CH 11 HRB Test Questions and
Complete Solutions Graded A+
A deferred compensation plan available through a wide range of employers. Contributions to a 401(k)
plan are tax-deferred to the employee (income tax is not charged on the amount of the contribution at
the time it is made). Distributions from the plan are taxed as ordinary income to the recipient when
received. - Answer: 401(k) plan
A retirement plan available to employees of many public educational institutions and tax-exempt
organizations. Also known as a tax-sheltered annuity plan. - Answer: 403(b) plan
A deferred compensation plan available to employees of many government entities and certain tax-
exempt, non-governmental entities. - Answer: 457 plan
A taxpayer who is covered by a qualified employer-maintained retirement plan, or a qualified self-
employed retirement plan, if even for only one day during the year. - Answer: Active participant
A fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments
represent a partial return of capital and a return on the capital investment. - Answer: Annuity
The person the owner of a retirement account chooses as the recipient of funds or other benefits of the
account after they die. Taxpayers may choose beneficiaries for IRAs, insurance policies, and other types
of accounts. - Answer: Beneficiary
Wages, commissions, tips, professional fees, and net self-employment income from services rendered;
that is, earned income. For IRA purposes, compensation also includes alimony and separate
maintenance payments. - Answer: Compensation
(1) Gift to a qualified charitable organization, generally deductible on Schedule A. (2) Money placed in a
retirement fund, such as an individual retirement arrangement or an employer-maintained retirement
plan. - Answer: Contribution
,Compensation that will be taxed when received or upon the removal of certain restrictions on receipt,
and not when earned. For example, contributions to a qualified retirement plan on behalf of an
employee are considered deferred compensation. Such contributions will not be taxed to the
em¬ployee until the funds are made available or distributed to the employee, usually upon retirement. -
Answer: Deferred compensation
An employee benefit plan that provides a fixed, pre-determined benefit for employees at retirement.
The most common type of defined benefit plan is a pension plan. - Answer: Defined benefit plan
An employee benefit plan that provides a separate account for each person covered and pays benefits
based on account earnings. The employee and/or the employer may contribute to the account.
Examples include §401(k) plans and profit-sharing plans. - Answer: Defined contribution plan
- Answer: Distribution
The spouse of an active participant in an employer-maintained retirement plan who is not also an active
participant in such a plan. - Answer: Nonparticipating spouse
Payments made periodically of (generally) a definite amount for a specified period (usually life) from an
em¬ployer-maintained plan to workers who have met the stated requirements. Its primary purpose is to
provide retirement income. - Answer: Pension
A qualified transfer of funds from one tax-favored account to another, usually of the same type. A
rollover must take place within 60 days of receiving the funds. - Answer: Rollover
A type of individual retirement arrangement in which contributions are not tax deductible, earnings
grow tax-deferred, and qualified withdrawals are tax-free. - Answer: Roth IRA
A term often used to reference the retirement savings contributions credit, a nonrefundable credit
based on up to $2,000 in contributions to employer-sponsored retirement plans and traditional and
Roth IRAs. The credit is allowed in addition to any deduction available for the contributions. It is
computed on Form 8880, Credit for Qualified Retirement Savings Contributions. - Answer: Saver's Credit
, An individual retirement arrangement, contributions to which may or may not be deductible, depending
on the taxpayer's AGI and whether or not they are covered under an employer-sponsored retirement
plan. Earnings within a traditional IRA grow tax-deferred. Distributions from a traditional IRA are taxable,
except to the extent they represent nondeductible contributions and earnings. - Answer: Traditional IRA
The primary difference between qualified employer-sponsored plans and nonqualified plans is the way
they are treated for tax purposes. Qualified plans receive more favorable tax treatment because they
meet the requirements of both of the following:
IRC §401(a).
The Employment Retirement Income Security Act of 1974 (ERISA). - Answer: Qualified Plans
Participating employees enjoy the following tax benefits:
Contributions to the plans are tax-deferred until withdrawn.
Earnings on contributions are also tax-deferred until withdrawn.
When the employee retires or changes jobs, they may be able to defer paying taxes on the funds even
longer by transferring, or "rolling over," the funds into an Individual Retirement Arrangement (IRA). This
is commonly referred to as a "rollover." - Answer: Tax benefits of qualified retirement plans
As the name implies, a nonqualified plan is basically the opposite of a qualified plan. - Answer:
Nonqualified plans Usually designed to meet specialized retirement needs of key executives and other
select employees.
Nonqualified plans are:
Exempt from the discriminatory and top-heavy testing to which qualified plans are subject. Nonqualified
plans do not meet the requirements of IRC §401(a) and ERISA and do not qualify for favorable tax
treatment. - Answer: Non-qualified retirement plans
A defined benefit plan is a retirement plan in which the employee receives a predetermined, formula-
based benefit at retirement. The most common type of defined benefit plan is a pension, in which the
retirement benefit is calculated using a formula based on the number of years worked, the taxpayer's
age, and the taxpayer's history of earnings with the employer. Another type of defined benefit plan is an
annuity. - Answer: defined benefit plan
Complete Solutions Graded A+
A deferred compensation plan available through a wide range of employers. Contributions to a 401(k)
plan are tax-deferred to the employee (income tax is not charged on the amount of the contribution at
the time it is made). Distributions from the plan are taxed as ordinary income to the recipient when
received. - Answer: 401(k) plan
A retirement plan available to employees of many public educational institutions and tax-exempt
organizations. Also known as a tax-sheltered annuity plan. - Answer: 403(b) plan
A deferred compensation plan available to employees of many government entities and certain tax-
exempt, non-governmental entities. - Answer: 457 plan
A taxpayer who is covered by a qualified employer-maintained retirement plan, or a qualified self-
employed retirement plan, if even for only one day during the year. - Answer: Active participant
A fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments
represent a partial return of capital and a return on the capital investment. - Answer: Annuity
The person the owner of a retirement account chooses as the recipient of funds or other benefits of the
account after they die. Taxpayers may choose beneficiaries for IRAs, insurance policies, and other types
of accounts. - Answer: Beneficiary
Wages, commissions, tips, professional fees, and net self-employment income from services rendered;
that is, earned income. For IRA purposes, compensation also includes alimony and separate
maintenance payments. - Answer: Compensation
(1) Gift to a qualified charitable organization, generally deductible on Schedule A. (2) Money placed in a
retirement fund, such as an individual retirement arrangement or an employer-maintained retirement
plan. - Answer: Contribution
,Compensation that will be taxed when received or upon the removal of certain restrictions on receipt,
and not when earned. For example, contributions to a qualified retirement plan on behalf of an
employee are considered deferred compensation. Such contributions will not be taxed to the
em¬ployee until the funds are made available or distributed to the employee, usually upon retirement. -
Answer: Deferred compensation
An employee benefit plan that provides a fixed, pre-determined benefit for employees at retirement.
The most common type of defined benefit plan is a pension plan. - Answer: Defined benefit plan
An employee benefit plan that provides a separate account for each person covered and pays benefits
based on account earnings. The employee and/or the employer may contribute to the account.
Examples include §401(k) plans and profit-sharing plans. - Answer: Defined contribution plan
- Answer: Distribution
The spouse of an active participant in an employer-maintained retirement plan who is not also an active
participant in such a plan. - Answer: Nonparticipating spouse
Payments made periodically of (generally) a definite amount for a specified period (usually life) from an
em¬ployer-maintained plan to workers who have met the stated requirements. Its primary purpose is to
provide retirement income. - Answer: Pension
A qualified transfer of funds from one tax-favored account to another, usually of the same type. A
rollover must take place within 60 days of receiving the funds. - Answer: Rollover
A type of individual retirement arrangement in which contributions are not tax deductible, earnings
grow tax-deferred, and qualified withdrawals are tax-free. - Answer: Roth IRA
A term often used to reference the retirement savings contributions credit, a nonrefundable credit
based on up to $2,000 in contributions to employer-sponsored retirement plans and traditional and
Roth IRAs. The credit is allowed in addition to any deduction available for the contributions. It is
computed on Form 8880, Credit for Qualified Retirement Savings Contributions. - Answer: Saver's Credit
, An individual retirement arrangement, contributions to which may or may not be deductible, depending
on the taxpayer's AGI and whether or not they are covered under an employer-sponsored retirement
plan. Earnings within a traditional IRA grow tax-deferred. Distributions from a traditional IRA are taxable,
except to the extent they represent nondeductible contributions and earnings. - Answer: Traditional IRA
The primary difference between qualified employer-sponsored plans and nonqualified plans is the way
they are treated for tax purposes. Qualified plans receive more favorable tax treatment because they
meet the requirements of both of the following:
IRC §401(a).
The Employment Retirement Income Security Act of 1974 (ERISA). - Answer: Qualified Plans
Participating employees enjoy the following tax benefits:
Contributions to the plans are tax-deferred until withdrawn.
Earnings on contributions are also tax-deferred until withdrawn.
When the employee retires or changes jobs, they may be able to defer paying taxes on the funds even
longer by transferring, or "rolling over," the funds into an Individual Retirement Arrangement (IRA). This
is commonly referred to as a "rollover." - Answer: Tax benefits of qualified retirement plans
As the name implies, a nonqualified plan is basically the opposite of a qualified plan. - Answer:
Nonqualified plans Usually designed to meet specialized retirement needs of key executives and other
select employees.
Nonqualified plans are:
Exempt from the discriminatory and top-heavy testing to which qualified plans are subject. Nonqualified
plans do not meet the requirements of IRC §401(a) and ERISA and do not qualify for favorable tax
treatment. - Answer: Non-qualified retirement plans
A defined benefit plan is a retirement plan in which the employee receives a predetermined, formula-
based benefit at retirement. The most common type of defined benefit plan is a pension, in which the
retirement benefit is calculated using a formula based on the number of years worked, the taxpayer's
age, and the taxpayer's history of earnings with the employer. Another type of defined benefit plan is an
annuity. - Answer: defined benefit plan
