True or False: 1. Traditional 401(k) plans can be funded entirely through salary

Question

True or False:

1. Traditional 401(k) plans can be funded entirely through salary reductions by employees, enabling employers to bear no additional cost for employee compensation.

2. A cash balance plan establishes a separate fund for each plan participant.

3. Defined benefit plans provide more benefit security than do age-weighted or cross-tested plans.

4. All group insurance programs offered to employees must comply with ERISA reporting and disclosure requirements.

5. A cross-tested plan uses a fixed age-weighted formula. The plan is designed to maximize benefits for a firm’s highly compensated employees while providing whatever is necessary for remaining employees to satisfy nondiscrimination regulations.

6. An employee cannot be covered under both a defined benefit and a defined contribution plan.

7. A self-employed person with less than 10 employees can use a money purchase plan to fund his or her own retirement.

8. Unlike a traditional IRA, a Roth IRA contribution is not restricted by active participation in an employer’s retirement plan.

9. An early distribution penalty can be assessed on Roth IRA withdrawals.

10. Account holders with more than one Roth IRA can treat them as separate accounts when calculating tax consequences of distributions from any of them.

11. A trust cannot provide for creditor protectioninsurance

12. Including a spendthrift clause is recommended for children with money management or substance abuse problems.

Explanation / Answer

Traditional 401(k) plans can be funded entirely through salary reductions by employees enabling employers to bear no additional cost for employee compensation – TRUE Matching contributions are available from some employers but not a required condition A cash balance plan establishes a separate fund for each plan participant - FALSE A cash balance plan establishes a hypothetical account for each plan participant but not an actual fund. Defined benefit plans provide more benefit security than do age-weighted or cross-tested plans - TRUE All group insurance programs offered to employees must comply with ERISA reporting and disclosure requirements- FALSE The group insurance programs need not comply with ERISA reporting and disclosure requirements particularly those like voluntary group or individual insurance plans. A cross-tested plan uses a fixed age-weighted formula. The plan is designed to Maximise benefits for a firm’s highly compensated employees while providing whatever is necessary for remaining employees to satisfy non-discrimination regulations - TRUE A cross tested plan places participants in groups to determine employer contribution for each group of employees. This can be used to provide a more meaningful benefit to key employees (highly compensated employees) A employee cannot be covered under both a defined benefit and a defined contribution plan – FALSE An employee can be covered under both A self-employed person with less than 10 employees can use a money purchase plan to fund his or her own retirement. – TRUE They can purchase a Keogh Plan or SEP IRA Unlike a traditional IRA, a Roth IRA contribution is not restricted by active participation in an employer’s retirement plan - The sentence is partially True as the first part of sentence with regards to traditional IRA is false. No matching contributions are available for both Traditional and Roth IRA variants. An early distribution penalty can be assessed on Roth IRA withdrawals - FALSE If the distribution is a qualified distribution, i.e., both the distribution conditions (age 59½, disability, death, or special purpose) and 5-year holding period for the conversion are met, no penalty is assessed because it is a qualified distribution. If the distribution conditions are met, but not the 5-year holding period, no penalty will be assessed because each of the distribution conditions are exceptions to the Section 72(t) penalty tax, although the distribution may be taxable. If the distribution conditions are not met, and any part of the distribution is allocable to any conversion made within 5-years of any distribution, the Section 72(t) tax will be assessed as if all of the allocable conversion were currently includible in income. That is, the penalty tax is applied to the portion previously taxed at the time of the rollover (the deductible portion of the regular IRA and accumulated earnings in the regular IRA) even though it is not currently taxable upon distribution, as well as the Roth IRA earnings. Account holders with more than one Roth IRA can treat them as separate accounts when calculating tax consequences of distributions from any of them. – FALSE For the tax purpose all Roth IRAs (if there are more than one) are treated as one Roth IRA and distributions made during the year from one Roth IRA or multiple Roth IRAs of an individual are aggregated A trust cannot provide for creditor protection insurance – TRUE A trust is an agreement between person creating the trust and person responsible for managing the assets. The agreement provides for transfer of certain assets to the trust which will hold and manage those assets for the benefit of another person. To protect the assets being accessed by creditors they can provide creditor protection insurance. Including a spendthrift clause is recommended for children with money management or substance abuse problems. - TRUE A spendthrift clause is included in a trust document that is created for the benefit of a person often unable to control his/her spending. Children with money management or substance abuse problems are unable to control their spending habits and this clause provides a protection.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.