UNIT 03.02-001 Flashcards
The phrase “employer matching” is commonly used when referring to which type of retirement plan?
401(k) plan
In 401(k) plans, employers can make contributions to match those made by employees. Money purchase plans are fully funded by the employer, and IRAs are individual plans.
A teacher has a 403(b) tax-qualified deferred retirement plan. The school system she works for has deposited $20,000 for her into the plan over the past 10 years. At retirement, the total value of the plan has grown to $29,000. If she withdraws the entire amount at retirement, what will be the tax consequences?
She will owe tax on the entire $29,000.
A 403(b) plan is a qualified plan; contributions were made with pretax dollars. At retirement, she will need to pay tax on the entire amount she withdraws.
Employee Retirement Income Security Act (ERISA) participation rules require that employees of what age be included?
Age ___ or older
Age 21 or older
Participation rules require all employees who have one year or more of service (1,000 hours) and who are age 21 or older must be included in ERISA plans.
A qualified profit-sharing plan offered by a corporation to its employees has all of the following features except
the amount of the contribution is tax deductible to the employee.
The amount of the contribution to the plan is deductible to the employer, not the employee. A major difference between a profit-sharing plan and a pension plan is that contributions to the former are not mandatory.
Has these
the corporation may elect to omit or reduce contributions in years when profits from business operations fall.
the employee may elect to roll over a lump-sum distribution into a traditional IRA.
the earnings on the contribution are tax deferred until payout.
Under the Employee Retirement Income Security Act of 1974 (ERISA), all of the following guidelines for the regulation of retirement plans are true except
a corporation in business for three years must establish a retirement plan for employees.
A corporation is not required to sponsor retirement plans for employees, but should it choose to sponsor a qualified retirement plan, it must follow ERISA guidelines.
True
fully vested employees are entitled to the accumulated retirement accounts if they leave the employer.
all qualified plans require a written plan document.
funds contributed to a retirement plan are required to be segregated from corporate assets.
Contribution limits for NONQUALIFIED plans
are not set; there are no such limits.
There are no specific contribution limits for nonqualified retirement plans. These plans may be highly individualized, and employers decide how much to contribute in any given year.
An investor who works for the city is ready to retire.
The city has operated a Section 457 plan for its employees, in which he has participated.
What PORTION of his WITHDRAWALS will be taxable?
The entire amount
Although nonqualified, a 457 plan is a type of deferred compensation plan for state and local governments and tax-exempt employers for their employees. As such, the money in the plan has never been taxed, therefore all the distributions will be taxed as ordinary income.
A registered representative would most likely recommend which of the following retirement programs to be installed for the employees of a charitable nonprofit organization?
403(b) plan
403(b) plans are specifically designed for nonprofit organizations (school systems or charitable or religious organizations) to permit their employees to make UNTAXED contributions for their retirement through salary reductions.
The other plans listed would be used by for-profit entities.
Your customer, age 35, is self-employed and owns a traditional IRA. Under which of the following circumstances will he AVOID the 10% premature withdrawal penalty?
He uses the withdrawal to pay his COLLEGE TUITION.
He uses the withdrawal to pay MEDICAL EXPENSES exceeding what is defined by his AGI.
The 10% penalty imposed on withdrawals before age 59½ will not apply to distributions to pay for higher-education expenses of the IRA owner or owner’s family members.
In addition, the 10% penalty will not apply when withdrawing up to $10,000 for a FIRST-TIME purchase of a PRIMARY RESIDENCE,
for medical expenses that exceed defined adjusted gross income (AGI) limits,
or for paying the HEALTH INSURANCE PREMIUMS of the self-employed or unemployed.
These exemptions to the 10% premature withdrawal penalty are covered in detail for the SIE exam.
Employer sponsored qualified retirement plans must be a _____
trust.
Qualified plans must be organized as a trust. There are employer sponsored plans for both incorporated and unincorporated employers.
