Questions and Answers
What happens when an individual withdraws $50,000 from a Qualified Profit-Sharing Plan and deposits it into a personal savings account?
The 10% penalty is applied to withdrawals from traditional individual retirement accounts before age 59 1/2.
True
Which tax does an IRA participant face on distributions received prior to age 59 1/2?
Ordinary income tax and a 10% tax penalty for early withdrawal.
What retirement plan is intended for a sole proprietor and the employees of that business?
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Which of the following is TRUE about a qualified retirement plan that is 'top heavy'?
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Which retirement plan can an employee start even if another plan is in existence?
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What is the tax consequence when an employee has their 401(k) balance sent directly to them instead of rolled over?
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Rollover contributions in an individual retirement account (IRA) are limited by dollar amount.
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What is a qualified profit-sharing plan designed to do?
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At what age can an IRA owner start making withdrawals without facing a tax penalty?
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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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Where are post-tax dollar contributions found?
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What is the maximum deductible IRA contribution allowable for an individual with an annual income of $25,000?
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What deduction qualifies a widow receiving an IRA account left by her deceased spouse?
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What is the income tax withholding requirement when an individual receives eligible rollover funds from a profit-sharing plan?
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When must traditional individual retirement annuity (IRA) distributions start?
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If a 55-year-old receives a $30,000 distribution from a previous employer's 401(k) plan, which federal taxes apply if none of the funds were rolled over?
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How are yearly contributions to an employee's account in a qualified retirement plan managed?
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How long does an individual have to 'rollover' funds from an IRA or qualified plan?
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What advantage does a trustee-to-trustee transfer of rollover funds in a qualified plan provide?
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What can an employer offering a qualified retirement plan do?
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How are Roth IRA distributions typically taxed?
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Which product would best serve a retired individual looking to invest a lump-sum of money through an insurance company?
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What is a retirement plan that sets aside part of a company's net income for distributions to qualified employees called?
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If the owner of an IRA names their spouse as beneficiary but dies before distributions are made, what can happen?
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What type of employee welfare plans are not subject to ERISA?
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Study Notes
Retirement Plans Overview
- Withdrawals from Qualified Profit-Sharing Plans incur income tax and a 10% penalty if taken before age 59 1/2.
- Traditional Individual Retirement Accounts (IRAs) have a 10% penalty for early withdrawals.
- Distributions from IRAs before age 59 1/2 incur ordinary income tax and a 10% penalty.
Specific Retirement Plans
- Keogh Plans are designed for sole proprietors and their employees to save for retirement.
- A retirement plan is deemed "top heavy" if more than 60% of its assets are held in key employee accounts.
- An Individual Retirement Account (IRA) can be initiated by an employee regardless of other plans.
Distribution and Tax Implications
- Direct distributions from 401(k) plans are subject to federal income tax withholding.
- Rollover contributions to IRAs are not restricted by dollar limits.
- Qualified profit-sharing plans share company profits with employees.
Withdrawal Rules
- Withdrawals from an IRA can begin without penalty at age 59 1/2.
- The IRS imposes a 50% excise tax on individuals over 70 1/2 who fail to take required minimum distributions.
- Roth IRA contributions are made with post-tax dollars, allowing for tax-free withdrawals.
Contribution Limits
- Individuals can claim a maximum deductible IRA contribution of $2,500 if earning $25,000 annually.
- Inheritance of an IRA by a spouse allows for a marital deduction, preserving tax advantages.
Rollover and Transfer Guidelines
- A 20% income tax withholding applies to eligible rollover funds received from a profit-sharing plan.
- Traditional IRAs require distributions to start by April 1 of the year after turning 70 1/2.
- Federal taxes including a 10% penalty apply to distributions taken from a 401(k) without rollover.
Contribution Regulations
- Contribution limits in qualified retirement plans are governed by IRS regulations.
- Individuals have 60 days to complete rollovers from IRAs or qualified plans to avoid taxes.
Transfer Benefits
- Trustee-to-trustee transfers of rollover funds avoid mandatory income tax withholding.
- Employers offering qualified retirement plans can make tax-deductible contributions.
Taxation of Distributions
- Roth IRA distributions are generally received tax-free.
- Annuitization is a recommended investment vehicle for retirees looking to invest lump sums through insurance companies.
Profit-Sharing Plans
- Profit-sharing plans allocate a portion of net income for distributions to qualifying employees.
- If the owner of an IRA names a spouse as a beneficiary and dies, the IRA can be transferred to the spouse's account.
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Description
Test your knowledge of different retirement plans and their tax implications. This quiz covers traditional IRAs, profit-sharing plans, and specific withdrawal rules. Understand the nuances of penalties and distributions from these plans.
