Review Questions Module 3

Unless otherwise noted, assume the following questions relate to participants under age 50.

     Simplified Employee Pensions may be established by all of the following EXCEPT:

     a.     an employer with 50 or fewer employees
     b.     an employer with more than 100 employees
     c.     a self-employed individual
     d.     an employee with earned income

     Which of the following is the least expensive method for an employer to establish a retirement plan for its employees?

     a.     a profit sharing plan
     b.     a 401(k) plan
     c.     a Model SEP plan
     d.     a Non-Model SEP plan

    Employers offering a SEP plan must cover all employees who worked for them during the year and:

     I.     are at least 21 years old
     II.     earned at least $300 (adjusted for inflation) during the year
     III.     earned at least $5,000 during the year
     IV.     have worked for the employer for three of the past five years

     a.     I only
     b.     II only
     c.     I and III only
     d.     I, II, and IV only

    Which type of retirement plan may be established after the end of the employer's tax year?

     a.     401(k) plan
     b.     Keogh plan
     c.     SEP plan
     d.     SIMPLE plan

   The maximum amount that may be contributed to a SEP on behalf of an employee is:          
     a.     $40,000 (adjusted for inflation)
     b.     25% of compensation
     c.     the greater of a or b
     d.     the lesser of a or b

   Contributions to a SEP-IRA are deductible by:

     a.     the employee
     b.     the employer
     c.     both the employee and employer
     d.     neither the employee or employer

   For employees, employer contributions to a SEP-IRA are:

     a.     included in gross income
     b.     tax deductible
     c.     excluded from gross income
     d.     tax free

   A Model SEP is:

     a.     governed by a document executed by all eligible employees
     b.     a verbal agreement between the employer and employees
     c.     a written document executed by the employer
     d.     always submitted to the IRS for approval

    An employer may establish a Model SEP if the employer:

     a.     integrates SEP contributions with Social Security
     b.     currently maintains a profit sharing plan
     c.     terminates any existing defined benefit plan
     d.     establishes IRAs for all eligible employees

    When determining if a SEP plan is top-heavy, which of the following are considered "key personnel"?

     I.     an officer of the employer earning $175,000
     II.     owners holding 5% or more ownership in the employer
     III.     non-owner employees earning $150,000 or more per year
     IV.     any of the 10 largest owners in the employer

     a.     I and II only
     b.     I or IV only
     c.     II and III only
     d.     I, II and IV only

    If a SEP plan is "top-heavy", the employer must:

     a.     vest benefits more quickly
     b.     reduce the contributions made for key personnel
     c.     make a mandatory contribution of 3% of each non-key employee's compensation
     d.     terminate the plan

    The excise tax imposed on employers who contribute more than the deduction limit to a SEP is:

     a.     6%
     b.     10%
     c.     20%
     d.     50%

     Which SEP contribution formula would be judged "discriminatory" by the IRS?

     a.     6% of an employee's compensation
     b.     $3,000 per year
     c.     6% of an employee's first $15,000 of compensation and 3% of compensation over $15,000
     d.     6% of an employee's compensation in excess of $25,000

    If an eligible employee has not established an IRA account to receive the employer's SEP contribution:

     a.     the plan is disqualified
     b.     the contribution must be paid directly to the employee
     c.     the employer may establish an IRA in the name of the employee
     d.     no SEP contributions may be made to any other employee IRAs for that year

    In the case of self-employed individuals who establish a SEP, the contribution limits are based on the business':

     a.     gross revenues
     b.     net income before deducting the SEP contribution
     c.     net income after deducting the SEP contribution
     d.     gross revenues after deducting the SEP contribution

    Excess contributions distributed to SEP participants before the end of the tax year are subject to:

     a.     ordinary income taxation
     b.     a 10% penalty for premature distribution
     c.     a 6% penalty on excess contributions
     d.     all of the above

     Distributions may be taken from a SEP-IRA as early as:

     a.     age 21
     b.     age 59½
     c.     retirement
     d.     70½

   Distributions from a SEP-IRA must begin no later than:

     a.     retirement
     b.     plan termination
     c.     age 59½      
     d.     age 70½

    Contributions to a SEP-IRA must be made no later than the:

     a.     end of the calendar year
     b.     the end of the employer's tax year
     c.     the employer's tax filing date
     d.     the employer's tax filing date plus extensions