Chapter 3 Practice Questions
1. Each of the following is a type of qualified retirement plan except:
A. Deferred compensation plan
B. 401(k)
C. Profit-sharing plan
D. 403(b)
2. ERISA regulations apply to all of the following except:
A. Beneficiary designation and participation requirements
B. Section 457 plans
C. Vesting and disclosure requirements
D. Section 401(k) plans
3. All money coming out of a tax-qualified retirement plan is:
A. Taxable as ordinary income
B. Received tax-free
C. Taxable as a short-term capital gain
D. Taxable as a long-term capital gain
4. Which of the following would be likely to use a 403(b) plan?
A. S Corps
B. Nonprofit organizations
C. Teachers
D. Sole proprietors
5. Which of the following refers to an investor’s ability to avoid IRS penalties by taking substantially equal periodic payments?
A. Rule 59(a)
B. Section 1035
C. Section 457
D. Rule 72(t)
6. All of the following are exceptions that would allow an investor to avoid the 10% tax penalty on IRA early withdrawals except:
A. Withdrawals for certain educational expenses
B. Death
C. Living expenses if unemployed
D. First-time home purchase up to $10,000
7. How much money does Mrs. Meyer owe to the IRS if she takes a one-time distribution payment of $20,000 from her 401(k) to pay for a vacation to Antarctica? Mrs. Meyer is 55 years old and is in the 15% tax bracket.
A. $2,000
B. $3,000
C. $5,000
D. $7,000
8. How is a Roth 401(k) similar to a Roth IRA and/or a 401(k) plan?
A. As with a Roth IRA, as long as participants in a Roth 401(k) are over 59 1/2 years old and have had the account for five years or more, they can make all withdrawals tax-free.
B. Roth 401(k) plans resemble traditional 401(k) plans in that the employer can make matching contributions into the after-tax Roth 401(k).
C. A Roth 401(k) is similar to a Roth IRA in that they both have no restrictions on inc