Answer 107

1. “Comp-to-Comp”
2. Total “Comp”
3. Employee “Comp”
4. Total Comp

Question 108

Companies that establish a(n) ______ plan can be of any size, can have other retirement plans, and need to file a(n) ______ annually.

Answer 108

1. Profit-Sharing

2. Form 5500

Question 109

Employers are allowed full ______ with regard to making contributions into a(n) profit-sharing plan. They are limited, however, to a maximum annual contribution of ______ of total employee compensation or a maximum amount specified by the IRS (currently ______).

Answer 109

1. Discretion
2. 25%
3. $53,000

Question 110

______ refers to the systematic transfer of ownership between the employer and the employee of the employer’s matching funds in a qualified retirement plan.

Answer 110

Vesting

Question 111

Employees are always 100% vested in their ______; however, they usually have to wait a number of years until they are entitled to 100% of the ______.

Answer 111

1. Own Contributions

2. Employer’s Contributions

Question 112

Qualified plans allow the employer to take a current ______ for all plan contributions made on the employee’s behalf.

Answer 112

Deduction

Question 113

The amount of employer contribution is not included in the employee’s ______. Employees realize these contributions as ordinary income at ______.

Answer 113

1. Gross Income

2. Distribution

Question 114

An employee may receive a lump-sum distribution from a retirement plan prior to retirement, usually by changing employment or in an early retirement package, and may choose to:

1. Receive the proceeds ______.
2. Have the current custodian make a(n) ______ to either another qualified plan or to a rollover IRA account.

Answer 114

1. Directly

2. Direct Transfer

Question 115

If the employee chooses to receive the proceeds directly, the employer is required to withhold ______ of the taxable sum due as a prepayment of income taxes. However, in order to recover the taxes withheld, the employee must roll an amount equal to ______ of the total distribution over to another plan or a rollover IRA account within ______.

Answer 115

1. 20%
2. 100%
3. 60 Days

Question 116

A(n) ______ is not a taxable event because the proceeds are made payable to the ______. Therefore, there is no withholding and the entire amount is transferred directly to the new qualified account.

Answer 116

1. Direct Transfer

2. Successor Custodian

Question 117

A(n) ______ plan, also referred to as a(n) ______ or ______, is a qualified plan available to employees of certain nonprofit organizations and to employees of public-school systems.

Answer 117

1. 403(b)
2. Tax-Deferred Annuity (TDA)
3. Tax-Sheltered Annuity (TSA)

Question 118

______ plans are not governed by ERISA, which governs only corporate plans and union plans.

Answer 118

403(b)

Question 119

For 403(b) plans, contributions can be made by the ______ or by the ______ through salary reduction. In both cases, the contributions are excluded from the employee’s ______.

Answer 119

1. Employer
2. Employee
3. Current Income

Question 120

______ Plan:

Eligibility: Self-employed
Who Contributes: Employer matches employee’s contributions.

Answer 120

HR-10 Keogh

Question 121

______ Plan:

Eligibility: Small employer or self-employed
Who Contributes: Employer Only

Answer 121

Simplified Employee Pension (SEP)

Question 122

______ Plan:

Eligibility: Small employers (no more than 100 employees)
Who Contributes: Employer matches employee’s contribution

Answer 122

Savings Incentive Match Plan for Employees (SIMPLE)

Question 123

______ Plan:

Eligibility: Any employer
Who Contributes: Employer matches employee’s contribution

Answer 123

401(k)

Question 124

______ Plan:

Eligibility: Nonprofits
Who Contributes: Employer and employee

Answer 124

403(b) - TSA

Question 125

In order to protect employees in the private sector (i.e., corporate, not government employees) against abuse and discrimination in pension and retirement plans, the ______ of 1974 was passed.

Answer 125

Employee Retirement Income Security Act (ERISA)

Question 126

______ is the law that established the guidelines for the following:

1. Eligibility rules for plan participation.
2. Proper accounting and administration of plan funds.
3. Vesting schedules for employer contributions.
4. Nondiscrimination.
5. Naming of beneficiaries.
6. Communication of plan rules and benefits to employees.

Answer 126

Employee Retirement Income Security Act (ERISA)

Question 127

Both defined-benefit and defined-contribution plans are subject to the provisions of ______.

Answer 127

Employee Retirement Income Security Act (ERISA)

Question 128

______ states that all eligible employees must be allowed participation in the plan. Eligible employees include employees age ______ and older, ______ or the equivalent (defined as ______ hours per year), and ______ or longer of service.

Answer 128

1. Employee Retirement Income Security Act (ERISA)
2. 21
3. Full-Time
4. 1,000
5. 1 Year

Question 129

ERISA also regulates ______, which is the systematic transfer of account ownership from the employer to the employee.

Answer 129

Vesting

Question 130

______ plans:

1. May not discriminate among different classes of employees.
2. Must allow participants to name their own beneficiaries.
3. Must communicate financial information to the participants as well as file reports annually with the Department of Labor.

Answer 130

Employee Retirement Income Security Act (ERISA)

Question 131

The plan administrator of a qualified plan has ______, and there are restrictions on the type of investments that may be purchased.

Answer 131

Fiduciary Responsibilities

Question 132

______ fund managers may not purchase gold and silver, unless the gold or silver purchased is coins that were minted by the U.S. government.

Answer 132

Pension

Question 133

Pension fund managers must abide by ______ standards when investing retirement monies on behalf of others. These standards are determined by the state in which the ______ is operating un, under “______” rules.

Answer 133

1. Fiduciaries
2. Fiduciary
3. Prudent Investor

Question 134

A(n) ______ is a trust or a custodial account created for the purpose of paying the qualified education expenses of the designated beneficiary.

Answer 134

Coverdell Education Savings Account (ESA)

Question 135

Contributions to an ESA are generally made ______. Therefore, contributions to Coverdells are not ______.

Answer 135

1. After Tax

2. Tax Deductible

Question 136

Taxpayers may deposit up to ______ per ear into a Coverdell for a child younger than ______. Other family members may contribute to the child’s Education IRA, provided that the total contributions for the child during the taxable year do not exceed the limit.

Answer 136

1. $2,000

2. 18

Question 137

Any individual whose MAGI is under the limit set for a given tax year can make contributions to a(n) ______.

Answer 137

Coverdell Education Savings Account (ESA)

MAGI = Modified Adjusted Gross Income

Question 138

Contributions to a(n) ______ are made with after-tax dollars. However, amounts deposited in the account grow tax-deferred until distributed, and the child will not owe tax on any withdrawal from the account if the child’s ______ at an eligible institution for the year equal or exceed the amount of the withdrawal.

Answer 138

1. Coverdell Education Savings Account (ESA)

2. Qualified Education Expenses

Question 139

An individual owning ESA funds is required to use the money by age ______ or the funds must be rolled over to another ______, who must be under ______ of age, and related by blood, marriage, or adoption. Any money left in the account when the student turns ______ must be withdrawn within ______

Answer 139

1. 30
2. Qualified Family Member
3. 30
4. 30 Days

Question 140

If the ESA funds are not used by another family member for qualified education expenses, the earnings in the account become taxable and are subject to a(n) ______.

Answer 140

1. Taxable

2. 10% Penalty

Question 141

Account holders may take tax-free Coverdell distributions to cover ______, as well as college costs.

Answer 141

K-12 Education

Question 142

Amounts withdrawn from a Coverdell that exceed the child’s qualified education expenses in a tax year are generally subject to ______ and to an additional penalty of ______.

Answer 142

1. Income Tax

2. 10%