Questions and Answers
What is the income tax withholding requirement for an individual participant who personally received eligible rollover funds from a profit-sharing plan?
Which product would best serve a retired individual looking to invest a lump sum of money through an insurance company?
How are Roth IRA distributions normally taxed?
Distributions are received tax-free
At what age can an IRA owner start making withdrawals without being subjected to a tax penalty?
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A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid what?
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By when must traditional individual retirement annuity (IRA) distributions start?
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What are yearly contributions to an employee's account in a qualified retirement plan restricted to?
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More than 60% of plan assets being in key employee accounts indicates that a qualified retirement plan is 'top heavy'.
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If an individual withdraws $50,000 from their Qualified Profit-Sharing Plan at age 45, what would be the tax consequence?
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What percentage of tax is withheld when funds are shifted straight from one IRA to another IRA?
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What is the purpose of a qualified profit-sharing plan?
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What is the tax consequence of an employee rolling over their 401(k) distribution into an IRA?
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How long does an individual have to 'rollover' funds from an IRA or qualified plan?
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10% penalty is applied to withdrawals before age 59 1/2 is a true statement about traditional individual retirement accounts.
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Which retirement plan can be started by an employee even if another plan is in existence?
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What is the excise tax rate imposed by the IRS on individuals aged 70 1/2 or older who do not take required minimum distributions?
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Who is considered the owner of a 403(b) tax-sheltered annuity?
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If a 55-year-old receives a $30,000 distribution from their previous employer's 401(k) plan, minus withholding, what federal taxes apply if none of the funds were rolled over?
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If Tom has a qualified retirement plan considered to be 80% 'vested', what does this mean?
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Are rollover contributions to an individual retirement account (IRA) limited by dollar amount?
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What happens if the owner of an IRA names their spouse as beneficiary but dies before any distributions?
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What is a retirement plan that sets aside part of the company's net income for distributions to qualified employees?
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What deduction applies when a widow inherits an individual IRA account from her deceased husband?
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What does a 401(k) plan generally provide its participants?
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What is the maximum number of employees (earning at least $5,000) that an employer can have to start a SIMPLE retirement plan?
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Which plan may a sole proprietor use only if the employees of the business are included?
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What type of contributions are found in Roth IRA investments?
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What penalty tax is assessed on premature IRA distributions?
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What is the tax benefit for an employer offering a qualified retirement plan to its employees?
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What type of employee welfare plans are not subject to ERISA regulations?
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What tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?
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If an individual working part-time has an annual income of $25,000, what is the maximum deductible IRA contribution allowable?
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Study Notes
Income Tax Withholding
- A 20% withholding is required for income taxes on eligible rollover funds from profit-sharing plans.
Investment Options for Retirees
- Annuities are the best products for retirees looking to invest lump-sum amounts through insurance companies.
Roth IRA Distributions
- Distributions from Roth IRAs are tax-free, providing a significant tax advantage.
IRA Withdrawal Age
- Withdrawals from an IRA can begin without penalty at age 59 1/2.
Trustee-to-Trustee Transfers
- A trustee-to-trustee transfer avoids mandatory income tax withholding on the transferred amount.
Traditional IRA Distribution Rules
- Distributions from traditional IRAs must commence by April 1 following the year the individual turns 70 1/2; otherwise, an excise tax is imposed.
Contribution Limits on Qualified Plans
- Yearly contributions to an employee's account in a qualified retirement plan are limited to maximum levels set by the IRS.
"Top Heavy" Plans
- A retirement plan is considered "top heavy" when more than 60% of its assets are allocated to key employees.
Early Withdrawal Penalties
- Early withdrawal of funds (before age 59 1/2) from a profit-sharing plan incurs both income taxes and a 10% penalty.
Rollover Tax Withholding
- No taxes are withheld when funds are directly shifted from one IRA to another.
Profit-Sharing Plan Purpose
- Qualified profit-sharing plans distribute a portion of company profits to employees, fostering participation in company success.
Tax Consequences of 401(k) Distribution
- A direct distribution from a 401(k) is subject to federal income tax withholding and must be rolled over within 60 days to avoid penalties.
Rollover Time Limit
- Individuals have 60 days to roll over funds from an IRA or qualified plan to avoid income taxes and penalties.
Traditional IRA Withdrawal Penalties
- A 10% penalty applies to withdrawals from traditional IRAs before age 59 1/2.
Starting Individual Retirement Accounts
- Employees can start an Individual Retirement Account (IRA) regardless of existing pension plans.
Excise Tax for Not Taking Distributions
- A 50% excise tax is assessed if individuals over age 70 1/2 fail to take the required minimum distributions.
Ownership of 403(b) Annuities
- Employees are typically considered the owners of 403(b) tax-sheltered annuities.
Taxation on 401(k) Distributions
- An individual who does not roll over a 401(k) distribution faces income taxes and a 10% penalty.
Vesting in Retirement Plans
- If a retirement plan is 80% vested, it means that 20% of the funds would be forfeited upon termination of employment.
Rollover Contributions Limits
- Rollover contributions to an IRA have no dollar amount limits, providing flexibility.
Spousal Beneficiaries and IRAs
- If an IRA owner names their spouse as a beneficiary, the account can be rolled into the spouse's IRA.
Profit-Sharing Plan Definition
- Profit-sharing plans allocate a portion of a company's net income for distribution to employees, serving as an employee incentive.
Marital Deduction for IRAs
- The transfer of an IRA balance to a surviving spouse is exempt from estate taxes under the marital deduction.
401(k) Benefits
- 401(k) plans generally allow salary-deferral contributions, enabling employees to save for retirement efficiently.
SIMPLE Retirement Plan Limits
- A SIMPLE retirement plan can be established by employers with no more than 100 employees earning at least $5,000.
Keogh Pension Plans
- Sole proprietors can utilize Keogh Pension Plans if they include their employees in the plan.
Contributions in Roth IRAs
- Roth IRAs consist of post-tax dollar contributions, allowing for tax-free withdrawals.
Penalty for Premature IRA Distributions
- Premature distributions from IRAs incur a 10% penalty tax.
Tax-Deductible Contributions
- Employers offering qualified retirement plans can make tax-deductible contributions, aiding in tax management.
ERISA Exempt Plans
- Church plans are not subject to ERISA regulations, providing certain exemptions.
Early Withdrawal Taxation
- Distributions taken from IRAs before age 59 1/2 are subject to ordinary income tax and a 10% early withdrawal penalty.
Maximum Deductible IRA Contribution
- For a part-time worker earning $25,000 annually, the maximum deductible IRA contribution is $2,500.
Studying That Suits You
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Description
Test your knowledge of retirement plans with these flashcards from Chapter 10. This quiz covers key concepts such as tax withholding requirements and investment products like annuities. Perfect for anyone studying retirement planning or finance.
