Question 1

The minimum annual distributions must be made over the life of the participant or the life of the participant and a designated individual beneficiary.

Accepted Answer

This is true for most retirement accounts such as traditional IRAs, 401(k)s, and 403(b)s. The required minimum distribution (RMD) is calculated based on IRS life expectancy tables and must begin by April 1st of the year following the year in which the account owner turns 70 1/2. If there is a designated beneficiary, the RMD can be calculated based on the life expectancy of the beneficiary as well.

Question 2

The payout to an employee in a cash balance plan is based upon a formula based on years of service.

Accepted Answer

False

Question 3

After 2011, income averaging is allowed for Federal income tax purposes.

Accepted Answer

Income averaging for federal income tax purposes was eliminated in 1986, except for certain farmers and fishermen.

Question 4

A defined contribution plan is exempt from funding requirements.

Accepted Answer

Defined contribution plans, such as 401(k) plans, are exempt from funding requirements because the employer and/or employee contribute a set amount or percentage of their salary into the plan, and the plan's investment performance determines the ultimate benefit at retirement. There is no promise or obligation for a specific payout amount from the employer.

Question 5

A restricted property plan is considered a deferred compensation plan.

Accepted Answer

A restricted property plan is a type of deferred compensation plan where an employee receives ownership of restricted stock or other property at a future date, often as a reward for meeting certain performance or tenure requirements.

Question 6

A 20% excise tax is imposed on nondeductible contributions by an employer to a qualified plan.

Accepted Answer

There is no excise tax imposed on nondeductible contributions made by an employer to a qualified plan. However, there is a 10% excise tax imposed on early withdrawals (before age 59 1/2) from a qualified plan.

Question 7

If a taxpayer receives an early distribution from a qualified retirement plan, a 10% additional tax is levied on the full amount of any distribution includible in gross income.

Accepted Answer

This is true according to the IRS rules on early distributions from qualified retirement plans. There are some exceptions to this penalty tax, such as for certain medical expenses or disability, but generally speaking, if you withdraw money from a retirement account before age 59 1/2, you will owe a 10% penalty in addition to regular income tax.

Question 8

A failure to make a minimum required distribution to a participant in any taxable year results in a 50% nondeductible excise tax on any excess of the amount that should have been distributed over the amount that actually was distributed.

Accepted Answer

This is true according to IRS regulations.

Question 9

Forfeitures may be allocated to the accounts of the remaining participants in defined contribution plans.

Accepted Answer

Forfeitures in a defined contribution plan can be allocated to the accounts of the remaining participants to help offset plan expenses or increase their account balances. This is in contrast to defined benefit plans, where forfeitures are typically used to reduce employer contributions or fund plan expenses.

Question 10

In a stock bonus plan, contributions are dependent on the employer's profits.

Accepted Answer

The answer of In a stock bonus plan, contributions are...

Question 11

Group life insurance is considered a deferred compensation plan.

Accepted Answer

Group life insurance is a type of life insurance in which a single contract covers an entire group of people, typically employees of a company, and is not considered a deferred compensation plan. Deferred compensation plans are savings plans that allow employees to defer income until retirement or a later date, such as 401(k) plans or pensions.

Question 12

In a profit sharing plan, a separate account is not maintained for each participant.

Accepted Answer

In a profit sharing plan, a separate account is maintained for each participant to track their individual allocations from the company's contributions.

Question 13

If an employer's contribution to a SEP IRA is less than $54,000 in 2017 (or 25% of the employee's earned income, if less), the employee can contribute the difference.

Accepted Answer

In a SEP IRA, only the employer can make contributions, and employees cannot contribute to the plan themselves.

Question 14

Dana contributes $2,000 too much to a § 401(k) plan which is not returned within 2 1/2 months after the close of the tax year. The employer will have to pay a tax of $200.

Accepted Answer

The employer is responsible for withholding and remitting taxes on excess contributions to a § 401(k) plan. The tax is 10% of the excess contribution, which in this case is $200.

Question 15

A taxpayer who receives a distribution can avoid current taxation by rolling the distribution into another qualified employer retirement plan or into an IRA.

Accepted Answer

This is true. By rolling over the distribution into another qualified employer retirement plan or IRA, the taxpayer can avoid immediate taxation on the distribution amount. However, if the distribution is not rolled over within 60 days, it will be subject to taxation and possible early withdrawal penalties.

Question 16

Qualified plans have higher startup and administrative costs than nonqualified plans.

Accepted Answer

Qualified plans, such as 401(k)s and pension plans, require more compliance and oversight by the employer and the government, resulting in higher startup and administrative costs compared to nonqualified plans.

Question 17

A cash balance plan is a hybrid form of pension plan that is similar in many aspects to a defined contribution plan.

Accepted Answer

The answer of A cash balance plan is a hybrid...

Question 18

Under a defined benefit plan, the annual benefit payable to an employee is limited to the smaller of $215,000 (in 2017) or 100% of the employee's average compensation for the highest 3 years of employment.

Accepted Answer

The statement accurately describes the limitations of annual benefit payable to an employee under a defined benefit plan.

Question 19

Any pre-tax amount elected by an employee as a plan contribution to a § 401(k) plan that does not exceed the statutory limit is not includible in gross income in the year of deferral and is 100% vested.

Accepted Answer

Correct, any pre-tax amount elected by an employee as a plan contribution to a § 401(k) plan that does not exceed the statutory limit is not includible in gross income in the year of deferral and is 100% vested.

Question 20

A defined benefit plan must reduce the $215,000 (in 2017) maximum benefits payable by one-tenth for each year of participation under 10 years that an employee has performed.

Accepted Answer

This is true according to the IRS rules for defined benefit plans. The maximum annual benefit of $215,000 (in 2017) must be reduced by one-tenth for each year an employee has participated in the plan for less than 10 years. This is known as the "10-year rule." For example, if an employee has only participated in the plan for 5 years, the maximum benefit payable would be reduced to $107,500 ($215,000 - 5 x $21,500).

Quiz 19: Deferred Compensation