Retirement Plan Flashcards

Questions and Answers

How are Roth IRA distributions normally taxed?

Capital gains tax is applied

Taxed as ordinary income

Distributions are received tax-free (correct)

10% penalty tax is applied

How long does an individual have to 'rollover' funds from an IRA or qualified plan?

120 days

60 days (correct)

No limit

90 days

What is the tax consequence of a distribution sent to an employee who rolled it over into an IRA?

Distribution is subject to a tax penalty

Distribution is subject to ordinary income tax

Distribution is subject to capital gains tax

Distribution is subject to federal income tax withholding (correct)

What does a 401(k) plan generally provide its participants?

Salary-deferral contributions Signup and view all the answers

In a qualified retirement plan, the yearly contributions to an employee's account:

Are restricted to maximum levels set by the IRS Signup and view all the answers

What are the tax consequences when an individual withdraws $50,000 from a Qualified Profit-Sharing Plan?

Income tax and a 10% penalty assessed upon funds withdrawn from the Qualified Plan Signup and view all the answers

Which plan is intended to be used by a sole proprietor and the employees of that business?

Keogh Plan Signup and view all the answers

Post-tax dollar contributions are found in:

Roth IRA investments Signup and view all the answers

Which of these retirement plans can be started by an employee, even if another plan is in existence?

Individual Retirement Account (IRA) Signup and view all the answers

An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age?

59 1/2 Signup and view all the answers

Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?

The employee Signup and view all the answers

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid:

Mandatory income tax withholding on the transfer amount Signup and view all the answers

If an individual working part-time has an IRA, what is the maximum deductible IRA contribution allowable with an annual income of $25,000?

$25,000 Signup and view all the answers

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

Ordinary income tax and a 10% tax penalty for early withdrawal Signup and view all the answers

An employer that offers a qualified retirement plan to its employees is eligible to:

Make tax-deductible contributions to the plan Signup and view all the answers

What is the income tax withholding requirement for an individual receiving eligible rollover funds from a profit-sharing plan?

20% is withheld for income taxes Signup and view all the answers

What is the marital deduction qualification for a widow who received an IRA from her deceased spouse?

Marital deduction Signup and view all the answers

What is the excise tax rate that the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions?

50% Signup and view all the answers

What is the penalty tax for premature IRA distributions?

10% Signup and view all the answers

What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan?

100 Signup and view all the answers

Which federal taxes apply if a 55-year-old received a $30,000 distribution from a previous employer's 401(k) plan, minus $6,000 withholding?

Income taxes plus a 10% penalty tax on $30,000 Signup and view all the answers

Which of the following is TRUE about a qualified retirement plan that is 'top heavy'?

More than 60% of plan assets are in key employee accounts Signup and view all the answers

A qualified profit-sharing plan is designed to:

Allow employees to participate in the profits of the company Signup and view all the answers

Which product would best serve a retired individual looking to invest a lump sum of money through an insurance company?

Annuity Signup and view all the answers

In an individual retirement account (IRA), rollover contributions are:

Not limited by dollar amount Signup and view all the answers

Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

The account can be rolled into the surviving spouse's IRA Signup and view all the answers

What type of employee welfare plans are not subject to ERISA regulations?

Church plans Signup and view all the answers

Traditional individual retirement annuity (IRA) distributions must start by:

April 1st of the year following the year the participant attains age 70 1/2 Signup and view all the answers

If Tom has a qualified retirement plan that is currently considered to be 80% 'vested', how can this be interpreted?

If Tom's employment is terminated, 20% of the funds would be forfeited Signup and view all the answers

All of the following statements about traditional individual retirement accounts are false EXCEPT:

10% penalty is applied to withdrawals before age 59 1/2 Signup and view all the answers

When funds are shifted straight from one IRA to another IRA, what percentage of the tax is withheld?

None Signup and view all the answers

A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a:

Profit-sharing plan Signup and view all the answers

Study Notes

Roth IRA Distributions

Distributions received from a Roth IRA are tax-free.
A 10% penalty tax can apply to early withdrawals.

IRA and Qualified Plan Rollover

Funds from an IRA or qualified plan must be rolled over within 60 days.
Failure to adhere to this timeframe may result in tax penalties.

Tax Consequences on 401(k) Distributions

Direct distributions from a 401(k) account are subject to federal income tax withholding.
If the funds are not rolled over, ordinary income tax is assessed on the distribution.

Salary-Deferral Contributions

401(k) plans primarily offer salary-deferral contributions to employees.
Participants can contribute a portion of their pre-tax income for retirement savings.

Contribution Limits

Contributions to qualified retirement plans are restricted to maximum levels set by the IRS.
Employers may make tax-deductible contributions to these plans.

Withdrawals from Qualified Plans

An individual withdrawing funds from a Qualified Profit-Sharing Plan before the age of 59 1/2 faces income tax and a 10% penalty.

Keogh Plan

The Keogh Plan is tailored for sole proprietors and their employees, providing a means for retirement savings that is beneficial for self-employed individuals.

Post-Tax Contributions

Roth IRA investments allow for post-tax dollar contributions, leading to tax-free growth.

Individual Retirement Accounts

Employees can establish an Individual Retirement Account (IRA) regardless of other retirement plans in place.

Age for Withdrawals without Penalty

Withdrawals from an IRA can be made without penalty starting at the age of 59 1/2.

Ownership of 403(b) Plans

The employee is generally regarded as the owner of a 403(b) tax-sheltered annuity.

Trustee-to-Trustee Transfers

This type of transfer allows participants to avoid mandatory income tax withholding on rollover amounts.

IRA Contribution Limits

For individuals with an annual income of $25,000, the maximum deductible IRA contribution is equal to their income.

Early Distribution Tax Penalty

Early withdrawals from an IRA before age 59 1/2 incur both ordinary income tax and a 10% penalty.

Employer Contributions

Employers offering a qualified retirement plan can make fully tax-deductible contributions.

Tax Withholding on Rollover Funds

For eligible rollover distributions from a profit-sharing plan, 20% income tax is withheld automatically.

Marital Deduction in IRAs

Surviving spouses of IRA owners can take advantage of the marital deduction regarding the inherited account.

Excise Tax for Not Taking Minimum Distributions

The IRS imposes a 50% excise tax on individuals aged 70 1/2 or older who fail to take required minimum distributions.

SIMPLE Retirement Plans

Employers can offer a SIMPLE plan to a maximum of 100 employees earning at least $5,000.

Federal Tax on 401(k) Distributions

If a 55-year-old takes a distribution from a 401(k) and does not roll it over, they will incur federal taxes on the full distribution amount.

Top Heavy Retirement Plans

A retirement plan is considered "top heavy" if more than 60% of assets are allocated to key employee accounts.

These plans allow employees to share in the company's profits, aligning employee interests with company performance.

Best Investment for Lump-Sum Savings

Annuities are suitable for retirees wishing to invest a lump sum through an insurance company.

Rollover Contributions to IRAs

Rollover contributions to traditional IRAs are not subject to dollar amount limits.

IRA Beneficiary Rules

If an IRA owner dies, the account can be rolled into the surviving spouse's IRA without a surrender charge.

ERISA Regulations

Church plans are exempt from ERISA regulations, providing more flexibility.

Required Minimum Distributions

For traditional IRAs, distributions must commence by April 1st of the year following the participant's 70 1/2 birthday.

Vesting in Retirement Plans

If an employee is 80% vested in their retirement plan, they could lose 20% of the funds if their employment ends.

Traditional IRA Penalties

A 10% penalty applies to withdrawals from traditional IRAs made before age 59 1/2.

Tax Withholding on Direct IRA Transfers

No taxes are withheld when funds are transferred directly from one IRA to another.

A profit-sharing plan allocates part of a company’s net income for distribution to eligible employees.

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Test your knowledge on retirement plans with these flashcards. Topics include Roth IRA distributions, fund rollover timelines, and more. Perfect for anyone looking to enhance their financial literacy regarding retirement options.