SEP Plans

Question 1

What types of employers can establish a SEP plan?
a. Businesses with less than 100 employees and self-employed individuals only
b. Businesses with between 100 and 500 employees and self-employed individuals only
c. Self-employed individuals only
d. Any employer

Answer 1

Any employer

Question 2

Regarding a SEP plan, what is a controlled group of businesses?
a. A main business that has other businesses under it.
b. A main business that is controlled by a board of directors.
c. A main business that is controlled by one or more owners.
d. A main business that has more than one area of operations.

Answer 2

A main business that has other businesses under it.

Question 3

How is a controlled group treated for purposes of coverage under a retirement plan?
a. Each business has to be treated as an individual employer.
b. The controlled group must be treated as one single employer.
c. The employer has the option of treating each business separately or as a single business.
d. The controlled group must be treated as individual employers if it is owned by a partnership.

Answer 3

The controlled group must be treated as one single employer.

Question 4

What is the maximum age that an employer can require an employee to be to participate in a SEP plan?
a. Age 18
b. Age 19
c. Age 21
d. Age 25

Answer 4

Age 21

Question 5

What is the most restrictive service requirement that an employer can require for an employee to participate in a SEP plan?
a. Employee must have worked one out of the preceding five years
b. Employee must have worked two out of the preceding five years
c. Employee must have worked three out of the preceding five years
d. Employee must have worked in the preceding five years

Answer 5

Employee must have worked three out of the preceding five years

Question 6

If an employer chooses to apply the compensation eligibility requirement, what is the highest dollar amount that can be used as the minimum annual income amount for 2024?
a. $600
b. $650
c. $750
d. $700

Answer 6

$750

Question 7

What types of employees may be excluded from participation in a SEP plan?
a. Union members and resident aliens with no earned income
b. Union members whose retirement benefits are part of the collective bargaining agreement and nonresident aliens with no U.S. income
c. Any employees may be excluded
d. No employees may be excluded

Answer 7

b. Union members whose retirement benefits are part of the collective bargaining agreement and nonresident aliens with no U.S. income

Question 8

What are the three types of documents an employer can use to establish a SEP plan?
a. Form 5305 or Form 5305-A, Prototype, Individually designed
b. Form 5305, Prototype, Individually designed
c. Form 5305-SEP, Prototype, Individually designed
d. Form 5305-R, Prototype, Individually designed

Answer 8

c. Form 5305-SEP, Prototype, Individually designed

Question 9

Which document would need to be completed and signed for an employee to participate in a SEP plan?
a. Form 5305 or Form 5305-A
b. Form 5305-SEP
c. Form 5305-S or Form 5305-SA
d. Form 5305-R or Form 5305-RA

Answer 9

a. Form 5305 or Form 5305-A

Question 10

What is the maximum SEP plan contribution an employer can make on behalf of an employee for 2024?
a. 25 percent of compensation up to $345,000
b. $69,000
c. The lesser of 25 percent of compensation up to $345,000 or $69,000.
d. The greater of 25 percent of compensation up to $345,000 or $69,000.

Answer 10

c. The LESSER of 25 percent of compensation up or $69,000. Compensation cap of $345k

Question 11

What is the deadline for the employer to make a SEP contribution?
a. The employer’s tax return deadline, plus extensions
b. The employer’s tax return deadline, not including extensions
c. The employee’s tax return deadline, plus extensions
d. The employee’s tax return deadline, not including extensions

Answer 11

The employer’s tax return deadline, plus extensions

Question 12

What are the three IRS-approved methods for allocating employer SEP plan contributions?
a. Pro rata
b. Prototype
c. Flat dollar
d. Employer designed
e. Employee deferral
f. Social Security integration

Answer 12

a. Pro rata
c. Flat dollar
f. Social Security integration

Question 13

Which allocation method is the only one permitted if using Form 5305-SEP?
a. Pro rata
b. Flat dollar
c. Employer designed
d. Social Security integration

Answer 13

Pro rata

Question 14

If an employer makes its 2023 SEP plan contributions on February 1, 2024, which year’s Form 5498 will the financial organization report the contribution amount on, and in which box will the financial organization enter the contribution amount?
a. 2023, Box 8
b. 2024, Box 8
c. 2023, Box 1
d. 2024, Box 1

Answer 14

2024, Box 8

Question 15

Which of the following best describes the pro rata allocation formula?
a. The same dollar amount is contributed to each eligible employee’s IRA.
b. The same percentage for each eligible employee is multiplied by each employee’s compensation.
c. Eligible employees receive an extra contribution on compensation above the taxable wage base, not to exceed25 percent of compensation.
d. Eligible highly compensated employees receive an extra contribution on compensation above the taxable wagebase.

Answer 15

b. The same percentage for each eligible employee is multiplied by each employee’s compensation.

Question 16

Describe a Social Security integration allocation formula.
a. The same dollar amount is contributed to each eligible employee’s IRA.
b. The same percentage for each eligible employee is multiplied by each employee’s compensation.
c. Eligible employees receive an extra contribution on compensation above the taxable wage base, not to exceed 25 percent of compensation.
d. Eligible highly compensated employees receive an extra contribution on compensation above the taxable wage base.

Answer 16

d. Eligible highly compensated employees receive an extra contribution on compensation above the taxable wage base.

Question 17

Describe the flat dollar allocation formula?
a. The same dollar amount is contributed to each eligible employee’s IRA.
b. The same percentage for each eligible employee is multiplied by his compensation.
c. Eligible employees receive an extra contribution on compensation above the taxable wage base, not to exceed 25 percent of compensation.
d. Eligible highly compensated employees receive an extra contribution on compensation above the taxable wagebase.

Answer 17

a. The same dollar amount is contributed to each eligible employee’s IRA.

Question 18

Which employees benefit from the Social Security integration allocation formula?
a. Eligible employees with higher compensation benefit because the contribution is based on compensation.
b. Highly compensated eligible employees benefit from an additional contribution amount.
c. Lower compensated eligible employees benefit because they receive the same contribution amount as the higher compensated employees.
d. All eligible employees benefit equally.

Answer 18

b. Highly compensated eligible employees benefit from an additional contribution amount.

Question 19

Which employees benefit from the pro rata allocation formula?
a. Eligible employees with higher compensation benefit because the contribution is based on compensation.
b. Highly compensated eligible employees benefit from an additional contribution amount.
c. Lower compensated eligible employees benefit because they receive the same contribution amount as the higher compensated employees.
d. All eligible employees benefit equally.

Answer 19

a. Eligible employees with higher compensation benefit because the contribution is based on compensation.

Question 20

Which employees benefit from the flat dollar allocation formula?
a. Eligible employees with higher compensation benefit because the contribution is based on compensation.
b. Highly compensated eligible employees benefit from an additional contribution amount.
c. Lower compensated eligible employees benefit because they receive the same contribution amount as the higher compensated employees.
d. All eligible employees benefit equally.

Answer 20

c. Lower compensated eligible employees benefit because they receive the same contribution amount as the higher compensated employees.

Question 21

What are the tax consequences when an employee takes a distribution from his SEP plan?
a. The distribution is subject to income tax; the distribution is penalty-free.
b. The distribution is subject to income tax; the distribution is subject to the 10 percent early distribution penalty tax unless a penalty tax exception applies.
c. The distribution is tax-free; the distribution is subject to the 10 percent early distribution penalty tax unless a penalty tax exception applies.
d. The distribution is tax-and penalty-free.

Answer 21

b. The distribution is subject to income tax; the distribution is subject to the 10 percent early distribution penalty tax unless a penalty tax exception applies.

Question 22

Which of the following is a type of SEP plan that has salary deferral contributions and may still be maintained if it was established before 1997?
a. SIMPLE IRA
b. SAR-SEP
c. Social Security integration
d. Prototype

Answer 22

SAR-SEP

Question 23

Which of the following is an allocation formula that allows employers to make an additional contribution to higher paid employees only without being discriminatory?
a. Pro rata
b. Flat dollar
c. SAR-SEP
d. Social Security integration

Answer 23

Social Security integration

Question 24

Which type of IRA is allowed to receive employee contributions to a SEP plan?
a. Traditional IRA
b. Roth IRA
c. Traditional IRA or Roth IRA
d. SEP IRA

Answer 24

Traditional IRA

Question 25

Which form may be used by an employer to establish a SEP plan?
a. 5305-SIMPLE
b. 5305-A
c. 5305-SEP
d. IRS Pub. 560

Answer 25

5305-SEP

Question 26

Define adjusted net business income
a. The compensation used by employees to determine her contribution to a SEP plan.
b. The compensation used by a self-employed individual to determine her contribution to a SEP plan.
c. The business income used by employees to determine her contribution to a SEP plan.
d. The business income used by a self-employed individual to determine her contribution to a SEP plan.

Answer 26

b. The compensation used by a self-employed individual to determine her contribution to a SEP plan.

Question 27

What are the steps an employer takes to establish a SEP plan?
a. Complete a written SEP plan agreement by tax return deadline plus extensions, sign plan documents, provide information to employees, have employees establish Traditional IRAs, and deposit the first SEP contribution.
b. Complete a written SEP plan agreement by tax return deadline plus extensions, sign plan documents, provide information to employees, and have employees establish Traditional IRAs.
c. Complete a written SEP plan agreement by tax return deadline plus extensions, sign plan documents, and have employees establish Traditional IRAs.
d. Complete a written SEP plan agreement by tax return deadline not including extensions, sign plan documents,provide information to employees, and have employees establish Traditional IRAs.

Answer 27

a. Complete a written SEP plan agreement by tax return deadline plus extensions, sign plan documents, provide information to employees, have employees establish Traditional IRAs, and deposit the first SEP contribution.

Question 28

An employer made its 2023 SEP plan contribution on February 2024, which year’s Form 5498 will the F.I. report the the contribution amount on and in what box?

Answer 28

2024; Box 8, SEP Contributions

Report on the YEAR the contribution was MADE.

Question 29

What program created the Simplified Employee Pension (SEP) Plan?
a. The Labor-Management Relations Act of 1947
b. Revenue Act of 1978
c. Employee Retirement Income Security Act 1974
d. Small Business Job Protection Act of 1996

Answer 29

b. Revenue Act of 1978

Question 30

Which section of Internal Revenue Code provides foundation for SEP Plan compliance?
a. IRC Sec 408(a)
b. IRC Sec 408 (p)
c. IRC Sec 408(b)
d. IRC Sec 408(k)

Answer 30

d. IRC Sec 408(k)

Question 31

Maximum 2024 employee defferal amount for SAR-SEP? (including catch-up)

Answer 31

$23,000, plus $7,500 catch up

Question 32

What is the penalty for SEP early distribution?
a. 25% early distribution penalty tax during first 2 years (unless exception applies
b. 20% early distribution penalty tax during first 2 years (unless exception applies
c. 10% early distribution penalty tax (unless exception applies)
d. 10% early distribution penalty tax during first two years (unless exception applies)

Answer 32

c. 10% early distribution penalty tax unless exception applies

Same as traditional/Roth IRAs