Module 7 (CRPS)
Advantages for employees who participate in an employer sponsored retirement plan
such as a 401(k) include which of the following? - answer=A) all of these
B) investment choice
C) hardship withdrawals
D) pretax contributions
Explanation
All of these are advantages to participating in a 401(k) plan.
LO 7-2
Which of the following are provisions that a 401(k) plan must follow to provide loans to
its participants?
I. Loans must be available to participants on a nondiscriminatory basis.
II. Loans must carry a reasonable rate of interest.
III. Loans must be made on account of a hardship.
IV. Loans typically must be repaid within a five-year period. - answerA) I, II, and III
B) II, III, and IV
C) I and III
=D) I, II, and IV
Explanation
These are three provisions that must be in place for a 401(k) plan to provide loans to its
participants. Loans used to acquire a principal residence may have a longer term.
Loans can be taken for any reason. There is no requirement for a hardship to get a
retirement plan loan.
LO 7-2
Which one of the following qualified plan distributions is subject to the 10% premature
distribution penalty? - answerA) a distribution due to separation from service after age
55
B) a distribution that is part of a series of substantially equal periodic payments
=C) a distribution due to temporary disability
D) up to $5,000 per parent per event in the year following the birth or adoption of a child
under 18
Explanation
The 10% premature distribution penalty does not apply to distributions that are due to
permanent disability; however, the penalty does apply to a distribution that is due to
temporary disability.
LO 7-2
The fair market value of John Howard's vested profit sharing plan account balance is
$120,000. What is the maximum amount that John can borrow from his profit sharing
plan account for a loan that does not involve a disaster? - answerA) $40,000
, B) $60,000
C) $120,000
=D) $50,000
Explanation
The amount of a loan from a qualified plan generally may not exceed the lesser of
$50,000 or one half of the present value of the participant's vested benefit. Thus, the
maximum amount that John can borrow from his profit sharing plan account is $50,000.
The other rules are that vested balances up to $10,000 can allow a loan of 100% of the
vested balance. Vested balances between $10,000 and $20,000 can allow a retirement
loan for $10,000. Vested balances of $20,000-$100,000 allow 50% of the vested
balance.
The maximum retirement plan loan is usually $50,000. If the loan is due to a disaster,
the rules change to 100% of the vested balance and $100,000 as the maximum loan.
Finally, the amount allowed by all these rules is reduced by the highest loan balance in
the previous 12 months.
LO 7-2
All of the following withdrawals from a 401(k) plan qualify as having been made on
account of immediate and heavy financial need except - answerA) payment of tuition for
the next 12 months of postsecondary education for the participant.
B) payment to purchase a primary residence.
=C) payment of amounts necessary to prevent foreclosure on the mortgage of the
participant's vacation home.
D) payment of medical expenses of the participant.
Explanation
Withdrawals for payment of amounts necessary to prevent foreclosure on the mortgage
of the participant's second residence or vacation home do not qualify as having been
made on account of immediate and heavy financial need. However, withdrawals for
payment of amounts necessary to prevent foreclosure on the mortgage of the
participant's principal residence qualify as having been made on account of immediate
and heavy financial need.
LO 7-2
Which one of the following types of qualified plan distributions can be rolled over into an
IRA? - answerA) returns of excess contributions
B) RMD distributions
=C) distribution of a plan account balance following termination of employment
D) hardship distributions
Explanation
The distribution of the account balance upon employment termination can be rolled
over.
LO 7-3
Which one of the following techniques is subject to the requirement that the owner has
60 days in which to execute the transaction? - answer=A) indirect rollover
B) direct rollover
Advantages for employees who participate in an employer sponsored retirement plan
such as a 401(k) include which of the following? - answer=A) all of these
B) investment choice
C) hardship withdrawals
D) pretax contributions
Explanation
All of these are advantages to participating in a 401(k) plan.
LO 7-2
Which of the following are provisions that a 401(k) plan must follow to provide loans to
its participants?
I. Loans must be available to participants on a nondiscriminatory basis.
II. Loans must carry a reasonable rate of interest.
III. Loans must be made on account of a hardship.
IV. Loans typically must be repaid within a five-year period. - answerA) I, II, and III
B) II, III, and IV
C) I and III
=D) I, II, and IV
Explanation
These are three provisions that must be in place for a 401(k) plan to provide loans to its
participants. Loans used to acquire a principal residence may have a longer term.
Loans can be taken for any reason. There is no requirement for a hardship to get a
retirement plan loan.
LO 7-2
Which one of the following qualified plan distributions is subject to the 10% premature
distribution penalty? - answerA) a distribution due to separation from service after age
55
B) a distribution that is part of a series of substantially equal periodic payments
=C) a distribution due to temporary disability
D) up to $5,000 per parent per event in the year following the birth or adoption of a child
under 18
Explanation
The 10% premature distribution penalty does not apply to distributions that are due to
permanent disability; however, the penalty does apply to a distribution that is due to
temporary disability.
LO 7-2
The fair market value of John Howard's vested profit sharing plan account balance is
$120,000. What is the maximum amount that John can borrow from his profit sharing
plan account for a loan that does not involve a disaster? - answerA) $40,000
, B) $60,000
C) $120,000
=D) $50,000
Explanation
The amount of a loan from a qualified plan generally may not exceed the lesser of
$50,000 or one half of the present value of the participant's vested benefit. Thus, the
maximum amount that John can borrow from his profit sharing plan account is $50,000.
The other rules are that vested balances up to $10,000 can allow a loan of 100% of the
vested balance. Vested balances between $10,000 and $20,000 can allow a retirement
loan for $10,000. Vested balances of $20,000-$100,000 allow 50% of the vested
balance.
The maximum retirement plan loan is usually $50,000. If the loan is due to a disaster,
the rules change to 100% of the vested balance and $100,000 as the maximum loan.
Finally, the amount allowed by all these rules is reduced by the highest loan balance in
the previous 12 months.
LO 7-2
All of the following withdrawals from a 401(k) plan qualify as having been made on
account of immediate and heavy financial need except - answerA) payment of tuition for
the next 12 months of postsecondary education for the participant.
B) payment to purchase a primary residence.
=C) payment of amounts necessary to prevent foreclosure on the mortgage of the
participant's vacation home.
D) payment of medical expenses of the participant.
Explanation
Withdrawals for payment of amounts necessary to prevent foreclosure on the mortgage
of the participant's second residence or vacation home do not qualify as having been
made on account of immediate and heavy financial need. However, withdrawals for
payment of amounts necessary to prevent foreclosure on the mortgage of the
participant's principal residence qualify as having been made on account of immediate
and heavy financial need.
LO 7-2
Which one of the following types of qualified plan distributions can be rolled over into an
IRA? - answerA) returns of excess contributions
B) RMD distributions
=C) distribution of a plan account balance following termination of employment
D) hardship distributions
Explanation
The distribution of the account balance upon employment termination can be rolled
over.
LO 7-3
Which one of the following techniques is subject to the requirement that the owner has
60 days in which to execute the transaction? - answer=A) indirect rollover
B) direct rollover
