Question

1)Which of the following is an important difference between qualified and nonqualified retirement plans?

            

a.          Qualified plans provide benefits for retirees who were high-performing employees, while nonqualified plans provide benefits for retirees whose performance did not meet minimum job expectations.

b.         Employer contributions are deductible when paid to a qualified plan, but deductible when paid to the employee under a nonqualified plan.

c.          Employer contributions to nonqualified plans are subject to dollar limits, but contributions to qualified plans are unlimited.

d.         Earnings of a nonqualified plan are exempt from tax until distributed to retirees, but earnings of a qualified plan are taxable annually to the sponsoring employer.

2.         How are defined benefit plans distinguished from defined contribution plans?

            

a.          Only defined benefit plans are required to have vesting schedules.

b.         Only defined contribution plans limit the amount that can be contributed annually for an employee.

c.          A defined benefit provides a formula for the amount paid to a former employee during retirement, while a defined contribution plan provides a formula (or limit) for the amount contributed to the plan each year on behalf of an employee.

d.         The law provides only for defined contribution plans after 2017.

3.         Jim is a 55-year-old participant in his employer’s defined contribution plan. What is the maximum dollar amount that can be contributed for Jim in 2018?

            

a.          Jim’s contribution limit is $18,500.

b.         Jim’s contribution limit is $30,000.

c.          Jim and his employer’s combined contribution limit is $55,000.

d.         Jim and his employer’s combined contribution limit is $62,000.

4.         How do vesting requirements differ between defined benefit plans and defined contribution plans?

            

1. Defined benefit plans have cliff vesting only; graded vesting is not allowed.

b.         Defined contribution plans have graded vesting only; cliff vesting is not allowed.

c.          Both types of plans can have only graded vesting.

d.         Both types of plans can have either cliff vesting or graded vesting.  Defined benefit plans must provide 5-year cliff vesting or 7-year graded vesting, and defined contribution plans must provide 3-year cliff vesting or 6-year graded vesting.

5.         How are distributions from qualified plans treated?

            

a.          Retirees must report distributions received as income.

b.         Retirees must report distributions received as income only if they are less than 59-1/2 years old.

c.          Retirees must report distributions received as income only if they are more than 70-1/2 years old.

d.         Retireesmust report distributions received as income only if employer contributions to the plan are greater than the allowable amounts.

6.         Roscoe is 54, and is considering requesting a distribution this year from his employer’s qualified plan.  What are the consequences of a distribution to Roscoe?

            

a.          The distribution is subject to income tax, but not to any additional penalties.

b.         The distribution is subject to income tax and also a 10% tax on early distributions.

c.          The distribution is not subject to income tax, but is subject to a 10% tax on early distributions.

d.         Since Lester has achieved age 55, the distribution is not subject to income tax, and not to any additional penalties.

         

7.         Phil is 75 years old, and retired several years ago.  At the beginning of the year, his balance in his former employer’s defined contribution plan was $1 million.  What is the minimum amount that the plan must distribute to Phil this year to avoid penalty?

            

a.          $40,500.

b.         $42,000.

c.          $43,700.

d.         $45,400.

8.         How does a Roth 401(k) plan differ from a traditional 401(k) plan?

            

a.          Employee contributions to Roth plans are deductible, but employee contributions to traditional plans are not deductible.

b.         Employee contributions to traditional plans are deductible, but employee contributions to Roth plans are not deductible.

c.          Employer contributions to Roth plans are deductible, but employer contributions to traditional plans are not deductible.

d.         Employer contributions to traditional plans are deductible, but employer contributions to Roth plans are not deductible.

Answer 1