Question

Which of the following statements concerning SIMPLE IRAs is correct?

(A) The investment restrictions that apply to traditional IRAs do not apply to SIMPLE IRAs.

(B) Employees who would not be eligible for a 401(k) plan may be eligible for a SIMPLE IRA.

(C) Participants can be allowed to take loans from the SIMPLE IRA

(D) The plan must provide for either a 3 year cliff vesting schedule or a 2 to 6 year graded vesting schedule

Which of the following statements describes eligibility requirements for employees under a SIMPLE?

(A) The plan must cover any employee who earned $600 in compensation for the year.

(B) The plan must cover any employee who earned $5,000 in any two previous years and is reasonably expected to earn $5,000 in the current year.

(C) The plan must cover employees who work more than 500 hours for the year.

(D) The plan must benefit at least 70% of employees who are not highly-compensated employees.

Which of the following statements concerning the Roth IRA is correct?

(A)​Contributions of $5,500 can be made in the same year to a Roth IRA and to a traditional IRA.

(B)​Distributions from a Roth IRA are tax-freewhenever made.

(C)​Contributions to a Roth IRA can be withdrawn at any time without incurring income tax.

(D)​The early distribution excise tax does not apply to distributions from a Roth IRA.

Brian has income of $57,000 for the year, and his wife has no income. Brian is 40 years old and an active participant in an employer retirement plan. If Brian makes a $750 contribution to his wife’s spousal IRA, what is the maximum deductible contribution that he can make to his own IRA?

(A)   ​$1,250

(B) ​$3,250

(C) ​$4,250

(D) ​$5,500

Who of the following is an active participant in an employer-maintained retirement plan this year?

(A)   ​Sam is eligible for the employer’s 401(k) plan but does not defer any salary, and no matching contributions are made for him this year.

(B)​Jim is eligible for the employer’s profit-sharing plan for last year, but the contribution is not made until June of this year.

(C)​George becomes eligible for the employer’snonqualified deferred compensation plan this year (the employer offers no other type of plan).

(D)​Joe is eligible for the entire year this year for the employer’s profit-sharing plan, but the only amount added to his account this year is from forfeitures.

All the following distributions from Roth IRAs are tax-free, EXCEPT:

(A)​Distributions made 5 years or more after the IRA was established and the participant has attained age 59½

(B)​Distributions made 5 years or more after the IRA was established and as the result of the death or disability of the participant, regardless of the participant’s age

(C)​Distributions used to pay $10,000 home-buying expenses

(D)​Distributions used to pay higher education expenses for the participant or his/her spouse

All of the following statements concerning the Department of Labor’s (DOL) involvement in the pension area are correct EXCEPT:

(A) DOL polices the investment of plan assets.

(B) DOL issues final, temporary, and proposed regulations interpreting legislation.

(C) DOL shares the responsibility with the IRS for oversight of prohibited transactions.

(D) DOL offers plan administration and investment advice

Which of the following statements concerning the Pension Benefit Guaranty Corporation (PBGC) is correct?

(A) The PBGC was established by DOL to insure pension benefits.

(B) PBGC insures both defined benefit and defined contribution plans.

(C) PBGC insures minimum benefits if a plan is terminated with insufficient funds.

(D) PBGC is funded by the US Government.

All the following statements concerning prohibited transactions under ERISA are correct, EXCEPT:

(A)​Prohibited transactions generally arise between the plan and parties-in-interest.

(B)​Acquisition of employer securities by a profit sharing plan is a prohibited transaction.

(C)​Self-dealing in connection with plan assets by a fiduciary is a prohibited transaction.

(D)​In the absence of a statutory exemption, payment for services rendered by a disqualified person who is a service provider is a prohibited transaction.

Amy is 52 years old and owns her own business. All of her employees are in their 40s and 50s. Amy pays her employees $75,000 a year and pays herself $100,000 a year as the President of the company. She reinvests the rest of the profits in the company. Which of the following retirement plans should Amy implement if she wants to maximize retirement benefits for herself while keeping her costs low?​

(A)​Target benefit plan

(B)​A cross-tested profit sharing plan

(C)​A defined-benefit plan

(D)​A money purchase plan integrated with Social Security

Which of the following employers would be a good candidate for a SEP?

(A) The employer has many employees who stay for less than 3 years.

(B) The employer has many long term employees who are part-time.

(C) The employer has a group of executives who they want to receive a larger benefit.

(D) The employer has many employees who want to contribute to their retirement.

To create greater diversification in retirement assets, a planner should look for what investments?

​​​​​(A)  ​Low correlations

(B) ​Low risk and high liquidity

(C)  ​Low volatility

Which of the following statements describes effects of early retirement on the benefits that will be received from retirement plans?

​​​​​​​​​(A)  ​Early retirement will mean a reduced final-average salary and fewer years of service under the benefit formula of a defined-contribution plan.

(B)  ​Early retirement will mean the employer will get a deduction earlier for contributions to a nonqualified plan.

(C) ​Early retirement will mean that an employer will continue to bear the investment risk under a defined contribution plan.  

(D) ​Early retirement will mean that an employer no longer bears the investment risk under a defined benefit plan.   

(D)  ​Low coefficient of determination

Once Social Security benefits have begun, a wage earner:

​(A)​No longer needs to pay FICA taxes

​(B)​Must still pay FICA taxes, but at a reduced level

​(C)​Must still pay full FICA taxes

​(D)​Need not pay tax on the benefits

​ Which of the following retirement plans can allow the highest level of contributions for an owner of a small business who is within 10 years of retirement?​​​​​​​​​​​​

(A) ​412(i) plan

(B) ​Money purchase pension plan

(C)  ​ESOP

(D)  ​Age-based profit sharing plan

Answer 1

ii) The correct answer to the question is (B). The reason being as per the Simple IRA guidelines, the eligibility requirements may be restricted to those who earn atleast $5000 from the employer in any two preceding years and are expected to earn atleast $5000 in the current year. However, employers may designate less restrictive requirements at their discretion.

iii) (A) An individual can contribute to both Roth IRA and Traditional IRA in the same year. However, the total contribution to both cannot exceed $6000 for individuals under 50 years of age and $7000 for those 50 and over. Hence, the statement is correct.

(B) A Roth IRA allows qualified distributions to be free from tax and penalties. There is a distinction regarding which distributions are qualified and are thus exempt from tax and penalties. To be qualified a distribution must meet both of the following two categories of requirements, one of which is as follows: It occurs atleast 5 years after the Roth IRA owner established and funded their first Roth IRA. Hence, the statement is incorrect as distributions from a Roth IRA are not tax-free "whenever made".

(C) Contributions to Roth IRA can be withdrawn at any time, for any reason, with no tax or penalty. Hence, the statement is correct.

(D) As per Roth IRA, if you receive any distributions which isn't qualified, you may have to pay 10% additional tax on early distrbutions. Hence, the statement is incorrect.

iv) If one spouse has eligible compensation, that spouse can make IRA contributions for an IRA for the nonworking spouse. There is no income cap for traditional IRA contributions. Assuming it is a traditional IRA contribution, and given the age of Brian is 40 years, so he may contribute a maximum of $12000 to each of his own and his wife's IRA. Thus as per the given choices option (D) is correct being $5500, as he has invested only $750 in his wife's IRA.

vi) A Roth IRA allows qualified distributions to be tax free, for which it is required to fulfill both of the following 2 requirements: a) It occurs atleast 5 years after the Roth owner established and funded their first Roth IRA. b) The payment or distribution is: made on or after the date you reach age 59^{1_{/2 ,}} made because you are disabled, made to a beneficiary or your estate after your death, or, one that meets the requirements list under First Home. Hence, the correct option is (D).