Chapter 9

Question 1

How are contributions made to a Roth IRA handled for tax purposes?

Answer 1

Not tax deductible

Question 2

Who were Keogh plans designed to provide pension benefits for?

Answer 2

The self-employed

Question 3

Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?

Answer 3

60 days

Question 4

A Roth IRA owner must be at least what age in order to make tax-free withdrawals?

Answer 4

59 1/2 and owned account for a minimum of 5 years

Question 5

Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?

Answer 5

Deferred compensation option

Question 6

When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable?

Answer 6

Gains

Question 7

What is the purpose of the Employee Retirement Income Security Act of 1974?

Answer 7

To protect the rights of workers covered under and employer-sponsored plan.

Question 8

Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered?

Answer 8

Qualified retirement annuity

Question 9

Which retirement plan does not qualify for federal income tax deductions?

Answer 9

Roth IRA

Question 10

Within how many days must a rollover be completed in order to avoid being taxed as current income?

Answer 10

60 days

Question 11

What are the federal requirements of a qualified plan?

Answer 11

• Must benefit a broad cross-section of employees
• Vesting schedule must be defined
• Employer establishes the plan

Question 12

What would disqualify a company’s retirement plan from receiving favorable tax treatment?

Answer 12

It is temporary

Question 13

What are the 3 types of defined contribution plans?

Answer 13

1) Profit-sharing plan
2) Stock bonus plan
3) Money purchase plan

Question 14

What is a pension?

Answer 14

A benefit plan that establishes a definite future benefit, tied to years of service and/or compensation.

Question 15

What is the purpose of a 401(k) plan?

Answer 15

Employees elect to take a salary reduction by deferring amounts into a retirement plan.

Question 16

Who is eligible for a 403(b) plan?

Answer 16

Nonprofit groups, education groups, religious groups, etc.

Question 17

What is the Self Employed Individuals Retirement Act of 1962?

Answer 17

An act that treats small business owners and self-employed individuals as employees so they can participate in a qualified plan.

Question 18

Who is qualified to participate in a Keogh Plan (HR-10s)?

Answer 18

Small business owners, self-employed individuals as long as the employees are included.

Question 19

What is a SEP?

Answer 19

A simplified employee plan for small businesses or self-employed where an employee has an individual retirement account to which the employer contributes.

Question 20

What is the purpose of a SIMPLE Plan?

Answer 20

To allow eligible employers to set up a tax-favored retirement savings plan for their employees.

Question 21

What is a Traditional IRA?

Answer 21

An individual retirement plan set up by the person so they can save money for retirement and receive a current tax break.

Question 22

What is a Roth IRA

Answer 22

A product of 1997 Tax Relief Act where no income tax deductions can be taken from contributions made but the earnings on those contributions are tax-free when withdrawn.

Question 23

When is a withdrawal from a Roth IRA considered as qualified?

Answer 23

Funds have been held in account for 5 years and owner has reached 59 1/2, has died, become disabled, or is buying first home.