Taking Money Out of Retirement Plans

Transcription

1 Taking Money Out of Retirement Plans Course Instructions and Final Examination Taking Money Out of Retirement Plans 12th Edition Twila Slesnick John C. Suttle CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Taking Money Out of Retirement Plans Table of Contents Page Course Objectives... 3 Course Instructions... 4 Final Examination... 7

3 COPYRIGHT 2015 The CPE Store ALL RIGHTS RESERVED. No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Recognize the categories into which every retirement plan fits Determine which type of qualified plan allows employees to share in the profits of the company and use those profits to fund their retirement Identify the type of plan which allows the employee to direct some compensation into a plan without having to pay income on that compensation until it is withdrawn Pinpoint the type of plan which promises to pay each participant a set amount of money as an annuity beginning at retirement Identify the term often used for qualified plans for self-employed individuals Recognize the type of retirement with the least favorable participation and vesting rules Discern the big advantage of a Roth IRA Ascertain the easiest way to defer the payment of tax Pinpoint when distributions from a qualified plan are taxed Identify the IRS form which is used to compute the taxable and nontaxable portions of each distribution Recognize a pitfall of receiving a distribution and then converting it to a Roth IRA Determine a requirement if you wish to use ten-year averaging to compute your tax Recognize the options available when you are the beneficiary of an inherited plan Identify what may be owed if you are younger than 59½ when you take a hardship withdrawal Identify an exception to the early distribution rule for non-ira retirement plans Recognize the types of plans to which the special QDRO rules in the tax code apply Pinpoint a special rule that is applicable to all IRAs except Roth IRAs Determine the condition which must exist in order to be eligible for the health insurance premium exception for early distributions from IRAs Ascertain the lifetime limit on the exception to the early distribution tax for first time homebuyers Determine what the early distribution tax increases to if you receive a distribution from a SIMPLE IRA within two years of the date you began contributing to it Discern when payments from an employer s plan must begin Identify the least flexible method of computing required distributions Recognize what fixed payments fail to take into account Spot an exception to the rule that periodic payments cannot be modified Ascertain how the minimum amount of a required distribution is calculated Determine the Required Beginning Date (RBD) for most people Recognize what the five year rule is Identify the penalty for failing to take a required distribution Discern what form must be completed if a penalty is owed for failing to take a required distribution Recognize when distributions must occur in order to satisfy the required distribution amount during the first year Determine what the vast majority of people use to find their ADP Discern what happens if you withdraw less than your minimum distribution in a year Identify a characteristic required in order to be a designated beneficiary Determine what a contingent beneficiary is Spot the type of annuity which makes payments for a fixed number of years regardless of when you die or when your beneficiary dies Determine why the law requires that beneficiaries are not determined until September 30th of the year after your death Recognize what the life expectancy rule allows Identify what happens if you die before your RBD and your spouse fails to take a required distribution from your IRA under the life expectancy rule in a timely fashion Ascertain who computes and reports the required distribution for beneficiaries Identify what a nonspouse beneficiary must do in the year of your death if you die before taking a required distribution Determine how required distributions are computed after your death if you name more than one designated beneficiary of a single retirement account Discern how income impacts contributions to a Roth IRA Identify a situation in which a distribution that satisfies the five year requirement will be qualified Recognize allowable sources for rollovers to a Roth IRA Identify an option for a Roth 401(k) when you leave your job Determine what portion of a nonqualified distribution is subject to the early distribution tax - 3 -

5 Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 14 CPE credits. Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com

6 About Our Courses The CPE Store s courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state s Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

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8 Taking Money Out of Retirement Plans 14-Credit Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Types of Retirement Plans 1. Every retirement plan fits into what four broad categories? A. Social Security, traditional savings, Medicare, and Medicaid B. Contributory IRAs, SEPS and SIMPLE IRAs, rollover IRAs, and Roth IRAs C. Qualified plans, IRAs, plans that are neither an IRA nor a qualified plan but have many characteristics of a qualified plan, and plans that are neither an IRA nor a qualified plan and does not have any characteristics of a qualified plan D. Certificates of Deposit (CDs), money market funds, bonds, and savings accounts 2. What type of qualified plan allows employees to share in the profits of the company and use those profits to fund their retirement? A. Money purchase pension plans B. Money market funds C. Annuity D. Profit sharing plan 3. Which of the following allows the employee to direct some compensation into a plan without having to pay income taxes on that compensation until it is withdrawn? A. Stock bonus plan B. 401(k) C. Annuity D. Roth IRA 4. What type of plan requires the employer to pay the plan benefits to the employees in the form of shares of company stock? A. Stock bonus plan B. 401(k) C. Annuity D. Roth IRA 5. What type of plan promises to pay each participant a set amount of money as an annuity beginning at retirement? A. A defined benefit plan B. An employee stock ownership plan (ESOP) C. A 401(k) D. A money market fund 6. What are qualified plans for self-employed individuals often called? A. Savings accounts B. Keogh plans C. 401(k)s D. Life insurance 7. Under an SEP plan, the employer contributes money into what? A. An individual retirement account B. A pooled fund for employees C. An annuity D. A certificate of deposit - 7 -

9 Final Exam 8. Which has less favorable participation and vesting rules? A. Qualified plans B. SEPs C. 401(k)s D. Rollover IRAs 9. What is the big advantage of a Roth IRA? A. The contribution limits are higher B. All distributions are taxed when they are received C. The contribution limits are lower D. All distributions are tax free as long as the distribution satisfies certain requirements 10. What type of plan is typically funded with individual annuity contracts purchased from an insurance company? A. ESOP B. Roth IRA C. Keogh plan D. TDA Chapter 2 An Overview of Taxation 11. What is the easiest way to defer the payment of tax? A. File late B. File an incorrect return and later amend it C. Defer the receipt of income D. Don t file at all 12. When are distributions from a qualified plan taxed? A. In the year they come out of the plan B. Never C. In the year that they were put into the plan D. When the plan beneficiary dies 13. What IRS form is used to compute the taxable and nontaxable portions of each distribution? A. Form 4972 B. Form 5329 C. Form 5498 D. Form Which of the following is true if you inherit a retirement plan or IRA? A. You will need to immediately take a lump sum distribution B. You cannot inherit a retirement plan the proceeds go to Social Security C. The rules are the same as if you were the original owner D. You must follow the QDRO rules 15. What is a pitfall if you choose to receive a distribution and then convert it to a Roth IRA? A. The funds must come from another Roth IRA B. You cannot arrange a direct rollover C. Only distributions from TDAs qualify D. You have a 60-day window in which the transaction must be completed 16. Which of the following is a requirement if you wish to use ten-year averaging to compute your tax? A. You were born after 1936 B. You have participated in the plan for less than five years C. You have 60-day window to file for ten-year averaging D. You were born before What is available only to those who were born before 1936? A. You may treat part of your distribution as capital gain subject to a flat 20% tax rate B. You may elect to leave the distribution off of your tax return C. You may elect to use two-year income averaging D. Your employer will be liable for your taxes, not you - 8 -

10 Final Exam 18. Which of the following is not an option when you are the beneficiary of an inherited plan? A. Roll over your distribution B. Pay ordinary income tax C. Use twenty-year averaging D. Convert to a Roth IRA 19. How are QDRO distributions to someone who is not the spouse or former spouse of the plan participant handled? A. The plan participant must report all distributions from the qualified plan as income on the participant s own tax return and pay taxes on them B. They are tax-free to both the recipient and the participant C. The tax liability for such distributions is shared by the recipient and the plan participant D. The recipient must report all distributions from the qualified plan as income and pay taxes on them 20. If you are younger than 59½ when you take a hardship withdrawal then you may owe what? A. A 50% early distribution penalty B. A 20% capital gains tax C. A late filing fee D. A 10% early distribution penalty Chapter 3 Early Distributions: Taking Your Money Out Before the Law Allows 21. Which of the following is an exception to the early distribution rule for non-ira retirement plans? A. If you take a distribution as a lump sum after you are 40 years of age B. If you withdraw the money to pay for a vacation C. If you use the money for home remodeling D. If you become disabled 22. You do not have to pay the early distribution tax on distributions of dividends from employer stock held inside what type of plan no matter when you receive the dividend? A. 401(k) B. QDRO C. ESOP D. Alimony 23. The special QDRO rules in the tax code do not apply to which of the following? A. 401(k) plans B. SEPs C. Keoghs D. IRAs 24. Which of the following is one of the special rules that is applicable to all IRAs except Roth IRAs? A. Age 35 exception B. Exception for health insurance premiums C. Exception for work "sabbatical" D. Exception for auto insurance premiums 25. In order to be eligible for the health insurance premium exception for early distributions from IRAs which of the following must be true? A. You must be currently employed B. You must live in a disaster area C. You must be unemployed or have been recently unemployed D. You must be disabled 26. What is the lifetime limit on the exception to the early distribution tax for first time homebuyers? A. $50,000 B. $250,000 C. $10,000 D. $1,

11 Final Exam 27. What does the early distribution tax increase to if you receive a distribution from a SIMPLE IRA within two years of the date you began contributing to it? A. 5% B. 75% C. 25% D. 100% Chapter 4 Substantially Equal Periodic Payments 28. When must payments from your employer's plan begin? A. As soon as your participation in the plan begins B. At least five years after your participation in the plan begins C. After age 59½ D. After you leave your job 29. What is the least flexible method of computing required distributions? A. Fixed amortization method B. All methods are equally flexible C. Fixed annuitization method D. Required minimum distribution method 30. For payments calculated under the fixed amortization method, the interest rate used to calculate required distributions must not exceed what rate? A. 25% of the prime rate B. 120% of the federal midterm rate for either of the two months before the month distributions begin C. 75% of the prime rate D. 12% of the federal midterm rate for either of the two months before the month distributions begin 31. What do fixed payments fail to take into account? A. Recalculation of life expectancies B. A simple method of calculation C. Private letter rulings D. IRS guidelines 32. Once you establish a schedule and begin receiving substantially equal period payments, you may not modify them or discontinue them for the longer of five years or until you attain what age? A. 50 B. 55 C. 59½ D. 70½ 33. Which of the following is an exception to the rule that payments cannot be modified? A. Tuition payments for higher education B. First time home buyers C. Death D. Inflation Chapter 5 Required Distributions: Taking Money Out When You Have To 34. How is the minimum amount of a required distribution calculated? A. According to need B. According to a formula in the income tax regulations C. According the annual inflation rate D. According to last year s income tax return 35. When is the Required Beginning Date (RBD) for most people? A. April 1st of the year after turning 70½ B. April 1st of the year after turning 55 C. January 1st of the year after turning 70½ D. December 31st of the year of turning

12 Final Exam 36. What is the five year rule? A. All beneficiaries must wait five years after the death of a plan owner before receiving a distribution B. A beneficiary must be within five years of their own RBD before receiving a distribution C. Your retirement assets must be completely distributed by December 31 of the year containing the fifth anniversary of your death D. A plan owner must own a plan for at least five years before receiving a distribution 37. What is the penalty for failing to take a required distribution? A. 5% of the shortfall B. 50% of the shortfall C. There is no penalty D. Four years in prison 38. Which required distribution violation would be considered the most serious in the eyes of the IRS? A. Innocent blunder B. Inadvertent error C. Chronic error D. Ineligible rollover 39. An ineligible amount that is rolled into an IRA is considered to be what? A. An excess contribution B. A required distribution C. A bonus D. A pending amount 40. What form must you complete if you owe a penalty for failing to take your required distribution? A. IRS Form 1065 B. IRS Form 5329 C. IRS Form 1099-R D. IRS Form 8606 Chapter 6 Required Distributions During Your Lifetime 41. To satisfy the required distribution amount during your first year, you may count all distributions that occur when? A. Between your RBD and December 31 of the year you turn 70½ B. Between your RBD and the anniversary of your RBD the following year C. Between January 1 of the year you turn 70½ and April 1 of the following year D. Between January 1 of the year you turn 70½ and your RBD 42. What is the resulting number called when you divide your account balance by the applicable distribution period (ADP)? A. Contingent distribution B. Annuity C. Term certain D. Required distribution for a given year 43. What will the vast majority of people use to find their ADP? A. Term certain B. Uniform Lifetime Table C. Separate Life and First Decedent Table D. Joint Life and Last Survivor Table 44. What happens if you withdraw less than your minimum distribution in a year? A. Nothing B. You incur a penalty C. You have a three month grace period to take the distribution D. You are considered to not have a designated beneficiary

13 Final Exam 45. What must a designated beneficiary be? A. A natural person B. A relative C. A charity D. A corporation 46. Which of the following is a requirement for a trust to qualify as a designated beneficiary? A. The beneficiaries of the trust must not be natural persons B. The trust must be valid under state law C. The trust must have been in existence for at least five years D. The terms of the trust can be changed after your death 47. What is a contingent beneficiary? A. A beneficiary you name to receive your retirement plan assets in the event your primary beneficiary does not qualify to receive the benefits B. A nonspouse beneficiary C. A beneficiary that is not a natural person D. A child 48. What type of annuity makes payments for a fixed number of years regardless of when you die or when your beneficiary dies? A. Term certain annuity B. Term uncertain annuity C. Revocable annuity D. Life annuity Chapter 7 Distributions to Your Beneficiary If You Die Before Age 70½ 49. Why does the law require that beneficiaries are not determined until September 30th of the year after your death? A. It increases the likelihood that a beneficiary will forget to take a distribution B. September 30th is the end of the fiscal year for most plans C. It allows the estate to be challenged D. It gives beneficiaries an opportunity to do some postmortem planning 50. What does the life expectancy rule allow? A. It requires all of your retirement plan assets to be distributed within five years after your death B. It allows your beneficiary to spread distributions over his or her life expectancy after your death if certain conditions are met C. It allows any beneficiary to roll over your retirement plan into an IRA in the spouse's own name D. It provides a penalty-free window when distributions may be made 51. Who may roll over your retirement plan into an IRA in their own name? A. Any designated beneficiary B. An estate or trust C. Only your spouse D. Anyone who is related to you 52. After your death, your spouse can choose to do what before beginning to receive required distributions? A. Take a one-time lump sum distribution B. Disclaim the plan C. Wait until the year you would have turned 70½ D. Share the distributions with someone else 53. What happens if you die before your RBD and your spouse fails to take a required distribution from your IRA under the life expectancy rule in a timely fashion? A. The spouse forfeits the right to all future distributions B. The spouse may roll your IRA into his or her IRA C. Your spouse is deemed to have made the election to treat your IRA as his or her own D. Your spouse must take an immediate lump sum to liquidate the plan

14 Final Exam 54. What has the IRS issued as a set of reporting requirements that IRA custodians must adhere to after an IRA participant dies? A. Revenue procedures B. Aggregation rules C. Retirement plan rules D. Required distribution rules 55. If there is QDRO in effect and the plan administrator has not maintained a separate account for the alternate payee of your plan, which rules apply? A. The five year rules B. The multiple beneficiary rules C. The spousal rollover rules D. The no life expectancy rules Chapter 8 Distributions to Your Beneficiary If You Die After Age 70½ 56. Who computes and reports the required distribution for beneficiaries? A. The deceased person does before they die B. The beneficiary does C. The IRS does D. The bank does 57. If your spouse is younger than you are, how will your spouse calculate ADP starting in the second year after your death? A. The spouse will use the life expectancy reduced by one year for each subsequent year B. The spouse will use the survivor's table C. The spouse will use your age and Table 1 to look up the ADP each year D. The spouse will use his or her own age and Table 1 to look up the ADP each year 58. If you die after your RBD, what circumstances would cause the IRS to deem that your spouse has made an election to treat your IRA as his or her own? A. Failure to take a required distribution B. Taking a required distribution C. Taking more than a required distribution D. Under no circumstances will it be deemed that your spouse has elected to treat your IRA as his or her own 59. What must a nonspouse beneficiary do in the year of your death if you die before taking a required distribution? A. Nothing B. Pay a 50% penalty C. Take the distribution D. Roll the plan over into his or her IRA 60. If you name more than one designated beneficiary of a single retirement account, how are required distributions computed after your death? A. As though the beneficiary with the shortest life expectancy were your sole beneficiary B. As though there were no beneficiary C. The computation of required distributions is based on a complex formula D. As though the beneficiary with the longest life expectancy were your sole beneficiary 61. If a trust is the beneficiary of your retirement plan or IRA and that trust meets certain requirements, how are required distributions computed? A. You cannot calculate required distributions in this case, you must appeal to the IRS to name a required distribution B. You are permitted to look through the trust to find the beneficiary of the trust and make the computations as though the trust beneficiary is the designated beneficiary C. The required distribution is always a nominal figure of $1,000 per month D. There is a complex formula for calculating the required distribution, based on the year that the trust was established

15 Final Exam Chapter 9 Roth IRAs 62. How does income impact your contributions to a Roth IRA? A. You may not make any contributions if your income exceeds a certain level B. You may make a contribution no matter how high your income is C. You may not make a contribution as long as your income is below a certain level D. None of the above 63. What is the key to squeezing the maximum benefit from a Roth IRA? A. Taking the largest distributions that you possibly can B. Not taking any distributions at all C. Taking all distributions before age 59½ D. Being aware of which distributions are taxable and which are not 64. When is the portion of your Roth IRA that consists of your contributions subject to tax? A. When it is withdrawn after less than 1 year B. When it is withdrawn before age 59½ C. When it is withdrawn before age 70½ D. Never 65. A distribution that satisfies the five year requirement will be qualified in which of the following cases? A. You take the distribution before reaching age 59½ B. You take the distribution to purchase your second home C. You take the distribution after becoming disabled D. You take the distribution to pursue higher education 66. Rollovers to a Roth IRA may come from which of the following? A. Another Roth IRA B. A traditional IRA C. A tax-deferred annuity D. All of the above 67. Which of the following exempts converted amounts from the early distribution tax in the year of the conversion? A. A minimum of 50% of the conversion goes into the Roth IRA B. None of the conversion goes into the Roth IRA C. The entire amount of the conversion goes into the Roth IRA D. A maximum of 50% of the conversion goes into the Roth IRA Chapter 10 Roth 401(k) Plans 68. Which of the following is an option for your Roth 401(k) if you leave your job? A. Transfer the plan into a traditional 401(k) plan B. Roll over or transfer your Roth 401(k) plan to a Roth IRA C. Transfer the plan into your new employer's pension plan D. Withdraw the entire amount in the plan without penalty 69. If your distribution satisfies the five-year requirement and falls into certain categories, it will be qualified and entirely tax free. Which of the following is not one of those categories? A. A distribution you take after becoming disabled B. Satisfying the five-year requirement C. A distribution to your beneficiary or your estate after your death D. A distribution you take before reaching age 59½ 70. What portion of a nonqualified distribution is subject to the early distribution tax, unless an exception applies? A. 100% of it B. Any portion that is required to be included on your income tax return C. None of it D. The first $10,000 Thank you for taking our course. We hope you enjoyed it

16 Taking Money Out of Retirement Plans Course Number: TAX IRS Course Number: BSND7-T S Qualifies for 14 hours of CPE credit Name as it should appear on your Certificate: License State(s): License Number: Date Course Completed: PTIN: If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Where should we send your results? * Note: If you are registered with the IRS as a tax preparer, you must provide your PTIN in order for us to report this course completion to the IRS. * Answer each question A, B, C, or D as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

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