| Question 1.1. Which of the following statements regarding the characteristics or use of a profit-sharing plan is CORRECT? (Points : 2) |
The maximum tax-deductible employer contribution to a profit-sharing plan is 15% of covered payroll. Profit-sharing plans are best suited for companies that experience fluctuating cash flow. Profit-sharing plans require a fixed, mandatory, annual contribution by the employer to the plan. A company with a preponderance of older employees will find the implementation of a traditional profit-sharing plan to be the most beneficial for the older employee-participants. |
| Question 2.2. Which of the following is(are) true regarding the interest rate credit used in cash balance pension plans? 1) The interest rate credited to a participant's hypothetical account is determined upon the establishment of the plan and cannot fluctuate. 2) If the underlying investments of the plan out-perform the interest rate credit guarantee in a given year, the participant will receive a greater credit for that given year. 3) If the underlying investments of the plan out-perform the interest rate credit guarantee in a given year, the employer may reduce plan contributions for that given year. 4) Because of the hypothetical individual accounts, plan participants may choose among various fixed interest rate investments for their accounts. (Points : 2) |
3 only 1, 2 and 4 4 only 1 and 3 |
| Question 3.3. Gary was just hired by an employer that maintains a SIMPLE IRA for its employees. Which of the following statements regarding Gary's participation in the SIMPLE IRA is CORRECT? (Points : 2) |
Covered compensation is limited to $265,000 for a SIMPLE IRA if the employer elects a 3% match. Gary may only defer $5,500 into the SIMPLE IRA if he is younger than age 50. When Gary participates in the plan, he will be 100% vested in his employer's contributions. The annual employer match may be limited to 1% of employee compensation each year. |
| Question 4.4. Jerry and Barbara recently filed for divorce after 25 years of marriage. The property settlement approved by the court included an award to Barbara of one-half of Jerry's vested benefit in his defined benefit pension plan. This was done via the drafting and implementation of a qualified domestic relations order (QDRO). Which of the following is an implication of the QDRO for Jerry and Barbara? (Points : 2) |
If Jerry dies before his retirement, Barbara could be disinherited and denied receipt of any accrued benefits payable under the plan. If Barbara dies before Jerry, the QDRO could require Jerry to substitute another beneficiary of his own choosing. Barbara could force Jerry to take a lump-sum distribution from the plan even if it was not otherwise available as an option. When Jerry retires, Barbara's benefit is taxable to her. |
| Question 5.5. Mark's financial planner has recommended a retirement plan for implementation at Mark's business in 2015. He tells Mark the plan must cover all employees who are at least 21 and have worked for Mark for 3 of the last 5 years (part-time counts). Contributions must be made for employees who earned at least $600 (2015) in the prior year. The plan can exclude union members if they have their own retirement plan. Which type of plan has Mark's planner recommended? (Points : 2) |
SARSEP plan Simplified employee pension (SEP) plan SIMPLE IRA Profit-sharing plan |
| Question 6.6. RQZ Company employs 200 non-excludible employees, 20 of whom are highly compensated. Sixteen of the 20 highly compensated and 125 of the non-highly compensated employees benefit from the RQZ qualified pension plan. The average benefits accrued for the highly compensated is 8%. The ratio test for the above plan is (Points : 2) |
86.8% 69.4% 80% 70% |
| Question 7.7. George, age 55, earns $250,000 and participates in his employer's SIMPLE IRA. The employer match is on a dollar-for-dollar basis, up to 3% of each participating employee's compensation for the year. What is the maximum amount of employee and employer contributions that can be contributed to George's account in 2015? (Points : 2) |
$23,000 $18,800 $15,500 $6,500 |
| Question 8.8. Gordon has met the 2 tests required for a hardship withdrawal from his profit-sharing plan with his employer. Which of the following is a qualifying reason for which money may be withdrawn using the hardship withdrawal rules? (Points : 2) |
Gordon needs the money to loan to his uninsured best friend (not a dependent) to pay for medical costs. None of these reasons qualify for a hardship withdrawal. Gordon, who is experiencing extreme financial difficulties, is using the withdrawal to prevent a foreclosure on his primary residence. Larry, Gordon's cousin, has asked him for the funds to pay his college costs this semester. Larry is not Gordon's dependent. |
| Question 9.9. Todd has made total contributions of $75,000 to his traditional IRA of which $15,000 were non-deductible contributions. Todd is 60 and is considering taking a $20,000 distribution from his IRA, which currently has a fair market value of $175,000. This will be the only distribution from his IRA this year. How much of the distribution will be taxable to Todd? (Points : 2) |
$4,000 $20,000 $0 $16,000 |
| Question 10.10. Which of the following plans is(are) NOT a cross-tested plan(s)? 1 New comparability plan 2 Employer stock ownership plan 3 Age-based profit-sharing plan 4 Stock bonus plan (Points : 2) |
2 and 4 1, 2, 3 and 4 2 only 3 and 4 |
| Question 11.11. Porter has reached retirement age after working for the same employer for 25 years. His employer has a defined benefit pension plan for which the PBGC has assumed financial responsibility. Disregarding Porter's actual accrued benefit in the plan, what is the maximum annual benefit Porter could receive under PBGC administration of the plan? (Points : 2) |
$60,132 $210,000 $53,000 $265,000 |
| Question 12.12. Bland Foods, Inc., wants to establish a retirement benefit for the company's executives which is separate from its qualified plan. The plan will be unfunded and pay benefits only as needed from the company's assets. Bland Food wants to provide the benefits without requiring the executives to reduce their current salary. Which of the following types of plans was most likely chosen by Bland Foods, Inc.? (Points : 2) |
Stock bonus plan Top-hat plan Section 401(k) plan Defined benefit pension plan |
| Question 13.13. Baxter and Smith is a law firm with a defined benefit pension plan. When would the plan be required to be covered by the Pension Benefit Guaranty Corporation? (Points : 2) |
If the firm employs 10 or more employees A professional service employer is not required to be covered by the PBGC If the firm employs 26 or more employees If the firm employs 25 or fewer employees |
| Question 14.14. Which of the following statements are disadvantages for the employersponsor of a cash balance pension plan? 1 A certain level of plan benefit is guaranteed by the PBGC. 2 The employer bears the investment risk in the plan. 3 Cash balance pension plans are less expensive for the employer than a traditional defined benefit pension plan. 4 Retirement benefits may be inadequate for older plan entrants. (Points : 2) |
1 and 3 1 and 2 3 and 4 2 and 4 |
| Question 15.15. Which of the following is NOT a characteristic of a target benefit pension plan? (Points : 2) |
Requires services of an actuary at inception of the plan Tends to favor older plan participants Employer bears the investment risk Is a type of defined contribution plan |
| Question 16.16. Bland Foods, Inc. is considering implementing a profit-sharing plan for its employees. A board member has asked for information regarding employer contributions to the plan. Which of the following statements regarding an employer's obligation to make contributions to a profit-sharing plan is CORRECT? (Points : 2) |
The employer is never required to make a contribution. The employer must make contributions in any year in which it has a profit. The employer must make contributions on a substantial and recurring basis. The employer must make contributions every year. |
| Question 17.17. Which of the following statements regarding target benefit pension plans are CORRECT? 1 The plans are covered by PBGC insurance. 2 Older participants are favored in a target benefit pension plan. 3 Each employee has an individual account. 4 Minimum funding standards apply. (Points : 2) |
1 and 3 2 and 4 2, 3 and 4 1, 2, 3 and 4 |
| Question 18.18. Taylor died at age 60 having been a participant in his employer's Section 401(k). He also owns 2 traditional IRAs consisting entirely of deductible contributions and a Roth IRA that contains no conversion contributions. His beneficiary is his son, Jack, age 35. Which of the plans is(are) subject to required minimum distributions (RMDs) after Taylor's death? 1 Traditional IRAs 2 Roth IRA 3 Section 401(k) plan (Points : 2) |
1, 2 and 3 1 and 3 None of these because Taylor died before his required beginning date for RMDs 1 and 2 |
| Question 19.19. Which of the following statements regarding payroll taxes on income below the Social Security taxable wage base is(are) CORRECT? 1 The Social Security taxable wage base is unlimited for both the Social Security portion of OASDI and the Medicare portion. 2 The total payroll tax paid by employers is 7.65% in 2015. 3 A self-employed person pays only the employer portion of the payroll tax. (Points : 2) |
3 only 1, 2 and 3 1 and 2 2 only |
| Question 20.20. For an individual who was born in 1960 or later and wants to retire early at age 62, what is the reduction, if any, in the amount of Social Security retirement income benefits that are otherwise payable? (Points : 2) |
0 20% 30% 25% |
| Question 21.21. Horatio has a future value retirement savings need of $825,000. His planned retirement date is 15 years from now, and he believes he can achieve an 8.5% annual after-tax return on invested funds throughout this period. Using the level payment approach, calculate the amount of the annual payments required for Horatio to make at the end of each year to accomplish his stated retirement savings need. (Round your answer to the nearest dollar.) (Points : 2) |
$29,222 $55,000 $99,347 $54,266 |
| Question 22.22. An employer-sponsored money purchase plan, integrated with Social Security, uses a base contribution formula of 10% for all participants and the Social Security taxable wage base as the integration level. Given this information, what is the maximum permitted excess contribution percentage? (Points : 2) |
20% 10% 15.7% 5.7% |
| Question 23.23. Bland Foods, Inc., has 6 owners, ranging in age from 30 to 60 years old, and 25 employees. The owners want to adopt a qualified retirement plan that will allow them to maximize the contributions to the owners' accounts and to minimize the contributions to the employees' accounts. Which of the following plans would best meet the owners' needs? (Points : 2) |
Age-based profit-sharing plan Target benefit pension plan New comparability plan Section 401(k) plan |
| Question 24.24. In 2015, Bland Foods, Inc., employed 35 people. What percentage is the deductible employer share of payroll taxes on employee earnings in 2015? (Points : 2) |
6.2% 15.3% 2.9% 7.65% |
| Question 25.25. Harry has a future value retirement savings need of $925,000. His planned retirement date is 15 years from now, and he believes he can achieve an 8.5% annual after-tax return on invested funds throughout this period. Using the level payment approach, calculate the annual payments required for Harry to make at the end of each year to accomplish his stated retirement savings need. (Round to the nearest dollar.) (Points : 2) |
$99,347 $32,764 $61,667 $30,197 |
| Question 26.26. Carol has been researching IRAs and learning of the advantages and disadvantages of using an IRA as a retirement savings vehicle. Which of the following statements regarding an IRA is CORRECT? (Points : 2) |
Earnings on assets held in an IRA are not subject to federal income tax until withdrawn from the account. When the investments in an IRA consist solely of securities, net unrealized appreciation (NUA) treatment of a lump-sum distribution is available. Certain taxpayers may be eligible for an income tax credit for contributions to a traditional IRA but not for a Roth IRA. Eligible individuals may contribute up to $5,500 to an IRA and an additional $1,000 when age 40 or over. |
| Question 27.27. Bland Foods, Inc. is considering the implementation of a stock bonus plan. Which of the following is(are) a disadvantage to the employer of implementing a stock bonus plan? 1 The employer does not have to deplete cash to make contributions to the plan. 2 Ownership of the company is diluted when the shares are contributed to the plan. 3 Employees participating in the plan may defer taxation on the net unrealized appreciation on a lump-sum distribution of the employer stock. (Points : 2) |
2 only 1, 2 and 3 1 and 2 1 and 3 |
| Question 28.28. Bland Foods, Inc. has 100 employees. Which of the following employees listed is(are) considered a key employee in 2015? (Points : 2) |
1 and 2 2 and 4 2 and 3 4 only |
| Question 29.29. Which of the following statements regarding Social Security is NOT correct? (Points : 2) |
The primary insurance amount (PIA) is the amount payable to a worker at the earliest retirement age of 62. All benefits paid to a covered worker are based on the worker's primary insurance amount (PIA). A worker's average indexed monthly earnings (AIME) is based on the worker's lifetime earnings history. The maximum annual compensation considered in the calculation of Social Security benefits is limited to $118,500 in 2015. |
| Question 30.30. Which of the following benefits is(are) available to a worker's survivors in both the fully insured and currently insured status? 1 Lump-sum death benefit of $255 2 Surviving spouse benefit for a widow(er) who is age 60 or over 3 Dependent child benefit 4 Dependent parent age 62 or over benefit (Points : 2) |
1, 2, 3 and 4 2 and 4 1 and 2 1 and 3 |
| Question 31.31. Large Manufacturer, Inc. has grown quickly in the last few years and is now interested in providing a retirement plan for its 2,000 employees. Which of the following is(are) a factor that should provide a guide to the company in selecting a retirement plan for a business? 1 Employees' attitude toward investment risk 2 Employer's attitude toward investment risk 3 Employees' financial condition 4 Employer's financial condition (Points : 2) |
1, 2 and 3 2 and 4 1, 2, 3 and 4 1 and 3 |
| Question 32.32. Jerry wants to establish a qualified plan for his business to provide employees of the company with the ability to save for retirement. Which of the following plans is a qualified plan? 1 Profit-sharing plan 2 Simplified employee pension plan 3 SIMPLE IRA 4 Section 457 plan (Points : 2) |
1, 2, 3 and 4 1 only 2 and 3 4 only |
| Question 33.33. Allison and Nick anticipate they will require an annual income of $50,000 (in current dollars) when they retire 15 years from now. They expect to receive Social Security benefits of $20,000 per year at that time. In calculating their retirement savings need, the couple is assuming a 3% annual rate of inflation, an 8% after-tax return on investments, and a 25-year retirement period. Considering Social Security, what is the future value of the couple's annual retirement income need? (Round to the nearest dollar) (Points : 2) |
$57,898 $77,898 $46,739 $84,689 |
| Question 34.34. Allison and Nick anticipate they will require an annual income of $50,000 (in current dollars) when they retire 15 years from now. They expect to receive Social Security benefits of $20,000 per year at that time. In calculating their retirement savings need, the couple is assuming a 3% annual rate of inflation, an 8% after-tax return on investments, and a 25-year retirement period. Without considering any Social Security benefit that may be available, what is the couple's total retirement fund need? (Points : 2) |
$764,522 $831,544 $1,356,449 $1,168,178 |
| Question 35.35. Linda works for a Section 501(c)(3) organization that sponsors a Section 403(b) plan. Which of the following statements regarding a Section 403(b) plan is(are) NOT correct? 1 A special catch up provision available for Section 403(b) plan participants allows the elective deferral amount to be doubled in the last 3 years prior to retirement 2 Funding in the plan is limited to annuity contracts or mutual funds. 3 Because the organization is a nonprofit, employer contributions to the plan are currently taxable to the employees. 4 The elective deferral limit is $53,000 for 2015. (Points : 2) |
2 and 4 1, 3 and 4 1, 2, 3 and 4 2 only |
| Question 36.36. Mark participates in a Section 401(k) plan maintained by his employer. His vested account balance is $25,000, and he has never taken a prior loan from the plan. What is the maximum loan amount he can take from his Section 401(k) plan? (Points : 2) |
$10,000 $25,000 $12,500 $15,000 |
| Question 37.37. What is the minimum number of employees a defined benefit plan must benefit to conform to IRS and ERISA regulations? (Points : 2) |
50 employees The lesser of 40 employees or 50% of all eligible employees The lesser of 50 employees or 40% of all eligible employees The lesser of 50 employees or 50% of all eligible employees |
| Question 38.38. Which of the following is(are) included in determining the annual additions amount to a defined contribution plan? 1. Earnings generated by account holdings 2. Employer matching contributions 3. Before-tax employee contributions 4. Reallocated forfeitures resulting from employee departures (Points : 2) |
1, 2 and 3 2 and 3 2, 3 and 4 1, 2, 3 and 4 |
| Question 39.39. Max is the finance director for Bland Foods, Inc. He is trying to implement a new qualified retirement plan for the company. There are numerous federal guidelines with which the company must comply. Which of the following federal agencies is tasked with supervising the creation of new, qualified retirement plans? (Points : 2) |
IRS ERISA PBGC DOL |
| Question 40.40. Which of the following disclosure items must be provided to an employee participating in a pension plan? 1 An individual's accrued benefits statement 2 A list of the highly compensated employees in the plan 3 A Summary Annual Report 4 A copy of the top-heavy test calculation each year (Points : 2) |
2 and 3 1 and 3 1 and 4 1, 2 and 3 |
| Question 41.41. Barry was age 71 when he died this year. He had designated his estate as the sole beneficiary of his IRA. Which of the following statements is CORRECT? (Points : 2) |
If death occurs after the required beginning date, a single lump-sum distribution may be elected, but any installment payments must continue over the deceased participant's remaining distribution period, reduced by 1 each year. From an income tax perspective, naming the estate as beneficiary is generally advantageous. Barry's youngest heir's life expectancy will be used to determine the RMD. As the designated beneficiary, the administrator or executor of the estate may choose any time period over which to distribute the IRA. |
| Question 42.42. Which of the following statements regarding the characteristics or use of a Roth IRA is CORRECT? (Points : 2) |
Roth IRAs are not subject to the required minimum distribution rules until the death of the owner-participant. Roth IRA withdrawals are tax free in their entirety regardless of the participant's age at withdrawal. As with traditional IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan. As with traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70. |
| Question 43.43. Ryan (age 50) is employed by Best Mutual Funds (BMF) and participates in its profit-sharing Section 401(k) plan for 2015. The plan allocates contributions based on relative compensation and is not integrated with Social Security. Ryan's current annual compensation is $80,000, and he has elected to defer 5% of compensation into the Section 401(k) plan. Including Ryan, 35 employees with a total covered payroll of $1.8 million participate in the plan and have elected to defer a total of $72,000 (4% of payroll). BMF's matching contributions to the plan total $54,000 (3% of total covered payroll). What is the limit on annual additions to Ryan's individual account for 2015? (Points : 2) |
$24,000 $18,000 $53,000 $12,500 |
| Question 44.44. Lucy's alimony income is considered earned income for the purposes of contributions to an IRA. Earned income does not include rental income, pension income, or interest income, but does include alimony received from an ex-spouse. Which of the following persons could make tax-deductible contributions to a traditional IRA regardless of their modified adjusted gross income (MAGI)? (Points : 2) |
Janice defers $18,000 to her employer's Section 401(k) plan. Gary is self-employed and contributes the maximum to a SEP IRA plan he has for himself and his employees. Max is 55 and employed full-time and participates in his employer's Section 457 plan. Sara works for a Section 501(c)(3) tax-exempt organization and she participates in the Section 403(b) plan her employer sponsors. |
| Question 45.45. All of the following statements regarding interest charged to a plan participant for a loan from the participant's qualified retirement plan account are correct EXCEPT: (Points : 2) |
interest on qualified plan loans secured by the participant's principal residence is deductible by taxpayer's who claim itemized deductions on their tax return interest on all qualified plan loans made to key employees for the purpose of securing a primary residence is always nondeductible by the key employee Generally, loans from qualified plans must be repaid within 10 years, unless the loan is used to acquire a primary residence generally, interest on a loan from a qualified plan is nondeductible consumer interest for the participant-borrower |
| Question 46.46. Employees are not taxed on the stock in an ESOP until such time as the stock is distributed. Upon distribution, the employee must pay ordinary income taxes on the fair market value of the stock when it was contributed to the plan on his behalf. Any net unrealized appreciation (NUA) at that time can be deferred until the stock's subsequent sale. Upon the subsequent sale of the stock, the NUA portion will be treated as long-term capital gain. Additionally, the growth of the stock subsequent to the distribution will receive long-term capital gain treatment because Bernie held the stock longer than one year after distribution. Therefore, the appropriate tax treatment available to Bernie upon sale of the stock is a $20,000 long-term capital gain. For purposes of determining active participation status in testing for the deductibility of IRA contributions for a single individual, participation in which of the following is NOT considered? (Points : 2) |
A Section 403(b) plan A SEP plan An ESOP A governmental Section 457 plan |
| Question 47.47. Carl, age 72, has been receiving required minimum distributions (RMDs) from his qualified plan. His RMD for this year is $8,000. Carl has only taken $6,000 in distributions this year. If he fails to take the full RMD by December 31 of this year, what is the amount of the penalty he must pay? (Points : 2) |
$800 $2,000 $200 $1,000 |
| Question 48.48. Joe, age 52, has just started a consulting company. He currently employs 6 people, who range in age from 22 to 31 years old. The average employment period for his employees is approximately 4 years. He would like to implement a defined contribution plan and use an appropriate vesting schedule that is most favorable to his business. Which of the following vesting schedules is most appropriate for Joe's company? (Points : 2) |
100% immediate vesting 2-to-6year graded 3-year cliff 3-to-7year graded |
| Question 49.49. Tom's employer has a defined benefit pension plan and he has worked for the company for 20 years. His highest salaries occurred in the final 3 years before retirement: $251,000, $257,000, and $275,000. Without considering the formula used to arrive at his retirement benefit amount, what is Tom's maximum possible benefit from the defined benefit pension plan if he retires in 2015? (Points : 2) |
$265,000 $261,000 $210,000 $257,667 |
| Question 50.50. Which of the following statements regarding integrating a plan with Social Security are NOT correct? 1. Because there is a disparity in the Social Security system, all retirement plans are allowed integration with Social Security. 2. Only the excess method can be used by a defined benefit pension plan. 3 Under the offset method, a fixed or formula amount approximates the existence of Social Security benefits and reduces the plan formula. 4. The maximum increase in benefits for earnings above covered compensation level is 26.25% for a defined benefit pension plan. (Points : 2) |
3 and 4 1 and 2 2 and 3 1, 2 and 3 |
|
Unit 6 : Unit 6: Retirement Needs Analysis - Final Time Remaining: Question 1.1. Which of the following statements regarding the characteristics or use of a profit-sharing plan is CORRECT? (Points : 2) The maximum tax-deductible employer contribution to a profit-sharing plan is 15% of covered payroll. Profit-sharing plans are best suited for companies that experience fluctuating cash flow. Profit-sharing plans require a fixed, mandatory, annual contribution by the employer to the plan. A company with a preponderance of older employees will find the implementation of a traditional profit-sharing plan to be the most beneficial for the older employee-participants. Question 2.2. Which of the following is(are) true regarding the interest rate credit used in cash balance pension plans? 1) The interest rate credited to a participant's hypothetical account is determined upon the establishment of the plan and cannot fluctuate. 2) If the underlying investments of the plan out-perform the interest rate credit guarantee in a given year, the participant will receive a greater credit for that given year. 3) If the underlying investments of the plan out-perform the interest rate credit guarantee in a given year, the employer may reduce plan contributions for that given year. 4) Because of the hypothetical individual accounts, plan participants may choose among various fixed interest rate investments for their accounts. (Points : 2) 3 only 1, 2 and 4 4 only 1 and 3 Question 3.3. Gary was just hired by an employer that maintains a SIMPLE IRA for its employees. Which of the following statements regarding Gary's participation in the SIMPLE IRA is CORRECT? (Points : 2) Covered compensation is limited to $265,000 for a SIMPLE IRA if the employer elects a 3% match. Gary may only defer $5,500 into the SIMPLE IRA if he is younger than age 50. When Gary participates in the plan, he will be 100% vested in his employer's contributions. The annual employer match may be limited to 1% of employee compensation each year. Question 4.4. Jerry and Barbara recently filed for divorce after 25 years of marriage. The property settlement approved by the court included an award to Barbara of one-half of Jerry's vested benefit in his defined benefit pension plan. This was done via the drafting and implementation of a qualified domestic relations order (QDRO). Which of the following is an implication of the QDRO for Jerry and Barbara? (Points : 2) If Jerry dies before his retirement, Barbara could be disinherited and denied receipt of any accrued benefits payable under the plan. If Barbara dies before Jerry, the QDRO could require Jerry to substitute another beneficiary of his own choosing. Barbara could force Jerry to take a lump-sum distribution from the plan even if it was not otherwise available as an option. When Jerry retires, Barbara's benefit is taxable to her. Question 5.5. Mark's financial planner has recommended a retirement plan for implementation at Mark's business in 2015. He tells Mark the plan must cover all employees who are at least 21 and have worked for Mark for 3 of the last 5 years (part-time counts). Contributions must be made for employees who earned at least $600 (2015) in the prior year. The plan can exclude union members if they have their own retirement plan. Which type of plan has Mark's planner recommended? (Points : 2) SARSEP plan Simplified employee pension (SEP) plan SIMPLE IRA Profit-sharing plan Question 6.6. RQZ Company employs 200 non-excludible employees, 20 of whom are highly compensated. Sixteen of the 20 highly compensated and 125 of the non-highly compensated employees benefit from the RQZ qualified pension plan. The average benefits accrued for the highly compensated is 8%. The ratio test for the above plan is (Points : 2) 86.8% 69.4% 80% 70% Question 7.7. George, age 55, earns $250,000 and participates in his employer's SIMPLE IRA. The employer match is on a dollar-for-dollar basis, up to 3% of each participating employee's compensation for the year. What is the maximum amount of employee and employer contributions that can be contributed to George's account in 2015? (Points : 2) $23,000 $18,800 $15,500 $6,500 Question 8.8. Gordon has met the 2 tests required for a hardship withdrawal from his profit-sharing plan with his employer. Which of the following is a qualifying reason for which money may be withdrawn using the hardship withdrawal rules? (Points : 2) Gordon needs the money to loan to his uninsured best friend (not a dependent) to pay for medical costs. None of these reasons qualify for a hardship withdrawal. Gordon, who is experiencing extreme financial difficulties, is using the withdrawal to prevent a foreclosure on his primary residence. Larry, Gordon's cousin, has asked him for the funds to pay his college costs this semester. Larry is not Gordon's dependent. Question 9.9. Todd has made total contributions of $75,000 to his traditional IRA of which $15,000 were non-deductible contributions. Todd is 60 and is considering taking a $20,000 distribution from his IRA, which currently has a fair market value of $175,000. This will be the only distribution from his IRA this year. How much of the distribution will be taxable to Todd? (Points : 2) $4,000 $20,000 $0 $16,000 Question 10.10. Which of the following plans is(are) NOT a cross-tested plan(s)? 1 New comparability plan 2 Employer stock ownership plan 3 Age-based profit-sharing plan 4 Stock bonus plan (Points : 2) 2 and 4 1, 2, 3 and 4 2 only 3 and 4 Question 11.11. Porter has reached retirement age after working for the same employer for 25 years. His employer has a defined benefit pension plan for which the PBGC has assumed financial responsibility. Disregarding Porter's actual accrued benefit in the plan, what is the maximum annual benefit Porter could receive under PBGC administration of the plan? (Points : 2) $60,132 $210,000 $53,000 $265,000 Question 12.12. Bland Foods, Inc., wants to establish a retirement benefit for the company's executives which is separate from its qualified plan. The plan will be unfunded and pay benefits only as needed from the company's assets. Bland Food wants to provide the benefits without requiring the executives to reduce their current salary. Which of the following types of plans was most likely chosen by Bland Foods, Inc.? (Points : 2) Stock bonus plan Top-hat plan Section 401(k) plan Defined benefit pension plan Question 13.13. Baxter and Smith is a law firm with a defined benefit pension plan. When would the plan be required to be covered by the Pension Benefit Guaranty Corporation? (Points : 2) If the firm employs 10 or more employees A professional service employer is not required to be covered by the PBGC If the firm employs 26 or more employees If the firm employs 25 or fewer employees Question 14.14. Which of the following statements are disadvantages for the employersponsor of a cash balance pension plan? 1 A certain level of plan benefit is guaranteed by the PBGC. 2 The employer bears the investment risk in the plan. 3 Cash balance pension plans are less expensive for the employer than a traditional defined benefit pension plan. 4 Retirement benefits may be inadequate for older plan entrants. (Points : 2) 1 and 3 1 and 2 3 and 4 2 and 4 Question 15.15. Which of the following is NOT a characteristic of a target benefit pension plan? (Points : 2) Requires services of an actuary at inception of the plan Tends to favor older plan participants Employer bears the investment risk Is a type of defined contribution plan Question 16.16. Bland Foods, Inc. is considering implementing a profit-sharing plan for its employees. A board member has asked for information regarding employer contributions to the plan. Which of the following statements regarding an employer's obligation to make contributions to a profit-sharing plan is CORRECT? (Points : 2) The employer is never required to make a contribution. The employer must make contributions in any year in which it has a profit. The employer must make contributions on a substantial and recurring basis. The employer must make contributions every year. Question 17.17. Which of the following statements regarding target benefit pension plans are CORRECT? 1 The plans are covered by PBGC insurance. 2 Older participants are favored in a target benefit pension plan. 3 Each employee has an individual account. 4 Minimum funding standards apply. (Points : 2) 1 and 3 2 and 4 2, 3 and 4 1, 2, 3 and 4 Question 18.18. Taylor died at age 60 having been a participant in his employer's Section 401(k). He also owns 2 traditional IRAs consisting entirely of deductible contributions and a Roth IRA that contains no conversion contributions. His beneficiary is his son, Jack, age 35. Which of the plans is(are) subject to required minimum distributions (RMDs) after Taylor's death? 1 Traditional IRAs 2 Roth IRA 3 Section 401(k) plan (Points : 2) 1, 2 and 3 1 and 3 None of these because Taylor died before his required beginning date for RMDs 1 and 2 Question 19.19. Which of the following statements regarding payroll taxes on income below the Social Security taxable wage base is(are) CORRECT? 1 The Social Security taxable wage base is unlimited for both the Social Security portion of OASDI and the Medicare portion. 2 The total payroll tax paid by employers is 7.65% in 2015. 3 A self-employed person pays only the employer portion of the payroll tax. (Points : 2) 3 only 1, 2 and 3 1 and 2 2 only Question 20.20. For an individual who was born in 1960 or later and wants to retire early at age 62, what is the reduction, if any, in the amount of Social Security retirement income benefits that are otherwise payable? (Points : 2) 0 20% 30% 25% Question 21.21. Horatio has a future value retirement savings need of $825,000. His planned retirement date is 15 years from now, and he believes he can achieve an 8.5% annual after-tax return on invested funds throughout this period. Using the level payment approach, calculate the amount of the annual payments required for Horatio to make at the end of each year to accomplish his stated retirement savings need. (Round your answer to the nearest dollar.) (Points : 2) $29,222 $55,000 $99,347 $54,266 Question 22.22. An employer-sponsored money purchase plan, integrated with Social Security, uses a base contribution formula of 10% for all participants and the Social Security taxable wage base as the integration level. Given this information, what is the maximum permitted excess contribution percentage? (Points : 2) 20% 10% 15.7% 5.7% Question 23.23. Bland Foods, Inc., has 6 owners, ranging in age from 30 to 60 years old, and 25 employees. The owners want to adopt a qualified retirement plan that will allow them to maximize the contributions to the owners' accounts and to minimize the contributions to the employees' accounts. Which of the following plans would best meet the owners' needs? (Points : 2) Age-based profit-sharing plan Target benefit pension plan New comparability plan Section 401(k) plan Question 24.24. In 2015, Bland Foods, Inc., employed 35 people. What percentage is the deductible employer share of payroll taxes on employee earnings in 2015? (Points : 2) 6.2% 15.3% 2.9% 7.65% Question 25.25. Harry has a future value retirement savings need of $925,000. His planned retirement date is 15 years from now, and he believes he can achieve an 8.5% annual after-tax return on invested funds throughout this period. Using the level payment approach, calculate the annual payments required for Harry to make at the end of each year to accomplish his stated retirement savings need. (Round to the nearest dollar.) (Points : 2) $99,347 $32,764 $61,667 $30,197 Question 26.26. Carol has been researching IRAs and learning of the advantages and disadvantages of using an IRA as a retirement savings vehicle. Which of the following statements regarding an IRA is CORRECT? (Points : 2) Earnings on assets held in an IRA are not subject to federal income tax until withdrawn from the account. When the investments in an IRA consist solely of securities, net unrealized appreciation (NUA) treatment of a lump-sum distribution is available. Certain taxpayers may be eligible for an income tax credit for contributions to a traditional IRA but not for a Roth IRA. Eligible individuals may contribute up to $5,500 to an IRA and an additional $1,000 when age 40 or over. Question 27.27. Bland Foods, Inc. is considering the implementation of a stock bonus plan. Which of the following is(are) a disadvantage to the employer of implementing a stock bonus plan? 1 The employer does not have to deplete cash to make contributions to the plan. 2 Ownership of the company is diluted when the shares are contributed to the plan. 3 Employees participating in the plan may defer taxation on the net unrealized appreciation on a lump-sum distribution of the employer stock. (Points : 2) 2 only 1, 2 and 3 1 and 2 1 and 3 Question 28.28. Bland Foods, Inc. has 100 employees. Which of the following employees listed is(are) considered a key employee in 2015? (Points : 2) 1 and 2 2 and 4 2 and 3 4 only Question 29.29. Which of the following statements regarding Social Security is NOT correct? (Points : 2) The primary insurance amount (PIA) is the amount payable to a worker at the earliest retirement age of 62. All benefits paid to a covered worker are based on the worker's primary insurance amount (PIA). A worker's average indexed monthly earnings (AIME) is based on the worker's lifetime earnings history. The maximum annual compensation considered in the calculation of Social Security benefits is limited to $118,500 in 2015. Question 30.30. Which of the following benefits is(are) available to a worker's survivors in both the fully insured and currently insured status? 1 Lump-sum death benefit of $255 2 Surviving spouse benefit for a widow(er) who is age 60 or over 3 Dependent child benefit 4 Dependent parent age 62 or over benefit (Points : 2) 1, 2, 3 and 4 2 and 4 1 and 2 1 and 3 Question 31.31. Large Manufacturer, Inc. has grown quickly in the last few years and is now interested in providing a retirement plan for its 2,000 employees. Which of the following is(are) a factor that should provide a guide to the company in selecting a retirement plan for a business? 1 Employees' attitude toward investment risk 2 Employer's attitude toward investment risk 3 Employees' financial condition 4 Employer's financial condition (Points : 2) 1, 2 and 3 2 and 4 1, 2, 3 and 4 1 and 3 Question 32.32. Jerry wants to establish a qualified plan for his business to provide employees of the company with the ability to save for retirement. Which of the following plans is a qualified plan? 1 Profit-sharing plan 2 Simplified employee pension plan 3 SIMPLE IRA 4 Section 457 plan (Points : 2) 1, 2, 3 and 4 1 only 2 and 3 4 only Question 33.33. Allison and Nick anticipate they will require an annual income of $50,000 (in current dollars) when they retire 15 years from now. They expect to receive Social Security benefits of $20,000 per year at that time. In calculating their retirement savings need, the couple is assuming a 3% annual rate of inflation, an 8% after-tax return on investments, and a 25-year retirement period. Considering Social Security, what is the future value of the couple's annual retirement income need? (Round to the nearest dollar) (Points : 2) $57,898 $77,898 $46,739 $84,689 Question 34.34. Allison and Nick anticipate they will require an annual income of $50,000 (in current dollars) when they retire 15 years from now. They expect to receive Social Security benefits of $20,000 per year at that time. In calculating their retirement savings need, the couple is assuming a 3% annual rate of inflation, an 8% after-tax return on investments, and a 25-year retirement period. Without considering any Social Security benefit that may be available, what is the couple's total retirement fund need? (Points : 2) $764,522 $831,544 $1,356,449 $1,168,178 Question 35.35. Linda works for a Section 501(c)(3) organization that sponsors a Section 403(b) plan. Which of the following statements regarding a Section 403(b) plan is(are) NOT correct? 1 A special catch up provision available for Section 403(b) plan participants allows the elective deferral amount to be doubled in the last 3 years prior to retirement 2 Funding in the plan is limited to annuity contracts or mutual funds. 3 Because the organization is a nonprofit, employer contributions to the plan are currently taxable to the employees. 4 The elective deferral limit is $53,000 for 2015. (Points : 2) 2 and 4 1, 3 and 4 1, 2, 3 and 4 2 only Question 36.36. Mark participates in a Section 401(k) plan maintained by his employer. His vested account balance is $25,000, and he has never taken a prior loan from the plan. What is the maximum loan amount he can take from his Section 401(k) plan? (Points : 2) $10,000 $25,000 $12,500 $15,000 Question 37.37. What is the minimum number of employees a defined benefit plan must benefit to conform to IRS and ERISA regulations? (Points : 2) 50 employees The lesser of 40 employees or 50% of all eligible employees The lesser of 50 employees or 40% of all eligible employees The lesser of 50 employees or 50% of all eligible employees Question 38.38. Which of the following is(are) included in determining the annual additions amount to a defined contribution plan? 1. Earnings generated by account holdings 2. Employer matching contributions 3. Before-tax employee contributions 4. Reallocated forfeitures resulting from employee departures (Points : 2) 1, 2 and 3 2 and 3 2, 3 and 4 1, 2, 3 and 4 Question 39.39. Max is the finance director for Bland Foods, Inc. He is trying to implement a new qualified retirement plan for the company. There are numerous federal guidelines with which the company must comply. Which of the following federal agencies is tasked with supervising the creation of new, qualified retirement plans? (Points : 2) IRS ERISA PBGC DOL Question 40.40. Which of the following disclosure items must be provided to an employee participating in a pension plan? 1 An individual's accrued benefits statement 2 A list of the highly compensated employees in the plan 3 A Summary Annual Report 4 A copy of the top-heavy test calculation each year (Points : 2) 2 and 3 1 and 3 1 and 4 1, 2 and 3 Question 41.41. Barry was age 71 when he died this year. He had designated his estate as the sole beneficiary of his IRA. Which of the following statements is CORRECT? (Points : 2) If death occurs after the required beginning date, a single lump-sum distribution may be elected, but any installment payments must continue over the deceased participant's remaining distribution period, reduced by 1 each year. From an income tax perspective, naming the estate as beneficiary is generally advantageous. Barry's youngest heir's life expectancy will be used to determine the RMD. As the designated beneficiary, the administrator or executor of the estate may choose any time period over which to distribute the IRA. Question 42.42. Which of the following statements regarding the characteristics or use of a Roth IRA is CORRECT? (Points : 2) Roth IRAs are not subject to the required minimum distribution rules until the death of the owner-participant. Roth IRA withdrawals are tax free in their entirety regardless of the participant's age at withdrawal. As with traditional IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan. As with traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70. Question 43.43. Ryan (age 50) is employed by Best Mutual Funds (BMF) and participates in its profitsharing Section 401(k) plan for 2015. The plan allocates contributions based on relative compensation and is not integrated with Social Security. Ryan's current annual compensation is $80,000, and he has elected to defer 5% of compensation into the Section 401(k) plan. Including Ryan, 35 employees with a total covered payroll of $1.8 million participate in the plan and have elected to defer a total of $72,000 (4% of payroll). BMF's matching contributions to the plan total $54,000 (3% of total covered payroll). What is the limit on annual additions to Ryan's individual account for 2015? (Points : 2) $24,000 $18,000 $53,000 $12,500 Question 44.44. Lucy's alimony income is considered earned income for the purposes of contributions to an IRA. Earned income does not include rental income, pension income, or interest income, but does include alimony received from an ex-spouse. Which of the following persons could make tax-deductible contributions to a traditional IRA regardless of their modified adjusted gross income (MAGI)? (Points : 2) Janice defers $18,000 to her employer's Section 401(k) plan. Gary is self-employed and contributes the maximum to a SEP IRA plan he has for himself and his employees. Max is 55 and employed full-time and participates in his employer's Section 457 plan. Sara works for a Section 501(c)(3) tax-exempt organization and she participates in the Section 403(b) plan her employer sponsors. Question 45.45. All of the following statements regarding interest charged to a plan participant for a loan from the participant's qualified retirement plan account are correct EXCEPT: (Points : 2) interest on qualified plan loans secured by the participant's principal residence is deductible by taxpayer's who claim itemized deductions on their tax return interest on all qualified plan loans made to key employees for the purpose of securing a primary residence is always nondeductible by the key employee Generally, loans from qualified plans must be repaid within 10 years, unless the loan is used to acquire a primary residence generally, interest on a loan from a qualified plan is nondeductible consumer interest for the participant-borrower Question 46.46. Employees are not taxed on the stock in an ESOP until such time as the stock is distributed. Upon distribution, the employee must pay ordinary income taxes on the fair market value of the stock when it was contributed to the plan on his behalf. Any net unrealized appreciation (NUA) at that time can be deferred until the stock's subsequent sale. Upon the subsequent sale of the stock, the NUA portion will be treated as long-term capital gain. Additionally, the growth of the stock subsequent to the distribution will receive long-term capital gain treatment because Bernie held the stock longer than one year after distribution. Therefore, the appropriate tax treatment available to Bernie upon sale of the stock is a $20,000 long-term capital gain. For purposes of determining active participation status in testing for the deductibility of IRA contributions for a single individual, participation in which of the following is NOT considered? (Points : 2) A Section 403(b) plan A SEP plan An ESOP A governmental Section 457 plan Question 47.47. Carl, age 72, has been receiving required minimum distributions (RMDs) from his qualified plan. His RMD for this year is $8,000. Carl has only taken $6,000 in distributions this year. If he fails to take the full RMD by December 31 of this year, what is the amount of the penalty he must pay? (Points : 2) $800 $2,000 $200 $1,000 Question 48.48. Joe, age 52, has just started a consulting company. He currently employs 6 people, who range in age from 22 to 31 years old. The average employment period for his employees is approximately 4 years. He would like to implement a defined contribution plan and use an appropriate vesting schedule that is most favorable to his business. Which of the following vesting schedules is most appropriate for Joe's company? (Points : 2) 100% immediate vesting 2-to-6year graded 3-year cliff 3-to-7year graded Question 49.49. Tom's employer has a defined benefit pension plan and he has worked for the company for 20 years. His highest salaries occurred in the final 3 years before retirement: $251,000, $257,000, and $275,000. Without considering the formula used to arrive at his retirement benefit amount, what is Tom's maximum possible benefit from the defined benefit pension plan if he retires in 2015? (Points : 2) $265,000 $261,000 $210,000 $257,667 Question 50.50. Which of the following statements regarding integrating a plan with Social Security are NOT correct? 1. Because there is a disparity in the Social Security system, all retirement plans are allowed integration with Social Security. 2. Only the excess method can be used by a defined benefit pension plan. 3 Under the offset method, a fixed or formula amount approximates the existence of Social Security benefits and reduces the plan formula. 4. The maximum increase in benefits for earnings above covered compensation level is 26.25% for a defined benefit pension plan. (Points : 2) 3 and 4 1 and 2 2 and 3 1, 2 and 3 Time Remaining: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. Profit-sharing plans are best suited for companies that experience fluctuating cash flow. 3 only Gary may only defer $5,500 into the SIMPLE IRA if he is younger than age 50. When Jerry retires, Barbara's benefit is taxable to her. Simplified employee pension (SEP) plan 69.4% $15,500 Gordon, who is experiencing extreme financial difficulties, is using the withdrawal to prevent a foreclosure on his primary residence. $20,000 2 and 4 $265,000 Defined benefit pension plan If the firm employs 26 or more employees 2 and 4 Tends to favor older plan participants The employer must make contributions in any year in which it has a profit. Each employee has an individual account. None of these because Taylor died before his required beginning date for RMDs 3 only 0 $54,266 15.7% Age-based profit-sharing plan 7.65% $61,667 Certain taxpayers may be eligible for an income tax credit for contributions to a traditional IRA but not for a Roth IRA 1 and 2 2 and 3 A worker's average indexed monthly earnings (AIME) is based on the worker's lifetime earnings history. 2 and 4 1, 2, 3 and 4 1 only $57,898 $831,544 2 and 4 $12,500 The lesser of 50 employees or 50% of all eligible employees 2 and 3 IRS 1 and 3 As the designated beneficiary, the administrator or executor of the estate may choose any time period over which to distribute the IRA. As with traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70. 43. $24,000 44. Gary is self-employed and contributes the maximum to a SEP IRA plan he has for himself and his employees. 45. generally, interest on a loan from a qualified plan is nondeductible consumer interest for the participant-borrower 46. A SEP plan 47. $800 48. 3-year clif 49. $210,000 50. 2 and 3
