chapter 19 Flashcards
Who is eligible to contribute to a qualified annuity?
Public school employees [403(b)] and certain non-profit organization employees [501(c)3]
What is the penalty for making excess contributions to an IRA?
6% of the excess
True or False: Excess contributions made to an IRA will still be deductible and will grow tax-deferred.
False. Excess contributions are non-deductible and will not grow on a tax-deferred basis.
IRA contributions must be made in what form?
cash
What are some of the investments that are not suitable for IRA contributions?
Collectibles, insurance, and metals (except U.S. gold and silver coins)
Anyone with __________ income may contribute to an IRA.
earned income
Rollovers must be completed within ____ days.
60 days
Only one rollover is allowed per rolling ____ months.
12 months
True or False: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.
True
What is the late withdrawal penalty?
50% of the amount that should have been taken (an actuarial amount).
How is a Roth IRA contribution different from a Traditional IRA contribution?
The Roth IRA contribution is always made on an after-tax basis.
Early withdrawal without penalty is allowed for what reasons?
Death, disability, qualified higher education expenses, or first-time home buyer ($10,000 limit)
ERISA gave the U.S. Government jurisdiction over ___________________ plans.
private pension
According to ERISA, are there any standards that must be followed regarding how money is invested?
Yes. The plan’s trustee must abide by the Uniform Prudent Investor Act.
Does ERISA permit the writing of covered calls in retirement plans?
yes
Describe the employees who must be eligible to contribute to an ERISA qualified plan.
Employees who are 21 years or older with one year of full-time service
What retirement plans are available to the self-employed?
Keogh Plans and SEPs
May an employee of a corporation who contributes to a corporate pension plan also contribute to a Keogh plan?
Yes, provided the Keogh contribution is solely based upon the employee’s self-employment income
May an individual with a Keogh Plan also fund an IRA?
Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax-deductible.
_____ Plans are college savings plans with high contribution limits set by the state sponsor.
529
Describe the tax treatment of contributions made to a 529 Plan.
They are after-tax contributions that may possibly grow tax-free.
A savings plan which funds both elementary and higher education is referred to as the ____________________________.
Coverdell ESP
If not needed for a child’s education, may the funds in a 529 Plan be transferred to a relative’s 529 Plan?
yes
For employers with SEP Plans, where are the contributions they make for their employees directed?
The employee’s individual SEP-IRA.
True or False: Keogh plans follow a vesting schedule.
True. A scale would indicate how long an employee must remain with the employer to be fully vested.
If an employer makes a Keogh contribution on its own behalf, what must be done for its employees?
A contribution at the same percentage must be made for the employee.
When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.
59 1/2
Who uses 457 Plans?
Employees of state and local governments
Identify the acronym: RMD
Required Minimum Distribution (only required of Traditional IRAs)
What is ERISA?
Employment Retirement Income Security Act
When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?
When not covered by an employer-sponsored plan or when covered by a plan and below an adjusted gross income limit.
Which plans impose income limitations on the contributors, 529 plans or Coverdell ESAs?
Coverdell
____% of earned income up to $_______ is the maximum contribution to an IRA.
100% up to $5,500
If Joe is 55 years old, how much could he contribute to his IRA?
For anyone 50 or older, an additional $1,000 is allowed, making the maximum contribution $6,500.
A contribution of $_______ can be made to a Spousal IRA for a non-working spouse.
$5,500
True or False: 529 Plans allow for a 5-year front-end contribution of $70,000, which avoids gift tax.
True
Grandparents contributing to a grandchild’s 529 Plan may give how much money and still avoid gift tax consequences?
Front-loading 5 years of contributions is allowed; therefore, each could contribute $70,000 for a total of $140,000.
How much may be contributed to a Simplified Employee Pension (SEP) plan?
Employers may contribute 25% of employee income up to $51,000 per year.
What is the maximum annual contribution to a 401(k)?
$17,500
What is the maximum annual contribution to a 403(b)?
$17,500
What is the maximum annual contribution to a 457?
$17,500
What are some of the acceptable investments for IRA contributions?
Stocks, bonds, mutual funds, and CDs
There is a ____% penalty for early withdrawals from an IRA.
10%
When must IRA withdrawals begin in order to avoid the late withdrawal penalty?
By April 1st of the year after an individual turns age 70 1/2
How are withdrawals from a Traditional IRA treated for tax purposes?
If all contributions were deductible, then the entire withdrawal is taxed as ordinary income
How are withdrawals from a Roth IRA treated for tax purposes?
Withdrawals will be tax-free if the account is open for at least 5 years and is not considered an early withdrawal.
Contributions to a Keogh plan are solely based on _________________ income.
self-employment income
In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?
The earnings would be subject to ordinary income tax plus a 10% penalty.
How much may be contributed to a Coverdell each year?
after tax contribution of $2,000
Define vesting.
The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits
True or False: SEPs require employees to become immediately vested in the full amount contributed.
True
How much may be contributed to a 529 plan and avoid gift tax?
$14,000 annually
After 3:25 p.m., what happens if the S&P 500 declines by 20%?
The market is closed for the remainder of the trading day.
A withdrawal of up to $______ may be taken without penalty from an IRA for a first-time purchase of a home.
$10,000
True or False: A withdrawal of up to $10,000 may be taken from an IRA for the purchase of a vacation home.
False
