QUESTION 22

Susan participates in a Section 403(b) plan at work that includes loan provisions. Susan has recently enrolled in college and has inquired about the possible consequences of borrowing from the Section 403(b) plan to help pay for her education. As her financial planner, what is your advice to her?

	A.	The loan will statutorily be treated as a taxable distribution from the plan.
	B.	The loan must be repayable within five years at a reasonable rate of interest.
	C.	The loan is not being made for reasons of an unforeseeable emergency and, thus, is not possible.
	D.	The Section 403(b) plan cannot make loans to participants because loans are only available from a qualified plan.

QUESTION 23

Jennifer recently separated from service with Acme, Inc., at age 52, and rolled her qualified plan lump sum into a new IRA. She had been a plan participant for 12 years. This year, she began to work for a new employer who provides a profit-sharing plan for employees. Jennifer will be eligible to participate in her new employer's profit-sharing plan in June of next year. Which one of the following statements describes an option that will be to Jennifer's benefit?

	A.	Jennifer should leave the rollover funds in the rollover IRA until she is age 65; then she can distribute the IRA and benefit from lump-sum forward-averaging treatment.
	B.	Jennifer should use the direct rollover to roll the entire IRA over into her new employers qualified profit-sharing plan in accordance with tax requirements and plan provisions if the plan allows her to do so and allows for loans.
	C.	If Jennifer had Acme stock in her IRA, she could retain net unrealized appreciation (NUA) tax treatment.
	D.	Jennifer should leave the rollover funds in the IRA for three more years; at age 55, she can distribute the account and benefit from lump-sum forward-averaging treatment.

QUESTION 24

Saul, age 55, has retired after 30 years of service with his employer. His Section 401(k) plan, including employer matching contributions, has a current balance of $350,000. On January 10, Saul plans to receive a lump-sum distribution of his entire account balance and keep $50,000 to take his family on a cruise to celebrate his retirement, rolling over the balance of the distribution on March 5 to his traditional IRA. Which of the following is correct regarding Saul's plan?

Saul must report the entire $350,000 distribution as ordinary income because he did not roll over the entire balance.

If Saul keeps the funds as planned for a family cruise and rolls over the balance of the lump-sum distribution as planned, he must report $120,000 as ordinary income.

The distribution will result in a 10% premature distribution penalty.

Saul will report $50,000 as ordinary income.

	A.	IV only
	B.	III and IV
	C.	I and III
	D.	II only

QUESTION 25

Henry works for an accounting firm that sponsors a Section 401(k) plan. Henry, who has a current salary of $35,000, was hesitant to contribute to the plan because in the past he felt as though he may need the money before retirement. He recently learned that he could receive a loan from his Section 401(k) plan without paying any income tax. He is now considering making contributions to the Section 401(k) plan, but he wants to know more specific details regarding loan provisions. Which of the following statements regarding loans from qualified plans is(are) CORRECT?

The limit on loans is generally half of the participant's vested account balance not to exceed $50,000.

The limit on the term of any loan is generally five years.

If an employee leaves the company, a retirement plan loan may be rolled over to an IRA and the participant continues making the loan payments as planned.

Participant loans to a 100% owner-employee are permissible.

	A.	I, II, III, and IV
	B.	II only
	C.	I only
	D.	I, II, and IV