3.2 didn't know Flashcards
(8 cards)
Your customer is 61 years old. He would like to take a lump-sum distribution from his SIMPLE plan. What is the tax treatment of this distribution?
Taxed as ordinary income
The distribution is taxed as ordinary income. A 10% penalty would apply if the customer were younger than age 59½.
All of the following statements relating to a deferred compensation plan are correct except
A)
these plans may discriminate in favor of highly paid employees.
B)
the covered employee must receive reports on the status of the plan no less frequently than annually.
C)
corporate financial difficulties could lead to no benefits being paid.
D)
it will be of greatest benefit if the employee’s tax bracket is at a reduced level when the benefits are paid.
the covered employee must receive reports on the status of the plan no less frequently than annually.
Deferred compensation plans are not qualified plans. They may discriminate among employees, and no reporting is necessary. The benefits of the deferral will be best realized if the employee’s tax rates are lower upon receipt of the money. Because the benefits are scheduled to be paid out of the corporation’s cash flow at the time of the employee’s retirement, corporate financial difficulties may preclude any payout.
Each of the following is a defined contribution plan except
A)
a stock option plan.
B)
a profit-sharing plan (qualified).
C)
a money purchase plan.
D)
a 401(k) plan.
a stock option plan.
Money purchase plans, 401(k) plans, and qualified profit-sharing plans are all examples of defined contribution plans.
All of the following securities would be suitable investments for a traditional IRA except
A)
blue-chip common stocks.
B)
A corporate bonds.
C)
AAA municipal bonds.
D)
AAA U.S. government agency bonds.
AAA municipal bonds.
Municipal bonds, which generate tax-free interest income, are unsuitable for retirement plans. One loses the federally tax-free income at distribution.
To avoid tax and penalty, an IRA may be rolled over once every
12 months.
IRA rollovers, which must be completed within 60 days, may be done no more often than once during a rolling 12-month period. This limit is per person, not per account.
Which of the following types of retirement plans would be most beneficial to a young employee of a corporation?
A)
Defined benefit pension plan
Incorrect Answer
B)
Defined contribution pension plan
C)
Keogh plan
D)
Profit-sharing plan
Defined contribution pension plan
The most beneficial corporate pension plan for a younger employee would be the defined contribution plan. The employee has many years to go in the workforce, so the investments made with the defined contributions will have a maximum time period to grow.
Which of the following investors are eligible to establish an IRA?
I. An independently wealthy individual whose sole source of income is $125,000 per year in dividends and interest
II. A law student who earned $1,200 in a part-time job
III. An individual who earned $3,500 last year selling encyclopedias but whose spouse is covered by a company profit-sharing plan
IV. A property owner whose income is solely from rent charged on family dwellings he owns
II and III
II. A law student who earned $1,200 in a part-time job
III. An individual who earned $3,500 last year selling encyclopedias but whose spouse is covered by a company profit-sharing plan
An individual may contribute 100% of earned income up to a maximum allowable dollar limit, whichever is less. Interest and dividend income is portfolio income and rent is passive income, not earned income.
