F.48 Qualified plan rules and options

Question 1

Which of the following is not a requirement for a qualified retirement plan?

A. coverage and participation requirements
B. vesting requirements
C. minimum distribution requirements
D. maximum contribution requirements

Answer 1

D. maximum contribution requirements

F.48 Qualified plan rules and options

Question 2

Which of the following is not a type of qualified retirement plan?

A. 401(k) plan
B. defined benefit plan
C. Roth IRA
D. profit sharing plan

Answer 2

C. Roth IRA

F.48 Qualified plan rules and options

Question 3

Which of the following is a key difference between a defined benefit plan and a defined contribution plan?

A. The amount of the contribution is fixed in a defined benefit plan.
B. A defined contribution plan allows for tax-free withdrawals.
C. A defined benefit plan places the investment risk on the employer.
D. A defined contribution plan guarantees a specific retirement benefit.

Answer 3

C. A defined benefit plan places the investment risk on the employer.

F.48 Qualified plan rules and options

Question 4

Which of the following is not a requirement for a 401(k) plan?

A. The plan must provide for nondiscriminatory contributions and benefits.
B. The plan must provide for automatic enrollment.
C. The plan must provide for a minimum contribution level.
D. The plan must satisfy certain distribution requirements.

Answer 4

C. The plan must provide for a minimum contribution level.

While a 401(k) plan may have a minimum contribution level, it is not a requirement for the plan to be qualified.

F.48 Qualified plan rules and options

Question 5

Which of the following is a key advantage of a SEP IRA?

A. Contributions are tax-deductible for the employer.
B. Employees can make catch-up contributions.
C. There are no contribution limits.
D. Distributions are tax-free.

Answer 5

A. Contributions are tax-deductible for the employer.

F.48 Qualified plan rules and options

Question 6

Michael is a highly compensated employee who participates in his employer’s 401(k) plan. The plan fails the ADP and ACP tests. What are the employer’s options?

A. Refund the excess contributions to the highly compensated employees.
B. Pay a penalty to the IRS.
C. Make additional contributions to the non-highly compensated employees to bring the plan into compliance.
D. All of the above.

Answer 6

A. Refund the excess contributions to the highly compensated employees.

If a 401(k) plan fails the ADP and ACP tests, the employer must refund the excess contributions to the highly compensated employees.

F.48 Qualified plan rules and options

Question 7

Mary is a participant in her employer’s defined benefit plan. If Mary leaves her job before retirement age, what happens to her benefit?

A. The benefit is forfeited.
B. The benefit is frozen.
C. The benefit is paid out in a lump sum.
D. The benefit is converted to an IRA.

Answer 7

B. The benefit is frozen.

If a participant leaves a defined benefit plan before retirement age, the benefit is typically frozen until the participant reaches retirement age.

F.48 Qualified plan rules and options

Question 8

Bill is a self-employed individual who wants to set up a retirement plan for himself. Which of the following plans would allow him to make the largest contribution?

A. SIMPLE IRA
B. SEP IRA
C. 401(k) plan
D. Roth IRA

Answer 8

B. SEP IRA

A SEP IRA allows for the largest contribution for a self-employed individual, as the contribution limit is based on a percentage of income rather than a fixed dollar amount.

F.48 Qualified plan rules and options

Question 9

Jane is a participant in her employer’s 401(k) plan. She is 50 years old and wants to increase her retirement savings. Which of the following is an option for Jane?

A. Increase her contribution to the 401(k) plan.
B. Make catch-up contributions to the 401(k) plan.
C. Open a traditional IRA.
D. Open a Roth IRA.

Answer 9

B. Make catch-up contributions to the 401(k) plan.

Catch-up contributions are available to individuals who are 50 or older and allow them to make additional contributions to their retirement plans. This is an option for Jane to increase her retirement savings.

F.48 Qualified plan rules and options

Question 10

Which of the following is true about vesting in a defined benefit plan?

A. Vesting is not required in a defined benefit plan.
B. Vesting is based on the employee’s age and years of service.
C. Vesting occurs immediately upon enrollment in the plan.
D. Vesting is the same for all employees in the plan.

Answer 10

B. Vesting is based on the employee’s age and years of service.

F.48 Qualified plan rules and options

Question 11

Which of the following is true about nondiscrimination testing for a defined benefit plan?

A. Nondiscrimination testing is not required for defined benefit plans.
B. Nondiscrimination testing ensures that highly compensated employees do not receive a disproportionate share of benefits.
C. Nondiscrimination testing ensures that all employees receive the same benefit.
D. Nondiscrimination testing is only required for plans with fewer than 100 participants.

Answer 11

B. Nondiscrimination testing ensures that highly compensated employees do not receive a disproportionate share of benefits.

F.48 Qualified plan rules and options

Question 12

Which of the following is a key advantage of a profit sharing plan?

A. Contributions are tax-deductible for the employer.
B. Employees can make catch-up contributions.
C. There are no contribution limits.
D. Distributions are tax-free.

Answer 12

A. Contributions are tax-deductible for the employer.

F.48 Qualified plan rules and options

Question 13

Which of the following is a requirement for a safe harbor 401(k) plan?

A. The plan must provide for nondiscriminatory contributions and benefits.
B. The plan must provide for automatic enrollment.
C. The plan must provide for a minimum contribution level.
D. The plan must satisfy certain distribution requirements.

Answer 13

B. The plan must provide for automatic enrollment.

F.48 Qualified plan rules and options

Question 14

Which of the following is a key advantage of a cash balance plan?

A. It provides employees with a guaranteed benefit.
B. Contributions are tax-deductible for the employer.
C. Employees can make catch-up contributions.
D. There are no contribution limits.

Answer 14

B. Contributions are tax-deductible for the employer.

F.48 Qualified plan rules and options

Question 15

Which of the following is true about a 457(b) plan?

A. Contributions are made with pre-tax dollars.
B. Distributions are not subject to income tax.
C. Participants can make catch-up contributions.
D. The plan is available only to government employees.

Answer 15

C. Participants can make catch-up contributions.

F.48 Qualified plan rules and options

Question 16

Which of the following is true about vesting in a defined contribution plan?

A. Vesting is not required in a defined contribution plan.
B. Vesting is based on the employee’s age and years of service.
C. Vesting occurs immediately upon enrollment in the plan.
D. Vesting is the same for all employees in the plan.

Answer 16

C. Vesting occurs immediately upon enrollment in the plan.

F.48 Qualified plan rules and options

Question 17

Which of the following is a requirement for a plan to be considered a qualified plan?

A. The plan must be funded solely by employer contributions.
B. The plan must provide for nondiscriminatory contributions and benefits.
C. The plan must be available only to highly compensated employees.
D. The plan must provide for automatic enrollment.

Answer 17

B. The plan must provide for nondiscriminatory contributions and benefits.

In order for a plan to be considered a qualified plan, it must provide for nondiscriminatory contributions and benefits for all participants.

F.48 Qualified plan rules and options

Question 18

A couple files a joint income tax return for the year, reporting a modified adjusted gross income (MAGI) of $210,000. James, age 53, is participating in an employer-sponsored SIMPLE IRA plan and defers $7,000. His spouse, Samantha, age 48, has no earned income. What is the maximum combined Roth IRA contribution the couple can make given that the Roth contribution limit is $6,500 for anyone under 50 and $7,500 for anyone 50 and older?

A. $6,500
B. $14,000
C. $13,500
D. $7,500

Answer 18

B. $14,000

James is 53 years old, so he is eligible to contribute up to $7,500 to a Roth IRA. Samantha, though she has no earned income, can still make a spousal contribution to a Roth IRA because they’re filing jointly. Since she’s 48 years old, she can contribute up to $6,500. Therefore, the combined maximum amount they can contribute to their Roth IRAs is $7,500 + $6,500 = $14,000

F.48 Qualified plan rules and options

Question 19

A client, who is a non-owner employee earning $50,000, has been informed that her employer’s 401(k) plan has become top-heavy. Which of the following statements accurately describes her situation?

A. The plan’s cliff vesting schedule may be increased from 3 to 5 years.
B. The Pension Benefit Guaranty Corporation (PBGC) can terminate the employer’s plan.
C. Non-key participants must receive a minimum employer contribution of at least 3% of their compensation if key employees participate.
D. The plan will be deemed disqualified according to ERISA regulations, and participants will need to roll over assets to a traditional IRA.

Answer 19

C. Non-key participants must receive a minimum employer contribution of at least 3% of their compensation if key employees participate.

When a 401(k) plan is considered top-heavy, it means that more than 60% of the plan’s assets are held by key employees (typically owners and officers). ERISA has special provisions for top-heavy plans to ensure that non-key employees receive a minimum level of benefits. One of these provisions is that non-key employees must receive a minimum contribution of at least 3% of their compensation if key employees participate in the plan.

F.48 Qualified plan rules and options