Investment Companies - Retirement / Education / Health Savings Plans

Question 1

Employer established plans are regulated under ERISA, standing for

Answer 1

• Employee Retirment Income Security Act

Question 2

Plans that comply with ERISA are:

Answer 2

• profit sharing plans
• defined contribution
• defined benefit
• tax-deferred annuity plans (403(b))
• payroll deduction savings plans

Question 3

ERISA covers only _____ plans

Answer 3

private plans

Question 4

All ERISA plans are _______ qualified

Answer 4

tax qualified, meaning that contributions are deductible against the contributor’s taxable income

Question 5

Max contribution is ______ for a single person, or if you are over 50 you can contribute the max plus ______

Answer 5

$5,500, or if over 50 can contribute $5,500 plus $1,000

Question 6

If the person making the contribution is not covered by another qualified pension plan, the contributions are _____ tax deductible in full

Answer 6

ALWAYS

Question 7

If a person is covered under another qualified plan and meets income thresholds, then contributions are _____ tax deductible

Answer 7

NOT

• for single is $61,000 to $71,000
• for joint is $98,000 to $118,000

Question 8

A person can contribute until age _____

Answer 8

70.5

Question 9

If contributions are made in excess of allowed amount, a _____ annual penalty is assessed as long as the amount remains in the account.

Answer 9

6% annual tax penalty

Question 10

Investments that are not allowed for IRAs are:

Answer 10

• insurance policy “cash” values
• term insurance
• art
• collectibles

Question 11

Withdrawals cannot be made without penalty until age _____

Answer 11

59.5 (unless a person dies or becomes disabled)

Question 12

Exceptions to the early withdrawal rule are:

Answer 12

• if you die or become disabled
• qualifying education expenses
• first $10,000 towards first home purchase expenses

Question 13

Distributions from an IRA must commence by ______ of the year following the year of reaching age ______

Answer 13

April 1st of the year following the year of reaching age 70.5

Question 14

RMDs must be taken by ______ of each year

Answer 14

Dec 31st

Question 15

Roth IRAs are _____ subject to the requirement to make an RMD at age 70.5

Answer 15

NOT

Question 16

Rollovers are aloowed into an IRA without a dollar limit for _____ after the distribution is made

Answer 16

60 days

Question 17

_____ withholding tax is withheld on premature distributions

Answer 17

20%

Question 18

If a person wishes to transfer IRA assets from one trustee to another, transfers must be effected ______ between trustees

Answer 18

directly

Question 19

an ______ number of transfers can happen each year

Answer 19

unlimited

Question 20

Options when a beneficiary inherits an IRA:

Answer 20

• IRA roll over (only for spouses)
• transfer into a Beneficiary Distribution Account (“Inherited IRA”) –> distributions commence immediately on either a 5 year timeline or expected life expectancy basis
• cash out the account
• can “disclaim” the IRA and give it to someone else

Question 21

Keogh (HR 10) Plans are used for ______ individuals

Answer 21

self-employed

Question 22

Annual contributions to a Keogh plan cannot exceed ____ of “after Keogh deduction” earnings, with a cap of ______ for the annual contribution in 2016

Answer 22

cannot exceed 25% of after keogh deduction earnings and cannot exceed $53,000 for the annual contribution

Question 23

The effective max contribution rate based on self-employed earnings before keogh deduction is _____ based on $265,000 income

Answer 23

20%

Question 24

Full-time (1,000 hours or more per year) employees who have completed one year’s service must be included at the same ______ _____ rate as the employer

Answer 24

legal contribution rate - ie the employer must make a contribution in the employees name at the same rate they are contributing for themselves

Question 25

Earnings in a Keogh plan build up ______

Answer 25

tax-deferred

Question 26

Distributions from a Keogh plan cannot begin before ____ and must be taken once the age of ____ is reached

Answer 26

59.5 and 70.5

Question 27

Distributions are _____ taxable from a Keogh plan

Answer 27

100%

Question 28

Keogh plans allow cash-value of life insurance as an investment. T/F

Answer 28

True. Unlike IRAs

Question 29

ERISA rules include:

Answer 29

• non-discrimination test (all employees treated equally)
• employees must earn their benefit over a reasonable time frame (“vesting”)
• fiduciary responsibility (plan trustee must manage the assets in the best interest of all the participants)
• permitted investments (prudent man rules, no whole life insurance

Question 30

Two basic categories of pension plans under ERISA:

Answer 30

• defined contribution

- defined benefit

Question 31

Profit-sharing plans are considered a type of _______ plan under ERISA

Answer 31

defined contribution