Chapter 12- Retirement Plans and Education Savings Plans

Question 1

Can be invested in your IRA

Answer 1

Stock, bond mutual funds and other securities
certain US Gov. or state issued gold, silver platinum and palladium coins
Real estate

Question 2

Can not be invested in your IRA

Answer 2

Life insurance
Collectibles

Question 3

Inadvisable Investments in your IRA

Answer 3

Tax deferred securities like municipal bonds

Question 4

Traditional IRA Rollovers must be completed within…

Answer 4

60 days to avoid tax liability

Question 5

Maximum Amount of employee to participate in a SIMPLE

Answer 5

100 or fewer

Question 6

Penalty for Earlier distributions from a SIMPLE

Answer 6

10% penalty unless within the first two years, than it is 25%

Question 7

What is a qualified plan (retirement plan)

Answer 7

retirement plan that is established and maintained by a private employer that meets the requirements of the Employee retirement income security act (ERISA)

Question 8

Tax benefits of a qualified plans

Answer 8

The Employer is entitled to current tax deduction for their contributions

Employee does not need to pay current income taxes on contributions made by employer

Contributions are still subject to social security, medicare and state and federal unemployment tax

Question 9

IRAs and qualified plans

Answer 9

IRAs are NOT qualified plans. Both were created through ERISA but IRAs are subject to different specific rules that do not apply to qualified plans

Question 10

Employer Choosing which retirement plan to open plans

Answer 10

Employer’s starting a plan can choose between an IRA based plan or a Qualified plan

Choice usually comes down to difficulty opening and cost of administering the plan

Question 11

Qualified plan usually have…

Answer 11

Higher contribution limits but are more complex to administer

Question 12

What does ERISA do

Answer 12

imposes federal standards for plans once they have been established

It does not require employer to have a plan or set minimum limits on the benefits offered

Question 13

Rules that ERISA set in place

Answer 13

Disclosure
Standards - participation, vesting etc.
Accountability
Remedies
Guarantees

Question 14

Safe harbor 404(c) provision

Answer 14

Employer and plan sponsor are not responsible for imprudent investment decision made in a self-directed plan so long as…
The participant had at least three categories of diversified investments and one of those choices can not include securities of the company sponsoring the plan
Must be given a certain level of education and discourse
Informed that they may make changes to their plan (offered at least quarterly)

Question 15

401(k)s are also known as

Answer 15

CODA plans
cash or deferred arrangement plans
Cash Accumulation Plans
Capital Accumulation plans

Question 16

403(b) plans are used by

Answer 16

tax-exempt non-profit organizations
1. Public education systems
2. Certain 501c 3 organizations
3. Certain employers of ministers

They CANNOT invest in limited partnerships

Question 17

457(b) plans

Answer 17

deferred compensation plan for employees of a state or local government or a tax exempt organization (different rules for government vs. non-government

Question 18

Private non-governmental 457(b) plans are offered to..

Answer 18

A select group of management or highly compensated employees

Question 19

Who contributes to a Money Purchase plan

Answer 19

Employer has a fixed percentage of income that they have to contribute (can not change in good or bad years)

Employee may contribute as well

Question 20

Age and income limitations and distribution of a Coverdell accounts

Answer 20

Maximum $2,000 in all accounts for an individual in a year

can only be made until the child reaches the age of 18, unless they are special needs

must be distributed or transferred before the beneficiary reaches the age of 30. If not done within 30 days of turning 30 a 10% penalty is imposed

Question 21

Coverdell taxes in and out

Answer 21

Contributions are not tax deductible

Withdrawals are tax free

Question 22

Uses for a coverdell

Answer 22

Elementary, secondary and higher education expenses

Question 23

Combining both a Coverdell and 529 account

Answer 23

Can contribute to both in the same year but annual gift tax exclusion applies

Question 24

Coverdell accounts and financial aid

Answer 24

If owned by the students there is a big impact
If owned by the parents there is a small impact
Distributions from coverdell do not count as income for the FAFSA

Question 25

Pre-Paid tuition plans do not have

Answer 25

Investment Risk