Question 1

Baxter is a office manager who works for Allied Company and is covered under its retirement plan.Baxter's AGI is $69,000,and he wants to contribute $2,000 to either an IRA or his employer's salary-reduction plan.Since he is in the 25 percent marginal tax bracket,he would save ____ in taxes by using the IRA and ____ by using the salary-reduction plan.

Accepted Answer

The answer of Baxter is a office manager who works...

Question 2

Salvador (age 45) withdraws $50,000 from his tax-sheltered retirement plan to invest in a new business.Assuming Salvador is in the 28 percent marginal tax bracket and the contributions to the plan have not been taxed previously,how much will he pay in taxes and penalties?

Accepted Answer

Salvador will pay income taxes on the withdrawal at his marginal tax rate of 28%, which amounts to $14,000 (28% of $50,000). Additionally, since he is under the age of 59½, he will also incur a 10% early withdrawal penalty on the $50,000, which is $5,000. Therefore, the total amount paid in taxes and penalties is $19,000.

Question 3

The Pension Benefit Guarantee Corporation (PBGC) covers only ____ pension plans.

Accepted Answer

PBGC covers only defined-benefit pension plans, which are traditionally employer-funded and provide a specific benefit amount to employees upon retirement. Other types of retirement plans, such as defined-contribution plans (e.g. 401(k)) and individual retirement accounts (IRAs), are not covered by PBGC.

Question 4

A qualified joint and survivor benefit is an annuity whose payments continue to the surviving spouse after the participant's death,equal to at least ____ percent of the participant's benefit.

Accepted Answer

A qualified joint and survivor benefit typically provides the surviving spouse with at least 50% of the participant's benefit after their death. This ensures that the surviving spouse will continue to receive income from the retirement plan even after the participant's death.

Question 5

When no employer-sponsored retirement plan is offered,you should contribute to a(n)

Accepted Answer

Both Roth and traditional IRAs are great options for individuals who are not offered an employer-sponsored retirement plan. The choice between the two will depend on individual circumstances and priorities. Traditional IRAs allow for tax-deductible contributions and potential tax-deferred growth, but withdrawals are taxed as income in retirement. Roth IRAs, on the other hand, do not allow for tax-deductible contributions but withdrawals in retirement are tax-free. Roths may be the better option for younger individuals or those in a lower tax bracket, while traditional IRAs may be more advantageous for those closer to retirement age or in a higher tax bracket.

Question 6

A(n) ____ plan is a benefit plan through which the employer makes tax-deductible contributions of company stock into a trust; these contributions are then allocated into accounts for individual employees.
Employee stock-ownership

Accepted Answer

The description given in the question matches the characteristics of an employee stock-ownership plan (ESOP), which is a type of benefit plan in which the employer contributes company stock into a trust, and employees receive allocations based on their compensation. ESOPs are tax-deductible for the employer and can provide employees with a stake in the company's success. Profit-sharing plans involve the employer sharing a portion of profits with employees, thrift and savings plans provide a retirement savings vehicle, and deferred-compensation plans allow employees to defer a portion of their compensation to a later date. However, none of these plans involve the employer contributing company stock into a trust for individual employees.

Question 7

Many employers have gone to ____ in their retirement plan that allows the employer to sign up all eligible employees rather than only sign up those who say they want to do so.

Accepted Answer

Automatic enrollment is a retirement plan feature where the employer automatically enrolls eligible employees in the plan, without the need for the employees to actively fill out paperwork. This helps encourage retirement savings participation and can benefit employees who may not have otherwise chosen to participate. This differs from traditional enrollment processes, such as defined-benefit initiation or defined-contribution sign-up, which require employees to take action to enroll in the plan. "Blanket enrollment" is not a common industry term for this type of retirement plan feature.

Question 8

When a Rollover IRA is used to shelter lump-sum distributions from employer-sponsored retirement accounts,there

Accepted Answer

When a Rollover IRA is used to shelter lump-sum distributions from employer-sponsored retirement accounts, there is no immediate tax liability or penalty on the funds put in the IRA. This is because the distribution is being rolled over into a tax-deferred account, rather than being cashed out and subject to immediate taxation and penalty.

Question 9

Maria and James (ages 26 and 30) withdrew $10,000 from their IRA accounts to pay for a new car when their old car was destroyed in a fire.None of the contributions to their accounts had been taxed before going into the IRAs.Which of the following statements is (are) true?

Accepted Answer

Since the contributions to their IRAs were not taxed before going into the accounts, the withdrawal is subject to both taxes and a 10% early withdrawal penalty, as they are under the age of 59½ and do not meet any exceptions for penalty-free withdrawals.

Question 10

Which of the following statements about survivor's and disability benefits under defined-benefit plans is false?

Accepted Answer

Disability and survivor's benefits are typically not the same amount as retirement benefits, but are instead calculated differently based on factors such as the worker's salary and years of service.

Question 11

Sally put $4,000 in her traditional IRA this year.If Sally is in the 25 percent marginal tax bracket,the government actually contributed ____ of that amount for her.

Accepted Answer

Contributions to traditional IRA accounts are tax-deductible, meaning they lower an individual's taxable income for the year. In this case, since Sally is in the 25 percent marginal tax bracket and contributed $4,000 to her traditional IRA, she can deduct $1,000 from her taxable income. This means that the government effectively contributed $1,000 towards her IRA. Therefore, choice A is the correct answer.

Question 12

Laura and Alan are a married couple with three small children.Alan earns $60,000 a year,but Laura has no earned income.What is the maximum total contribution Laura and Alan can make to their IRA accounts this year?

Accepted Answer

As a married couple filing jointly, they can each contribute up to $6,000 to their IRAs for the year 2019 (assuming they are both under 50 years old). Additionally, they can contribute an additional $1,000 each as a catch-up contribution since they are both over 50. Therefore, the maximum total contribution they can make to their IRA accounts for the year is $11,000 ($6,000 + $6,000 + $1,000 + $1,000). Even though Laura does not have an earned income, she can still make a contribution to a spousal IRA based on Alan's earned income.

Question 13

If you borrow funds from your employer-sponsored retirement account you must

Accepted Answer

The answer of If you borrow funds from your employer-sponsored...

Question 14

In a cash-balance plan,the employer contributes ____ of the funds and the employee contributes ____.

Accepted Answer

In a cash-balance plan, the employer is responsible for contributing 100% of the funds, while the employee is not required to make any contributions.

Question 15

In which of the following is the retirement plan contribution for the employee dependent on the financial success of the employer?

Accepted Answer

In a profit-sharing retirement plan, the employer's contribution to the plan is dependent on the company's profits. Therefore, the employee's retirement plan contribution is also linked to the financial success of the employer. In other words, if the company has a good year and makes a profit, the employee's retirement contribution would be higher, and vice versa.

Question 16

A married worker who is to receive income from his or her defined-benefit plan can elect to have a higher check that will stop upon his or her death but only if

Accepted Answer

The married worker can elect to have a higher check that will stop upon his or her death only if his or her spouse consents. This is because the spouse would be the one who would not receive any benefit payments after the worker's death in this situation. The employer's policies and the worker's contributions to the plan do not impact this decision. The spouse's employment status is also not relevant.

Question 17

The worst aspect of simply taking the money out of an employer-based retirement plan when changing jobs is

Accepted Answer

Taking money out of an employer-based retirement plan can lead to a significantly lower retirement nest egg due to the taxes and penalties involved. It is usually much better to roll over the funds into a new employer's plan or into an individual retirement account (IRA) to avoid these costs and continue growing your retirement savings.

Question 18

____ plans are riskier than other employer-sponsored plans due to their lack of investment diversification.

Accepted Answer

Employee stock-ownership plans (ESOPs) are riskier than other employer-sponsored plans because they invest primarily in the employer's stock. This lack of diversification can leave employees vulnerable to fluctuations in the company's stock price and overall financial health. Profit-sharing and salary reduction plans typically offer a range of investment options, which can provide more diversification. Nonqualified deferred-compensation plans may involve some level of risk, but this would depend on the specific investment options offered within the plan.

Question 19

Which of the following purposes is never allowed as an early withdrawal from a traditional individual retirement account (IRA)?

Accepted Answer

The purchase of a vehicle is not an allowed purpose for an early withdrawal from a traditional IRA. The other options, such as purchasing a home, medical expenses, and education expenses, may be allowed under certain circumstances and with certain restrictions. However, any early withdrawal from a traditional IRA may be subject to taxes and penalties.

Question 20

Bobby is a 35-year-old pharmacist who is changing jobs.He has decided to personally accept a check from his $30,000 retirement account and to roll it over into an IRA within 60 days.In this case,the check will be for ____,and to avoid taxes and penalties he will need to deposit ____ in the IRA.

Accepted Answer

When an individual receives a distribution from a retirement account and the intent is to roll it over into another retirement account, the institution often withholds 20% for federal taxes. Therefore, Bobby would receive a check for $24,000 (80% of $30,000). To complete the rollover and avoid taxes and penalties, he must deposit the full $30,000 into the IRA, which means he will need to come up with the $6,000 that was withheld.

Quiz 17: Retirement and Estate Planning