UNIT 03.02-002 Flashcards
Your client works full time for Seabird Airlines, where she is covered by a qualified pension plan. To make a few extra dollars, she also works part time for the local hardware store, which offers no retirement plan. Your client
may start her own IRA.
This client could start her own IRA (which her company cannot do for her). She should be aware that, because she is covered under another qualified plan, she may not be able to take a tax deduction for her IRA contributions.
In which of the following cases would an early withdrawal from an IRA not be subject to a penalty?
Equal installments based upon life expectancy
Disability
Withdrawals due to disability are always penalty-free.
If you take early withdrawals in equal installments based on your life expectancy (the IRS has a table to be used), the 10% penalty is avoided.
First-time purchase of a primary residence avoids the penalty, but not for a second home.
Withdrawals for qualified education expenses may avoid the penalty, but only for immediate family members, not nieces or nephews.
Which of the following individuals may make an early withdrawal from a traditional IRA without penalty?
A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence
The financial status of an IRA participant is not relevant when determining exemption from penalties. A wealthy individual who withdraws $10,000 from his IRA to purchase his first principal residence is not subject to early withdrawal penalties.
Under the funding rules of the Employee Retirement Income Security Act (ERISA) funds deposited into an ERISA covered plan must be
segregated from other corporate assets in a trust.
Assets in an ERISA plan must be held away from the corporation’s other assets in a trust.
Which of the following statements regarding 403(b) plans is NOT true?
A) An employer can also make contributions to the 403(b) plan on behalf of the nonworking spouse of an employee.
B) Distributions from a 403(b) plan follow the same distribution rules as those for other qualified plans.
C) Employee contributions have both a dollar limit and a percentage of salary limit.
D) If all contributions are qualified, the employee’s cost basis in the account is zero.
A) An employer can also make contributions to the 403(b) plan on behalf of the nonworking spouse of an employee.
Only employees (not spouses) of 403(b) or 501(c)(3) organizations may be covered under 403(b) plans.
**
TRUE
B) Distributions from a 403(b) plan follow the same distribution rules as those for other qualified plans.
C) Employee contributions have both a dollar limit and a percentage of salary limit.
D) If all contributions are qualified, the employee’s cost basis in the account is zero.
If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to IRAs?
They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less, to an IRA.
No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.
All of the following statements about SEP IRAs are true except
A) SEP IRAs are established for small-business owners and their employees.
B) contributions to SEPs are made with after-tax dollars.
C) the retirement account is usually set up at a bank or other financial institution.
D) SEP IRAs allow employers to make contributions.
contributions to SEPs are made with after-tax dollars.
Employers make pretax contributions to SEP IRAs on behalf of their employees. The account is usually set up at a bank or other financial institution.
TRUE
A) SEP IRAs are established for small-business owners and their employees.
C) the retirement account is usually set up at a bank or other financial institution.
D) SEP IRAs allow employers to make contributions
The primary purpose for creating ERISA was to
protect employees from the mishandling of retirement funds by corporations and unions.
ERISA was created to protect the retirement funds of union members and employees of large corporations. ERISA guidelines state that all qualified retirement plans must be in writing, segregate funds from corporate or union assets, make prudent investments, report to participants annually, and not be discriminatory. All of these activities are audited under ERISA.
Which of the following retirement plans would have to conform to the requirements of the Employee Retirement Income Security Act?
A corporate defined benefit plan
The Employee Retirement Income Security Act of 1974 (ERISA) is aimed at private sector qualified plans. Deferred compensation and payroll deduction plans are not qualified, and a county employee plan is not private sector. A defined benefit plan, on the other hand, is a corporate qualified plan.
An employee’s contribution to a corporate sponsored qualified retirement plan are
always vested.
Employees are always fully vested in the funds they contribute to an ERISA-covered plan. Vesting schedules only apply to the employer’s contribution.
