Retirement Planning Flashcards

A SIMPLE IRA plan is designed for:

Answer: Employers with 100 or fewer employees who earned $5,000 or more in compensation

SIMPLE IRA plans are available to employers with 100 or fewer employees receiving at least $5,000 in compensation.

A 403(b) plan is similar to a 401(k) but is specifically designed for:

Answer: Public school systems, nonprofits, and tax-exempt organizations

403(b) plans are tax-deferred retirement accounts available to employees of public schools, universities, hospitals, and other 501(c)(3) tax-exempt organizations.

The 10% early withdrawal penalty from IRAs applies to distributions taken before:

Answer: Age 59½

IRA distributions before age 59½ are generally subject to a 10% penalty in addition to ordinary income tax.

Qualified Longevity Annuity Contracts (QLACs) allow retirement account holders to:

Answer: Defer RMDs on up to 25% of account value by purchasing a deferred income annuity beginning no later than age 85

QLACs allow using up to 25% of retirement account assets (up to a dollar limit) to purchase a deferred income annuity, reducing RMD calculations for those assets.

In a Roth conversion, the converted amount is:

Answer: Included in taxable income in the year of conversion

Converting Traditional IRA funds to a Roth IRA requires including the converted amount in taxable income in the conversion year.

Which of the following distributions from a 401(k) avoids the 10% early withdrawal penalty?

Answer: Substantially Equal Periodic Payments (SEPP) under IRC 72(t)

SEPP allows penalty-free distributions at any age if taken in substantially equal periodic payments based on approved calculation methods.