Question 1

Contributions to deﬁned contribution plans are capped at $220,000.

Accepted Answer

the income on which contributions are based is limited to $250,000 (for 2012).

Question 2

If a qualiﬁed pension plan is contributory, the annuitant may use either the "exclusion ratio" or the "cost recovery" methods of reporting.

Accepted Answer

Neither method is available anymore
 the Simpliﬁed Method must be used

Question 3

Eligible employees may contribute up to $11,500 per year to their SIMPLE account.

Accepted Answer

The maximum contribution limit for a SIMPLE account in 2021 is $13,500 for those under 50 years old, and $16,500 for those 50 and older.

Question 4

Amounts contributed by employees to a SIMPLE are not subject to employment tax.

Accepted Answer

Amounts contributed by employees to a SIMPLE (Savings Incentive Match Plan for Employees) IRA are subject to employment taxes, such as Social Security and Medicare taxes, but are not subject to federal income tax withholding at the time of contribution.

Question 5

SIMPLE plans may be administered by companies with 100 or more employees earning $5,000 or more in the previous year.

Accepted Answer

the y must have 100 or fewer employees earning $5,000 or more

Question 6

Contributions made by an employer to an employee's SIMPLE accounts are not generally deductible by the employer.

Accepted Answer

Employer contributions to an employee's SIMPLE IRA account are generally deductible as a business expense.

Question 7

A deductible IRA would convert tax-exempt municipal bond interest into fully taxable ordinary income.

Accepted Answer

Contributions to a deductible IRA are pre-tax, meaning that when distributions are taken, they are fully taxable as ordinary income. Tax-exempt municipal bond interest is not subject to federal income tax, so converting it to fully taxable income would be a disadvantage.

Question 8

Tax-exempt organizations generally may establish 401(k) plans for their employees.

Accepted Answer

The answer of Tax-exempt organizations generally may establish 401(k) plans...

Question 9

Employer contributions to a SIMPLE do not vest until the employee has been in the plan for ﬁve years.

Accepted Answer

they vest immediately.

Question 10

Lump-sum distributions from qualiﬁed pension plans, but not from proﬁt- sharing plans, may be rolled over to an IRA by the plan participant.

Accepted Answer

All lump-sum distributions may be rolled over from a qualiﬁed plan to an IRA by the participant.

Question 11

A plan participant may borrow the ﬁrst $50,000 of the total vested account balance.

Accepted Answer

the amount is generally limited to 50 percent with a maximum of $50,000.

Question 12

IRA distributions may be made with no penalties prior to age 59 ½ if: (1.) Made to a spouse age 59 ½ or more, or
(2.) If actual retirement occurred.

Accepted Answer

the wage earner must generally be 59 ½ years old before a distribution may be made from the IRA account without penalties unless withdrawn as an annuity.

Question 13

An S corporation is permitted to adopt a Keogh plan or a SEP IRA for its employees.

Accepted Answer

An S corporation is not permitted to adopt a Keogh plan or a SEP IRA for its employees.

Question 14

A married couple, both aged 50, with only one working spouse may contribute up to $12,000 to deductible IRA accounts in 2012.

Accepted Answer

The contribution limit for IRA accounts in 2012 was $5,000 for individuals under the age of 50 and $6,000 for individuals aged 50 and over. If both spouses were aged 50 or over and had earned income, they could each contribute up to $6,000, for a total of $12,000. However, if only one spouse had earned income, they could still contribute up to $12,000 but it would have to be split between their respective IRA accounts.

Question 15

Employees may be subject to a ﬁne of up to 25 percent of the amount withdrawn for early withdrawal from a SIMPLE.

Accepted Answer

This is true. According to IRS rules, employees who withdraw funds from a SIMPLE (Savings Incentive Match Plan for Employees) before the age of 59 1/2 may be subject to a penalty of up to 25 percent of the amount withdrawn.

Question 16

A deduction to a Keogh plan for the prior year is allowed as long as the plan is established and the contribution made by the due date of the return (including extensions).

Accepted Answer

A Keogh plan must be established by year-end

Question 17

For a non-qualiﬁed distribution from a Roth IRA, the distribution is deemed to come from direct contributions ﬁrst.

Accepted Answer

This is true. When a non-qualified distribution is made from a Roth IRA, the distribution is deemed to come from direct contributions first. This means that any earnings or investment gains in the account are not subject to taxes or penalties until after the direct contributions have been distributed.

Question 18

Qualiﬁed distributions from Roth IRAs are made free of tax.

Accepted Answer

Qualified distributions from Roth IRAs are made free of tax. However, non-qualified distributions may be subject to taxes and penalties.

Question 19

Unemployed individuals may be able to take early withdrawals from qualiﬁed pension plans to pay for medical insurance premiums without being subject to the penalty tax.

Accepted Answer

This is true under certain circumstances, as outlined by the IRS.

Question 20

Under the SIMPLE pension plans, employers must contribute an amount equal to 5 percent of their employees' earnings.

Accepted Answer

the maximum required contribution is 3 percent.

Quiz 14: Deferred Compensation and Education Savings Plans