PFS Employee Benefits Planning 2 — Questions and Answers
Question 1: What is the maximum annual elective deferral an employee can contribute to a 401(k) plan in 2024 (excluding catch-up contributions)?
- $20,500
- $22,500
- $23,000 (Correct answer)
- $23,500
Correct answer: $23,000
For 2024, the IRS elective deferral limit for 401(k) plans is $23,000, up from $22,500 in 2023, allowing contributions on a pre-tax or Roth basis.
Question 2: An employer sponsors a SIMPLE IRA plan. Which of the following employer contribution formulas is required by the IRS?
- Profit-sharing contributions up to 25% of employee compensation
- Either a matching contribution of up to 3% of compensation or a 2% non-elective contribution (Correct answer)
- A flat dollar contribution of $1,000 per eligible employee
- Contributions equal to the employee's Social Security payroll tax
Correct answer: Either a matching contribution of up to 3% of compensation or a 2% non-elective contribution
SIMPLE IRA employers must contribute either a match of up to 3% of compensation (reducible to 1% in 2 of 5 years) or a 2% non-elective contribution for all eligible employees.
Question 3: What distinguishes a SEP-IRA from a SIMPLE IRA regarding who is permitted to make contributions?
- SEP-IRAs allow both employer and employee contributions; SIMPLE IRAs allow only employer contributions
- SEP-IRAs allow only employer contributions; SIMPLE IRAs allow both employer and employee contributions (Correct answer)
- Both plan types allow only employee elective deferrals
- Both plan types allow only employer discretionary contributions
Correct answer: SEP-IRAs allow only employer contributions; SIMPLE IRAs allow both employer and employee contributions
In a SEP-IRA only the employer contributes; in a SIMPLE IRA both the employer (mandatory) and employees (via elective deferrals) can contribute.
Question 4: A defined benefit pension plan credits employees with 2% of final salary per year of service. An employee retires after 30 years with a final salary of $80,000. What is the annual pension benefit?
- $16,000
- $24,000
- $32,000
- $48,000 (Correct answer)
Correct answer: $48,000
The annual benefit equals 2% × 30 years × $80,000 = 60% × $80,000 = $48,000.
Question 5: Which of the following best describes the 'triple tax advantage' of a Health Savings Account (HSA)?
- Contributions are pre-tax, growth is tax-deferred, and qualified withdrawals are tax-free (Correct answer)
- Contributions are post-tax, growth is tax-free, and all withdrawals are tax-deductible
- Contributions are tax-free, all withdrawals are tax-deductible, and gains are untaxed
- Employees receive a tax credit, deduction, and exclusion simultaneously on contributions
Correct answer: Contributions are pre-tax, growth is tax-deferred, and qualified withdrawals are tax-free
HSAs offer tax-deductible (or pre-tax payroll) contributions, tax-deferred investment growth, and tax-free withdrawals for qualified medical expenses.
Question 6: Under the SECURE 2.0 Act, what is the required minimum distribution (RMD) starting age for individuals born between 1951 and 1959?
- 70½
- 72
- 73 (Correct answer)
- 75
Correct answer: 73
SECURE 2.0 (enacted December 2022) raised the RMD starting age to 73 for individuals born between 1951 and 1959, with a further increase to 75 for those born in 1960 or later.
Question 7: An employee participates in both a 401(k) plan and a 403(b) plan in the same year. How does the IRS annual elective deferral limit apply?
- The $23,000 limit (2024) applies separately to each plan, allowing up to $46,000 total
- A single combined $23,000 limit (2024) applies across both plans in aggregate (Correct answer)
- No limit applies when participating in two different employer-sponsored plans simultaneously
- The limit is reduced to $11,500 per plan when participating in two plans
Correct answer: A single combined $23,000 limit (2024) applies across both plans in aggregate
The IRS elective deferral limit applies on an aggregate basis across 401(k) and 403(b) plans, so total combined contributions cannot exceed $23,000 in 2024.
PFS Employee Benefits Planning 2
What is the maximum annual elective deferral an employee can contribute to a 401(k) plan in 2024 (excluding catch-up contributions)?