Chapter 9 Flashcards
For employers offering SEP plans, where are contributions made on behalf of their employees directed?
In the employees individual SEP IRA
Anyone with __________ income may contribute to an IRA.
Earned
Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a ____% IRS early withdrawal penalty.
10
List some of the benefits provided by Social Security.
Medicare, retirements, survivors, disability, dependent benefits, and life insurance death benefit
T/F: The larger the database of statistics, the more predictable loss ratios become.
T; according to the law of large numbers
May individuals invest in an out of state 529 plan?
Yes. Individuals may chose to invest in an in state or out of state 529 plan
Prior to age 59 1/2, penalty free withdrawals from an IRA may be taken for ______________ expenses.
Qualified education
Who bears the investment risk in a defined benefit plan?
The employer
Contributions to a Keogh plan are solely based on ___________ income.
Self-employment
What type of group plan requires the employee to pay all or part of insurance premium?
A contributory group plan
An employer contributes ___% of an employees wages to Social Security.
7.65
What is a Coverdell education savings plan?
A savings plan that funds both elementary and higher education
T/F: SEPs require employees to become immediately vested in the full amount contributed.
T
Identify the acronym: SIMPLE
Savings incentive match plans for employees
There is a ____% penalty for early withdrawals from an IRA.
10
________ are college savings plans with high contribution limits set by the state sponsor.
529 plans
A rollover of qualified plan money from one account to another must be completed within _____ days of withdrawal.
60
What percentage does an employer pay in a noncontributory group plan?
100%
A fully insured individual under the Social Security system has how many quarters of contribution credit?
Fully insured means a FICA contribution of at least 40 quarters.
The lump sum death benefit of Social Security is $_____ as of 2010.
$255
For what reasons may early withdrawals be taken without the 10% IRS penalty applying?
Death, disability, divorce, qualified financial hardship, and qualified loans
May an aunt set up a 529 plan for her nieces?
Yea. The donor of a 529 plan is not required to be a parent.
Hank, age 71, has a Roth IRA. What penalty is assessed for his failure to begin distributions?
There is no penalty since Roth IRAs do not have a RMD.
Is a person permitted to contribute to her own 529 plan?
Yes
T/F: Social Security benefits are based on the Primary Insurance Amount and the insureds SS status.
T
In group life insurance, premiums paid for death benefits over $______ are taxed as ordinary income to employees.
$50,000
When must IRA withdrawals begin in order to avoid the late withdrawal penalty?
By April 1st of the year after an individual turns age 72
Is there an income threshold for 529 College Savings Plan contributors?
No. There are no income limits imposed for these plans
Provide examples of individuals who would qualify to participate in a 403b plan.
School and university employees, nurses, and individuals who work for other types of nonprofit organizations
If an employer makes a Keogh contribution on his own behalf, what must be done for his employees?
Employee contributions must be at the same percentage as made for the employer
If a married person dies, what can be done with her IRA assets?
These assets may be combined with those of her surviving spouse.
The maximum contribution to an IRA is the lesser of $_____ or ____% of earned income.
$6,000; 100%
Define the term: Persistency
The length of time a groups insurer has provided coverage for a particular insured group
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
Per Social security, how many quarters of SS contributions are needed to be fully insured?
40 quarters of FICA contributions (not consecutive) or 10 years (according to SS)
What retirement plan is available to the self employed individuals?
There are two plans specifically available to the self employed — a Keogh and a SEP IRA
T/F: A profit sharing plan required annual contributions regardless of the company profitability.
F
How many quarters of contribution credit does a currently insured individual have under the SS system?
Currently insured is determined by an individual having made a FICA contribution in 6 of the last 13 quarters
Identify the acronym: TSA
Tax Sheltered Annuity (a qualified contract)
What is a Simplified Employee Pension Plan (SEP)?
An employer sponsored IRA for the self employed and it’s employees
T/F: Defined contribution plans focus on contribution amounts, it do not guarantee preset retirement accounts.
T
For whole is a 457 deferred compensation program designed?
Those who work for a municipality (state employees)
In what form must IRA contributions be made?
In cash
What right does the “incident of ownership” provide to an employee?
An employees “incident of ownership” allows the employees the right to name or change a beneficiary designation
A 401k plan uses _________ contributions and the growth of the account is ____________.
Pre tax; tax deferred
What provides a detailed description of the group plan that is given to the employer?
Master contracf
T/F: If 529 plan funds are not used for a child’s education, they may be transferred to a relatives plan.
T
What is another name for a 403b plan?
A TSA
Employer contributions into an employee qualified plan are ____________ to the employer.
Tax deductible
What is the maximum annual IRA contribution for a 58 year old whose only income is investment income?
$0, since the individual has no earned income
In general, a 401k plan is available to individuals who work for a ____________ corporation.
For profit
T/F: Qualified plans receive favorable tax treatment by the IRS.
T
Who funds a 529 plan?
The donor
For what reasons may an individual take an early withdrawal from his IRA without penalty?
Death, disability, qualified higher education, home buyer ($10,000 limit), birth or adoption of a child ($5,000 limit)
Describe the tax treatment of contributions made to a 529 plan.
The contributions are made after tax, but may possibly grow tax free.
T/F: Defined benefit programs determine retirement benefits using income average and years of service.
T
How are withdrawals from Roth IRAs treated for tax purposes?
Withdrawals are tax feee if the account is open for at least 5 years and is not considered an early withdrawal
What is bad risk or selection called?
Adverse selection
Who bears the investment risk in a defined contribution plan?
The employee
What is another name for Social Security?
Old age, survivors, disability, and health insurance program
How much may be contributed to a coverdell each year?
After tax $2,000
When may a person begin taking penalty free withdrawals from her 401k?
As early as age 59 1/2
Who owns the investments contained within a 457 plan?
The employer
How much may be contributed to a 529 plan and avoid gift tax?
A do or may give up to $16000 per year and avoid gift tax
How is a Roth IRA contribution different from a traditional IRA contribution?
Roth IRA contributions are always made after tax while traditional IRA contributions are deductible.
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 10% penalty
Social security contribution taxes are known as _______ taxes.
FICA
What are some of the acceptable investments for IRA contributions?
Stocks, bonds, mutual funds, and CDs
How much may a married couple earning $335,000 contribute to a Roth IRA?
$0, since the couples income exceeds the income threshold
An individual turns 72 in December. When must she begin the RMDs from her IRA?
By April 1 of the following year
What an individual reaches age _______, he may begin withdrawing from an IRA without penalty.
59 1/2
A contribution of $________ may be made to a Spousal IRA for a non-working spouse.
$6,000
403b contributions are pre tax contributions made on a _________ reduction basis.
Salary
What is waived for the first time home buyer in the event of an IRA distribution?
The IRS penalty is waived; however, the withdrawal is subject to tax
What is used to verify group participation and is given to enrolled employees?
A certificate of coverage
Are employee contributions to an employee qualified retirement account considered income to the employee?
No
For what type of individual is a 403b plan primarily designed?
An individual who works for a nonprofit organization
Who is religions to make tax deductible contributions to an IRA?
A person not covered by an employer plan, or, if covered, a person who meets the income restriction
An employee pays ____% of his wages to Social Security.
7.65%
What penalty is assessed on the withdrawal of funds for an unqualified expense from a 529 plan?
A 10% IRS penalty plus federal taxation
How is social security funded?
By payroll taxes
Define vesting.
The right an employee gradually acquired by length of service at a company to receive employer contributed benefits
