Questions and Answers
A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid what?
mandatory income tax withholding on the transfer amount
In an individual retirement account (IRA), rollover contributions are what?
not limited by dollar amount
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
What federal taxes apply to a 55-year-old who received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 withholding, if none of the funds were rolled over?
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Who were Keogh plans designed to provide pension benefits for?
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What is the income tax withholding requirement for an individual who personally received eligible rollover funds from a profit-sharing plan?
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A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a what?
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Premature IRA distributions are assessed a penalty tax of what percentage?
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Required minimum distributions for qualified retirement plans must start at what age?
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How are Roth IRA distributions normally taxed?
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What is the excise tax rate the IRS imposes on individuals age 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?
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What happens if the owner of an IRA names their spouse as beneficiary but then dies before any distributions are made?
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Traditional 401(k) plans are funded by what type of contributions?
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All of the following statements about traditional individual retirement accounts are false except what?
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What is the minimum number of employees (earning at least $5,000) that an employer can have in order to start a simple retirement plan?
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Which of the following describes using a 529 college savings plan?
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Which of the following is true about a qualified retirement plan that is top-heavy?
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In a qualified retirement plan, the yearly contributions to an employer's account are what?
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A qualified profit-sharing plan is designed to do what?
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Traditional individual retirement annuity distributions must start by when?
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When funds are rolled over straight from one IRA to another IRA, what percentage of the tax is withheld?
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Which of these is considered to be a qualified retirement plan?
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What does a 401(k) plan generally provide its participants?
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What is the tax consequence of a distribution sent to an employee who immediately has the funds rolled over into an IRA?
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Study Notes
Retirement Plans Overview
- Trustee-to-trustee transfers of rollover funds allow participants to avoid mandatory income tax withholding during the transfer.
- IRA rollover contributions have no dollar amount limits, providing flexible options for participants.
Tax Implications on Distributions
- Early withdrawals from an IRA before age 59½ incur ordinary income tax and a 10% penalty.
- For a 55-year-old receiving a $30,000 distribution from a 401(k) without rollover, the applicable taxes include income tax and a 10% penalty on the entire amount.
- Distributions from Roth IRAs are tax-free, offering an incentive for savings.
Plan Requirements and Regulations
- Keogh plans specifically benefit self-employed individuals by providing pension options.
- Individuals must start taking required minimum distributions (RMDs) from qualified plans at age 70½; failing to do so results in a 50% penalty on the undistributed amount.
- The IRS mandates that yearly contributions to an employer's qualified retirement plan must not exceed set limits.
Employee Participation and Company Plans
- Profit-sharing plans allocate part of a company's net income for employee distributions, aligning employee interest with company performance.
- To initiate a SIMPLE retirement plan, an employer must have at least 100 employees earning a minimum of $5,000.
- More than 60% of plan assets in key employee accounts classify a retirement plan as top-heavy.
Distribution Handling and Withholdings
- A mandatory 20% is withheld for income taxes when eligible rollover funds are personally received from a profit-sharing plan.
- When rolling over funds directly from one IRA to another, the tax withholding rate is zero.
- 401(k) plans typically provide salary-deferral contributions, allowing employees to save for retirement.
Beneficiary Considerations
- An IRA account named for a spouse as a beneficiary allows for the account to be rolled into the surviving spouse's IRA upon the owner's death.
Studying That Suits You
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Description
Test your knowledge on retirement plans with these flashcards from Chapter 11. Covering key concepts like trustee-to-trustee transfers and individual retirement account contributions, this quiz will help reinforce important definitions and tax implications. Perfect for students and professionals looking to refresh their understanding of retirement planning.
