Plans such as a SEP, SIMPLE and qualified plans offer you and your employees a tax preferred way to save for retirement and under a 401(k) plan, employees can contribute limited amounts of their before-tax pay to the plan. As an employer, you can set up and maintain retirement plans for yourself and your employees. Such plans are SEP plans, SIMPLE plans, and Qualified plans, including 401(k) plans.
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You will need IRS Publication 560 to complete the questions for this topic.
1. Gary is a calendar-year eligible small employer and wishes to take advantage of the Credit for Small Employer Pension Plan Startup Costs. He incurred $2,000 in qualified startup cost in 2009 for an eligible plan that will become effective on January 1, 2010. What is Gary's Pension Startup Costs credit amount for calendar year 2009?
A. $500. B. $0 (he gets the credit in 2010). C. $2000. D. $1,000.
2. In 2009, Colleen started a SIMPLE plan for all five of her employees and herself. It cost her $400 in fees to administer the plan. She never had a pension plan prior to starting this plan. Her tax credit is:
A. $200. B. $400. C. $0. D. $100.
3. Generally, if you had 100 or fewer employees who received at least _________ in compensation last year, you can set up a SIMPLE plan.
A. $200. B. $2,000. C. $5,000. D. $10,000.
4. In figuring the compensation of a participant, you can treat the following amounts as the employee's compensation.
A. The employee's social security wages (including elective deferrals. B. Nontaxable reimbursements or other expense allowances. C. Deferred compensation (other than elective deferrals). D. Any of the above.
5. This is a person who performs services for an employer and the employer has the right to control and direct the results of the work and the way in which it is done. The employer provides the employee's tools, materials and workplace. In addition, the employer can fire the employee.
A. Self-employed person. B. A common-law employee. C. A leased employee. D. An employee.
6. Under a SEP, you make the contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. SEP-IRAs are set up for, at a minimum, each eligible employee. An eligible employee is an individual who
A. Has reached age 21. B. Has worked for you in at least 3 of the last 5 years. C. Has received at least $550 in compensation from you in 2009. D. All of the above.
7. You cannot consider the part of an employee's compensation over $245,000 when figuring your contribution limit to a SEP-IRA for a common-law employee. The maximum contribution for an eligible employee is
A. $5,250. B. $49,000. C. $46,000. D. $230,000.
8. Excess contributions are your contribution to an employee's SEP-IRA (or to your own SEP-IRA) for 2009 that exceed
A. 25% of the employee's compensation (or for you, 20% of your net earnings from self-employment). B. $49,000. C. The lesser of A or B above. D. The greater of A or B above.
9. When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. If you file your tax return and main the SEP using a fiscal year or short tax year,
A. You deduct contributions made for a year on your tax return for that year. B. You deduct the yearly contributions on your tax return for the year within which the calendar year ends. C. You deduct the contribution for the year after the year ends. D. You deduct contributions made for a year on your tax return for a prior year.
10. If you contribute to your own SEP-IRA, you must make a special compensation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment, which takes into account the deduction for one-half of your self-employment tax and
A. Your contributions. B. 25% of the compensation paid to the participants. C. Trade or business under common control described in section 414(c). D. The deduction for contributions to your own SEP-IRA.
11. Deduct the contributions you make for your common-law employees on your own tax return. Sole proprietors and partners deduct contributions for themselves on
A. Schedule C (Form 1040). B. Schedule F (Form 1040). C. Line 28 of form 1040. D. Form 1065.
12. The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for
A. Making excess contributions. B. Making early withdrawals. C. Not making required withdrawals. D. Any of the above.
13. You can set up a SIMPLE IRA plan if you meet the employee limit and
A. You maintain another qualified plan. B. You do not maintain another qualified plan unless the other plan is for collective bargaining employees. C. You do not maintain a plan for collective bargaining employees. D. Coverage under the plan has not significantly changed during the grace period.
14. You can set up a SIMPLE IRA plan only if you had
A. 200 or fewer employees who received $10,000 or more in compensation. B. 100 or fewer employees who received $5,000 or more in compensation. C. 50 or fewer employees who received $3,000 or more in compensation. D. 2 or more employees who received $100 or more in compensation.
15. A SIMPLE IRA plan can permit participants who are 50 or over at the end of the calendar year to also make catch-up contributions. The catch-up contribution limit for 2009 for SIMPLE IRA plans is
A. $2,500. B. $3,500. C. $10,500. D. $5,000.
16. To be a qualified plan, a defined benefit plan must benefit a least
A. 50 employees. B. The greater of 40% of all employees or two employees. C. At least the lesser of A or B above. D. The greater of A or B above.
17. For qualified plans, contributions or benefits to be provided can be in favor of highly compensated employees.
True False
18. In setting up a qualified plan, you must adopt a written plan. The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. The following organization generally can provide IRS-approved master or prototype plans.
A. Banks and insurance companies. B. Trade or professional organizations. C. Mutual funds. D. Any of the above.
19. The deductions limit for your contributions to a qualified plan depends on the kind of plan you have. The deduction for contributions to a defined contribution plan cannot be more than 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. When figuring the deduction limit, the following applies.
A. Elective deferrals are not subject to the limits. B. Compensation includes elective deferrals. C. The maximum compensation that can be taken into account for each employee in 2009 is $245,000. D. All of the above.
20. A 401(k) plan can permit participants who are age 50 or older at the end of the calendar year to also make catch up contributions. The catch-up contribution limit for 2009 is
A. $2,500. B. $5,500. C. $10,500. D. $5,000.
21. Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the the plan by the required beginning date. A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the calendar year in which he or she retires from employment with the employer maintaining the plan or
A. The calendar year in which he or she reaches age 55 1/2. B. The calendar year in which he or she reaches age 65 1/2. C. The calendar year in which he or she reaches age 70 1/2. D. The calendar year in which he or she reaches age 59 1/2.
22. If the plan covers only you (or you and your spouse) and you (or your spouse) own the entire business (whether incorporated or unincorporated), your plan is a one-participant plan.
23. If a distribution is made to an employee under the plan before he or she reaches age 59 1/2, the employee may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income. The 10% tax applies if distributions are made before age 59 1/2 and
A. Made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55. B. Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. C. Made due to the employee having a qualifying disability. D. None of the above.
24. The initial tax on a prohibited transaction is 15% of the amount involved for each year (or part of a year) in the taxable period. If the transaction is not corrected within the taxable period, an additional tax will be imposed of
A. 10% of the amount involved. B. 5% of the amount involved. C. 100% of the amount involved. D. 50% of the amount involved.
25. You are a sole proprietor and your plan meets all the conditions for filing Form 5500-EZ. The total plan assets are more than $250,000. You should file Form 5500-EZ.
26. You cannot use Form 5305-SEP if
A. You use the services of your common-law employees. B. You pay the cost of the SEP contributions. C. You are member of an affiliated services group for which all your eligible employees participate. D. You have eligible employees for whom IRAs have been set up.
27. A SARSEP set up before 1997 is available to you and your eligible employees only if
A. At least 50% of your employees eligible to participate choose to make elective deferrals. B. You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. C. The elective deferrals of your highly compensated employees meet the SARSEP ADP test. D. All of the above.
28. You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2009.
29. The most a participant can choose to defer for calendar year 2009 is the lesser of 25% of the participant's compensation (limited to $245,000 of the participant's compensation in 2009) and $16,500 in 2009. The limits apply to the total elective deferrals the employee makes for the year to a SEP and
A. Cash or deferred arrangement (section 401(k) plan). B. Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). C. SIMPLE IRA plan. D. Any of the above.
30. If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up and a statement each year showing any contribution to their SEP-IRAs.
31. If you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and 2 following years if coverage under the plan has not significantly changed during the grace period, and
A. The SIMPLE IRA plan would have continued to qualified after the transaction if you had remained a separate employer. B. The SIMPLE IRA plan would not continue to qualify of the transaction. C. SIMPLE IRA significantly changes during the grace period. D. None of the above.
32. If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period.
A. The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. B. Your decision to make either matching contributions or non-elective contributions. C. A summary description provided by the financial institution and written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. D. Any of the above.
33. You can deduct your contributions and your employees can exclude these contributions from their gross income. The following contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes.
A. Matching and non-elective contributions. B. Salary reduction contributions. C. SIMPLE IRA plan contributions. D. All of the above.
34. Your qualified plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of
A. The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. B. The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. C. The plan year in which the participant separates from service. D. The latest of A, B or C above.
35. Your employee, Maria Zaragoza, earned $29,000 for 2009. The maximum contribution you can make to her SEP-IRA is
A. $5,250. B. $7,250. C. $500. D. $5,000.
36. Prohibited transactions are transactions between the plan and a disqualified person that are prohibited by law. Prohibited transactions generally would include the following, except
A. A transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person. B. Any act of a fiduciary by which he or she deals with plan income or assets in his or her own interest. C. Transaction for which you are are a disqualified person and receive any benefit to which you are entitled as a plan participant or beneficiary. D. Selling, exchanging, or leasing property between the plan and a disqualified person.
37. If you are or have been a 5% owner of the business maintaining the plan, amounts you receive at any age that are more than the benefits provided for you under the plan formula are subject to an additional tax. The tax is _______ of the excess benefit includible in income.
A. 5%. B. 10%. C. 35%. D. 50%.
38. Required minimum distributions (RMDs) for 2009 are waived for defined contribution plans and IRAs, including SEP-IRAs and SIMPLE IRAs.
39. For plan years beginning after December 31, 2009, section 414(x) provides for an "eligible combined plan" which
A. Allows an employer to maintain defined contribution plan. B. Allows an employer to maintain a defined benefit plan. C. Reduces the administrative burdens and cost of maintaining separate plans. D. All of the above.
40. You must do the following when you set up a SEP.
A. You must execute a formal written agreement to provide benefits to all eligible employees. B. You must give each eligible employee certain information about the SEP. C. A SEP-IRA must be set up by or for each eligible employee. D. All of the above.
41. You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year.
42. The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Once you start making the contributions, you must make contributions every year.
43. The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for
A. Making excess contributions. B. Making early withdrawals. C. Not making required withdrawals. D. All of the above.
44. If a plan requires that contributions be 10% of the participant's compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a
A. Money purchase pension plan. B. SIMPLE plan. C. SEP plan. D. Any of the above.
45. Your plan must satisfy certain requirements regarding when benefits vest. To be vested means
A. You withdrew the money. B. You have a fixed right to it. C. You are allowed to participate in the plan. D. You are required to make minimum distributions.
46. There are two basic steps in setting up a qualified plan. First you adopt a written plan. Then you invest the plan assets. The plan can be
A. An IRS-approved master plan. B. A prototype plan offered by a sponsoring organization. C. An individually designed plan. D. Any of the above.
47. In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. The amount is based on
A. How many employees are part of the plan. B. Your adjusted gross income for the year. C. What should be contributed under the plan formula using actuarial assumptions and formulas. D. All of the above.
48. If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. This minimum is figured by
A. Counting the number of employees qualified to participate in the plan. B. Dividing the account balance by the applicable life expectancy. C. Using the actuarial formulas. D. All of the above.
