Qualified and Other Retirement Plans, Group Life Insurance and Social Security Flashcards
An employer contributes _____% of an employee’s wages to Social Security.
7.65%
True or False: SEPs require employees to become immediately vested in the full amount contributed.
True
What retirement plan is available to self-employed individuals?
There are two plans specifically available to the self-employed–a Keogh and a SEP IRA.
The maximum contribution to an IRA is the lesser of $_______ or ____% of earned income.
The maximum contribution to an IRA is the lesser of $6,000 or 100% of earned income.
What penalty is assessed on the withdrawal of funds for an unqualified expense from a 529 Plan?
A 10% IRS penalty plus federal taxation
Who bears the investment risk in a defined benefit plan?
The employer
How many quarters of contribution credit does a currently insured individual have under the Social Security system?
Currently insured is determined by an individual who has made a FICA contribution in 6 of the last 13 quarters.
True or False: Defined benefit programs determine retirement benefits using income average and years of service.
True
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
Is a person permitted to contribute to her own 529 plan?
Yes
Provide examples of individuals who would qualify to participate in a 403(b) plan.
School and university employees, nurses, and individuals who work for other types of nonprofit organizations
For whom is a 457 deferred compensation program designed?
Those who work for a municipality (e.g. state employees)
A 401(k) plan uses _________ contributions and the growth of the account is _______________.
A 401(k) plan uses PRE-TAX contributions and the growth of the account is TAX-DEFERRED.
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 Social Security)
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.
Identify the acronym: SIMPLE
Savings Incentive Match Plans for Employees
Employer contributions into an employee qualified plan are _______________ to the employer.
deductible
The lump-sum death benefit of Social Security is $_____ as of 2010.
$255
Who is eligible 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
Describe the tax treatment of contributions made to a 529 plan.
The contributions are made after-tax, but may possibly grow tax-free.
What is waived for the first-time homebuyer in the event of an IRA distribution?
The IRS penalty is waived; however, the withdrawal is subject to tax.
A rollover of qualified plan money from one account to another must be completed within ____ days of withdrawal.
60 days
An individual turns age 72 in December. When must she begin the RMDs from her IRA?
By April 1 of the following year
Who bears the investment risk in a defined contribution plan?
The employee
What are some of the acceptable investments for IRA contributions?
Stocks, bonds, mutual funds, and CDs
How is Social Security funded?
By payroll taxes
Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a ____% IRS early withdrawal penalty.
10%
Are employer contributions to an employee qualified retirement account considered income to the employee?
No
True or False: A profit-sharing plan requires annual contributions regardless of the company’s profitability.
False
How much may be contributed to a 529 plan and avoid gift tax?
A donor may give up to $16,000 per year and avoid the gift tax.
True or False: If 529 plan funds are not used for a child’s education, they may be transferred to a relative’s plan.
True
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 required minimum distribution.
Define vesting.
The right an employee gradually acquires by the length of service at a company to receive employer-contributed benefits
Who funds a 529 plan?
The donor
How are withdrawals from Roth IRAs treated for tax purposes?
Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.
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)
How much may a married couple earning $325,000 contribute to a Roth IRA?
$0, since the couple’s income, exceeds the income threshold
What type of group plan requires the employee to pay all or part of the insurance premium?
A contributory group plan
True or False: Defined contribution plans focus on contribution amounts, but do not guarantee preset retirement amounts.
True
hat right does the “incident of ownership” provide to an employee?
An employee’s “incident of ownership” allows the employee the right to name or change a beneficiary designation.
What is a Coverdell Education Savings Plan?
A savings plan that funds both elementary and higher education
True or False: The larger the database of statistics, the more predictable loss ratios become.
True, according to the law of large numbers.
In general, a 401(k) plan is available to individuals who work for a ____________ corporation.
for-profit
For what reasons may early withdrawals be taken without the 10% IRS penalty applying?
Death, disability, divorce, qualified financial hardship, and qualified loans
True or False: Social Security benefits are based on the Primary Insurance Amount (PIA) and the insured’s SS status.
True
When may a person begin taking penalty-free withdrawals from her 401(k)?
As early as age 59 1/2
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.
A contribution of $_______ may be made to a Spousal IRA for a non-working spouse.
$6,000
When an individual reaches age ______, he may begin withdrawing from an IRA without penalty.
59 1/2
For what type of individual is a 403(b) plan primarily designed?
An individual who works for a nonprofit organization
Is there an income threshold for 529 College Savings Plan contributors?
No. There are no income limits imposed for these plans.
List some of the benefits provided by Social Security.
Medicare, retirement, survivors, disability, dependent benefits, and a life insurance death benefit
There is a ____% penalty for early withdrawals from an IRA.
10%
In what form must IRA contributions be made?
In cash
What is another name for Social Security?
Old Age, Survivors, Disability, and Health Insurance program
Prior to age 59 1/2, penalty-free withdrawals from an IRA may be taken for ______________________ expenses.
qualified educational
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
In group life insurance, premiums paid for death benefits over $______ are taxed as ordinary income to employees.
$50,000
Social Security contribution taxes are known as _____ taxes.
FICA
What is another name for a 403(b) plan?
A tax-sheltered annuity
For employers offering SEP plans, where are contributions made on behalf of their employees directed?
In the employee’s individual SEP IRA
What is a bad risk or selection called?
Adverse selection
May an aunt set up a 529 plan for her nieces?
Yes. The donor of a 529 plan is not required to be a parent.
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.
What percentage does an employer pay in a noncontributory group plan?
100%
If a married person dies, what can be done with her IRA assets?
These assets may be combined with those of her surviving spouse
What is used to verify group participation and is given to enrolled employees?
A certificate of coverage
Anyone with ________ income may contribute to an IRA.
earned
How much may be contributed to a Coverdell each year?
An after-tax contribution of $2,000 is allowed per year.
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.
What provides a detailed description of the group plan that is given to the employer?
Master contract
Define the term: Persistency
The length of time a group insurer has provided coverage for a particular insured group
_________ are college savings plans with high contribution limits set by the state sponsor.
529 Plans
True or False: Qualified plans receive favorable tax treatment by the IRS.
True
Contributions to a Keogh plan are solely based on _________________ income.
self-employment
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.
What is a Simplified Employee Pension (SEP) Plan?
An employer-sponsored IRA for the self-employed and their employees
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.
Identify the acronym: TSA
Tax-Sheltered Annuity (a qualified contract)
An employee pays _____% of his wages to Social Security.
7.65%
Who owns the investments contained within a 457 plan?
The employer
403(b) contributions are pre-tax contributions made on a ________ reduction basis.
salary
