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Unit 18 Checkpoint Exam questions n answers graded A+
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Unit 18 Checkpoint Exam questions n answers graded A+
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Unit 18 Checkpoint ExamAll of these are reasons a corporation might choose to establish a nonqualified plan rather than a
qualified plan except
A)
the corporation can exclude rank-and-file employees from a nonqualified plan.
B)
a nonqualified plan typically has lower administrative costs.
C)
a nonqualified plan has more design flexibility than a qualified plan.
D)
the employer can take a tax deduction at the time the contribution is made to the plan. - correct answer
✔✔D)
the employer can take a tax deduction at the time the contribution is made to the plan.
Employers are not permitted to take a tax deduction until the assets are received by the executive as
income after the deferral period.
All of the following are advantages of a 401(k) plan except
A)
the employer may make unlimited contributions, which generate unlimited tax deductions for the
business.
B)
the owner of the business may participate in the plan.
C)
employees and the business may reduce current taxes.
D)
tax deferral on the plan earnings is advantageous to employees. - correct answer ✔✔A)
,the employer may make unlimited contributions, which generate unlimited tax deductions for the
business.
Contributions are deductible by the employer but are not unlimited because contributions to a 401(k)
are subject to a number of limits. Tax deferral on plan earnings is advantageous to employees. The
owner of the business may participate in the plan.
Which of the following has a use-it-or-lose-it provision?
A)
ESA
B)
HSA
C)
IRA
D)
FSA - correct answer ✔✔D)
FSA
The flexible spending account (FSA) offers employees the opportunity to use pre-tax money, primarily for
medical expenses. If the money is not used, it is forfeited. HSA money remains and, in many cases, winds
up being a supplemental retirement program. ESA funds can either be transferred to another family
member, or if not used, withdrawn (although this will incur taxes and penalties).
An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is not an
exception to the premature distribution penalty tax?
A)
Distribution because of an employee's death or disability
B)
Distribution of up to $10,000 made to purchase a principal residence
C)
Distribution to pay certain medical expenses
, D)
Distribution made pursuant to a qualified domestic relations order - correct answer ✔✔B)
Distribution of up to $10,000 made to purchase a principal residence
Although individuals can make penalty-free withdrawals from an IRA to purchase a principal residence,
this exception does not apply to withdrawals from a 401(k) plan. The penalty for withdrawals from a
401(k) plan taken before age 59½ is waived only in the cases of death, disability, qualified domestic
relations orders (QDROs), certain medical expenses, certain period payments, and corrections of excess
contributions.
Assuming all withdrawals are equal, which of the following would subject a 60-year-old investor to the
least amount of tax?
A)
Traditional IRA
B)
Roth IRA
C)
Non-qualified variable annuity
D)
403(b) plan - correct answer ✔✔B)
Roth IRA
As long as the Roth has been opened a minimum of five years, once the investor has reached 59 ½,
withdrawals are free of any tax. Generally, the most tax would be with the traditional IRA (assuming it
was funded exclusively with pretax funds) and the 403(b). Because the non-qualified VA is funded with
post-tax funds, a portion of the amount withdrawn might be the original principal and there is no tax
due on that.
When a corporation establishes a qualified money purchase plan,
A)
the corporation is obligated to make annual contributions at the rate stated in the plan.
B)
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