IRA Certified IRA Services Professional 3 — Questions and Answers
Question 1: A SEP-IRA employer contribution for a self-employed individual is limited to what percentage of net self-employment income (after the deduction)?
- 20% (Correct answer)
- 25%
- 15%
- 10%
Correct answer: 20%
Self-employed individuals can contribute up to 20% of net self-employment income (which equals 25% of compensation after the SE deduction adjustment).
Question 2: Which IRA type requires the employer to match employee contributions dollar-for-dollar up to 3% of compensation, or make a 2% non-elective contribution?
- SEP-IRA
- Traditional IRA
- SIMPLE IRA (Correct answer)
- Rollover IRA
Correct answer: SIMPLE IRA
SIMPLE IRA rules require the employer to either match contributions up to 3% of compensation or contribute 2% non-electively for all eligible employees.
Question 3: What happens if an excess IRA contribution is not corrected by the tax-filing deadline (including extensions)?
- The excess is automatically converted to a Roth IRA
- A 6% excise tax applies each year the excess remains (Correct answer)
- The IRA is disqualified entirely
- The excess is forfeited to the custodian
Correct answer: A 6% excise tax applies each year the excess remains
Uncorrected excess contributions are subject to a 6% excise tax annually until the excess is removed or absorbed by a future year's contribution room.
Question 4: Under SECURE 2.0, which new rule allows Roth treatment inside SIMPLE and SEP-IRAs?
- Mandatory Roth matching contributions
- Optional Roth elective deferrals for SIMPLE IRAs and Roth SEP contributions (Correct answer)
- Automatic Roth conversion at age 60
- Roth catch-up contributions only
Correct answer: Optional Roth elective deferrals for SIMPLE IRAs and Roth SEP contributions
SECURE 2.0 allows SIMPLE IRAs to offer Roth elective deferrals and SEP-IRAs to accept Roth contributions, effective 2023.
Question 5: An IRA owner designates a trust as beneficiary. What must the trust satisfy to allow 'look-through' treatment for distribution purposes?
- The trust must be revocable and domestic
- The trust must be irrevocable, have identifiable beneficiaries, and provide a copy to the custodian by October 31 of the year after death (Correct answer)
- The trust must hold only IRA assets
- The trust must be court-approved
Correct answer: The trust must be irrevocable, have identifiable beneficiaries, and provide a copy to the custodian by October 31 of the year after death
For look-through treatment, the trust must be valid, irrevocable at death, have identifiable beneficiaries, and documentation must be provided to the custodian by October 31 of the year following the IRA owner's death.
Question 6: Which IRS form must be filed to report nondeductible Traditional IRA contributions and track basis?
- Form 5498
- Form 1099-R
- Form 8606 (Correct answer)
- Schedule B
Correct answer: Form 8606
Form 8606 is required to report nondeductible IRA contributions, track basis, and calculate the taxable portion of distributions.
Question 7: What is the two-year rule that applies specifically to SIMPLE IRAs?
- Contributions cannot be withdrawn for two years after account opening
- Rollovers to a non-SIMPLE IRA are prohibited during the first two years of participation (Correct answer)
- Employer matching vests over two years
- Account must be open two years before Roth conversion
Correct answer: Rollovers to a non-SIMPLE IRA are prohibited during the first two years of participation
During the first two years of SIMPLE IRA participation, funds may only be rolled over to another SIMPLE IRA to avoid a 25% early withdrawal penalty.
IRA Certified IRA Services Professional 3
A SEP-IRA employer contribution for a self-employed individual is limited to what percentage of net self-employment income (after the deduction)?