CPC Plan Distributions & Taxation Flashcards
6 cards from real CPC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CPC Plan Distributions & Taxation flashcards as text
What is the tax treatment of an excess deferral (amount deferred above the IRC Section 402(g) limit) if not corrected by April 15 of the following year?
Answer: It is taxed in the year of deferral AND again when distributed, resulting in double taxation
Excess deferrals not returned by April 15 are included in income in the year of the excess deferral and again upon distribution, creating double taxation.
A spouse beneficiary rolls over a deceased participant's 401(k) to an inherited IRA (not a spousal rollover IRA). What unique rule applies?
Answer: The spouse can delay RMDs until the deceased participant would have reached the RMD age
A surviving spouse who keeps assets in an inherited IRA can defer RMDs until the deceased participant would have reached the applicable RMD age.
Which distribution is eligible for rollover to an IRA or another qualified plan?
Answer: A single eligible rollover distribution that is not an RMD or SEPP
Eligible rollover distributions include most plan distributions except RMDs, hardship distributions, SEPPs, and certain other specified payments.
A participant takes a distribution from a qualified plan and uses it to pay qualified higher education expenses. What is the tax result?
Answer: Distribution is taxable but exempt from the 10% early withdrawal penalty only in IRAs, not qualified plans
The higher education exception to the 10% early withdrawal penalty applies to IRA distributions but not to qualified plan distributions.
What is the maximum period over which a direct rollover to an IRA must be completed to avoid income tax withholding?
Answer: No time limit if it is a direct trustee-to-trustee transfer
A direct trustee-to-trustee transfer (direct rollover) is not subject to the 60-day rollover rule or 20% mandatory withholding because funds never pass through the participant's hands.
How does the 'net unrealized appreciation' (NUA) strategy benefit a participant receiving employer stock in a lump-sum distribution?
Answer: NUA is taxed at distribution as long-term capital gains; additional appreciation above NUA at sale is also capital gains
At distribution, only the cost basis (not NUA) is taxed as ordinary income; the NUA itself and any subsequent appreciation are taxed at long-term capital gains rates when the stock is sold.