CPC CPC Plan Distributions & Taxation 2

Question 1

Under IRC Section 401(a)(9), what is the default distribution rule for a non-spouse beneficiary under the 10-year rule?

Accepted Answer

The entire account must be distributed by December 31 of the 10th year after the participant's death

Answer

Distributions must be taken in equal annual installments over 10 years

Answer

Annual RMDs based on beneficiary's life expectancy must begin in year one

Answer

Distributions can be deferred until the beneficiary reaches age 72

Question 2

A participant receives a plan loan that fails to meet IRC Section 72(p) requirements. What is the tax consequence?

Accepted Answer

The loan amount is treated as a taxable deemed distribution

Answer

The loan is reclassified as an employer contribution

Answer

The loan is forgiven without tax consequence

Answer

Interest payments become deductible as investment interest

Question 3

The General Rule for taxation of annuity payments applies when?

Accepted Answer

The participant's after-tax investment in the contract cannot be recovered using the Simplified Method

Answer

The participant made no after-tax contributions to the plan

Answer

All annuity payments began before 1987

Answer

The annuity is provided through an IRA

Question 4

Which exception allows a plan to distribute a benefit without participant consent when the present value is below a specified threshold?

Accepted Answer

$5,000 involuntary cash-out with mandatory IRA rollover for amounts over $1,000

Answer

$1,000 involuntary cash-out limit triggering mandatory IRA rollover

Answer

$10,000 small-benefit rule

Answer

$7,000 de minimis rule

Question 5

A participant's qualified plan account includes a life insurance policy. What portion of the premiums is currently taxable to the participant?

Accepted Answer

The pure insurance cost (P.S. 58 cost or Table 2001 rates) is taxable annually

Answer

None—all life insurance in a qualified plan is tax-free

Answer

Premiums are taxable only when the death benefit is paid

Answer

100% of premiums are taxable in the year paid

Question 6

Under the 10-year forward averaging rule for lump-sum distributions, who is eligible?

Accepted Answer

Participants born before January 1, 1936, who elect the special tax treatment

Answer

Any participant who receives a lump-sum distribution

Answer

Participants with at least 20 years of plan participation

Answer

Only participants who have reached age 59½ at the time of distribution