Exam (elaborations)
TAX 503 CHAPTER 13 EXAM QUESTIONS AND ANSWERS
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TAX 503 CHAPTER 13 EXAM QUESTIONS AND ANSWERS...
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Which of the following choices is a characteristic of a qualified retirementplan? - ANSWER The plan may NOT discriminate against the rank-
and-file employees.
Which of the following statements is INCORRECT regarding defined
benefit plans for 2019? - ANSWER The level of benefits is a function of
how well the funds were invested and the market growth over the
employee's working years.
The process of becoming legally entitled to retirement benefits is known
as _____. The most restrictive schedule for this process for defined
benefit plans is either a ____-year "cliff" or a ____-year graded
schedule. - ANSWER vesting
five
seven
How are distributions from defined benefit plans treated for tax
purposes? - ANSWER The distributions are taxable as ordinary
income.
Which of the following issues are characteristic of defined benefit plans?
(Check all that apply.) - ANSWER - A significant amount of work is
required to keep track of employee benefits and calculate required
contributions.
- Funding costs are typically more significant for defined benefit plans
than other types of plans.
Qualified ____ plans come in two forms. A defined ____ plan specifies
the amount the employee will receive at retirement, while a defined ____
plan outlines the maximum annual amount that can be paid into the plan.
- ANSWER retirement
benefit
contribution
, Steve retired at the beginning of 2019. He worked for a company with a
defined benefit plan. The plan provides for retirement benefits at a rate
of 2% of the last three years' average compensation for every year of
service. Steve had worked for this company for 30 years when he
retired. His average salary for the last three years was $400,000. The
maximum benefit Steve can receive from his retirement plan in 2019 is
$_____ . - ANSWER 225000
Mike just started working for a company that maintains a defined benefit
retirement plan. If Mike terminates his employment within the first two
years, he forfeits his retirement. If he stays for three years, he will be
entitled to receive all of the funds provided to him in the account. What
type of vesting schedule is used at Mike's company? - ANSWER Cliff
Upon retirement, all distributions from defined benefit plans are taxable
as ___ ___ - ANSWER ordinary
income
What type of retirement plan typically requires a significant amount of
work to track employee benefits and to compute required contributions;
is structured where the employer bears the investment risk; and
combines the funds, rather than having each employee with a separate
accounts. - ANSWER A defined benefit plan
Qualified retirement plans can NOT _____ against non-executives. -
ANSWER discriminate
Mike just started working for a company that maintains a defined benefit
retirement plan. If Mike terminates his employment within the first two
years, he forfeits his retirement. If he stays for three years, he will be
entitled to receive 20% of the funds provided to him in the account. If he
is employed with the company for 6 years, he will be entitled to receive
80% of the funds. What type of vesting schedule is used at Mike's
company? - ANSWER Graded
Employers must maintain separate accounts for each employee
participating in a defined ____ plan. - ANSWER contribution
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