Retirement Plans Flashcards

Questions and Answers

What is the income tax withholding requirement when an individual participant personally receives eligible rollover funds from a profit-sharing plan?

30%

10%

None

20% (correct)

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

Stocks

Annuity (correct)

Savings Account

Mutual Fund

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?

59 1/2 Signup and view all the answers

What does a trustee-to-trustee transfer of rollover funds in a qualified plan allow a participant to avoid?

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

By when must traditional individual retirement annuity (IRA) distributions start?

By April 1 following the year the participant turns age 70 1/2 Signup and view all the answers

What are the yearly contributions to an employee's account in a qualified retirement plan restricted to?

Maximum levels set by the IRS 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

What would be the tax consequences if an individual at the age of 45 withdraws $50,000 from a Qualified Profit-Sharing Plan?

Income tax and a 10% penalty assessed upon funds withdrawn Signup and view all the answers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

What is the purpose of a qualified profit-sharing plan?

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

What is the tax consequence if an employee requests that the balance of her 401(k) account be sent directly to her?

Distribution is subject to federal income tax withholding Signup and view all the answers

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

60 days Signup and view all the answers

Which of the following statements about traditional individual retirement accounts is true?

10% penalty is applied to withdrawals before age 59 1/2 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

Study Notes

Retirement Plans Overview

Eligible rollover funds from a profit-sharing plan require a 20% federal tax withholding upon distribution.
An annuity is recommended for retired individuals looking to invest a lump-sum through an insurance company.

Tax Treatment of Distributions

Qualified distributions from a Roth IRA are received tax-free, promoting tax efficiency during retirement.
Withdrawals from a traditional IRA can begin without tax penalties at age 59 1/2, encouraging long-term savings.

Rollover and Transfer Guidelines

Trustee-to-trustee transfers of rollover funds avoid mandatory federal tax withholding, unlike rollovers which incur a 20% withholding.
Traditional IRA distributions must commence by April 1st after turning 70 1/2 to avoid an excise tax.

Contribution Limits and Plan Characteristics

Yearly contributions to a qualified retirement plan are limited to IRS-established maximums, ensuring regulated growth.
A retirement plan is considered "top heavy" when over 60% of assets belong to key employees, requiring specific compliance.

Financial Penalties and Tax Implications

Withdrawals from qualified plans before age 59 1/2 face income tax and an additional 10% penalty, discouraging early access to retirement funds.
Direct distributions from a 401(k) that are rolled over to an IRA are subject to federal income tax withholding unless timely completed.

Important Timeframes for Rollovers

A 60-day period is provided for rolling over funds from an IRA or qualified plan to avoid immediate tax liabilities and potential penalties.

Rules Around Traditional IRAs

Early withdrawals from traditional IRAs incur a 10% penalty before age 59 1/2, maintaining consistent tax treatment across qualified plans.

Options for Starting Plans

Employees can start an Individual Retirement Account (IRA) independently, even with existing employer-sponsored plans, promoting personal retirement savings.

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Description

This quiz features flashcards focusing on key concepts related to retirement plans. Test your knowledge on topics such as rollover funds and tax withholding requirements. Perfect for anyone studying retirement planning or financial management.