9: All of the following would be different between qualified and nonqualified retirement plans EXCEPT
A Taxation on accumulation
B Taxation of withdrawals
C Taxation of contributions
D IRS approval requirements
Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
11: A tax-sheltered annuity is a special tax-favored retirement plan available to
A Anyone.
B Certain age groups only.
C Certain groups depending on factors such as race, gender, and age.
D Certain groups of employees only.
A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).
1: Which of the following is true about a defined benefit plan?
A High-salaried employees with only a few years until retirement receive the highest contribution.
B Low-salaried employees are excluded from the plan.
C All participating employees are vested immediately following a contribution to the plan.
D Contributions are made in regular fixed amounts.
Defined benefit plans favor owners and key employees nearing retirement. The contribution formula is weighted toward these employees.
3: Which of the following applicants would NOT qualify for a Keogh Plan?
A Someone who works for a self-employed individual
B Someone who works 400 hours per year
C Someone who has been employed for more than 12 months
D Someone who is over 25 years of age
A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.
8: All of the following apply to defined benefit plans EXCEPT
A Benefits are based on a specified formula that incorporates years of service, salary and age of retirement.
B The employer is responsible for providing promised retirement benefits.
C They are qualified plans and cannot discriminate.
D Contributions are tied to the company profits.
Defined benefit plans are not tied to the employing company’s profit; however, the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service.
10: All of the following would be eligible to establish a Keogh retirement plan EXCEPT
A The president and employee of a family corporation.
B A sole proprietor of a service station who employs four employees.
C A sole proprietor of film development store with no employees.
D A hair dresser who operates her business at her house.
Keogh plans are for self-employed individuals and their employees.
12: All of the following would be different between qualified and nonqualified retirement plans EXCEPT
A Taxation on accumulation
B Taxation of withdrawals
C Taxation of contributions
D IRS approval requirements
Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
15: In a defined contribution plan,
A The benefit is known and the contribution is unknown.
B The contribution and the benefit are unknown.
C The contribution and the benefit are known.
D The contribution is known and the benefit is unknown.
In a defined contribution plan the contribution is defined (known) and the benefit is undefined (unknown).
4: Which of the following is TRUE of a qualified plan?
A It may allow unlimited contributions.
B It has a tax benefit for both employer and employee.
C It does not need to have a vesting schedule.
D It may discriminate in favor of highly paid employees.
A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.
5: SIMPLE Plans require all of the following EXCEPT
A Employees must receive a minimum of $5,000 in annual compensation.
B At least 1,000 employees.
C No other qualified plan can be used.
D No more than 100 employees.
A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.
12: Which of the following characteristics applies to defined benefit plans but not defined contribution plans?
A They are qualified plans.
B Employers can choose not to make contributions for a particular year.
C They are subject to the rules of ERISA.
D The amount of contributions made by the employer is determined by an actuarial formula.
Defined benefit plans offer benefits that are based on a definite contribution formula. Defined contribution plans may specify that contributions are made based on corporate profits, so contributions may not be made when that corporation is not profitable. Both are qualified plans subject to the rules of ERISA.
11: All of the following employees may use a 403(b) plan for their retirement EXCEPT
A The vice president of a charitable organization.
B The CEO of a private corporation.
C A school bus driver.
D A part-time classroom aide.
Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.
13: Which of the following characteristics applies to defined benefit plans but not defined contribution plans?
A They are qualified plans.
B Employers can choose not to make contributions for a particular year.
C They are subject to the rules of ERISA.
D The amount of contributions made by the employer is determined by an actuarial formula.
Defined benefit plans offer benefits that are based on a definite contribution formula. Defined contribution plans may specify that contributions are made based on corporate profits, so contributions may not be made when that corporation is not profitable. Both are qualified plans subject to the rules of ERISA.
15: Employer contributions made to a qualified plan
A May discriminate in favor of highly paid employees.
B Are after-tax contributions.
C Are taxed annually as salary.
D Are subject to vesting requirements.
Qualified plans must have a vesting requirement.