Question

Fill-in Questions

1. The maximum dollar amount that a 35-year-old participant in a 401(k) plan is permitted to defer in 2014 was $______________.

2. If the average deferral percentage ("ADP”) of the non-highly compensated employees is 10% in a plan year, than the highest ADP for the highly compensated employees may not exceed _______%.

3. A section 401(k) plan automatically satisfies the discrimination tests and is considered a safe harbor 401(k) plan if the employer makes a fully vested contribution equal to __________% of each eligible employee’s compensation.

4. A self-employed individual uses the concept of _______________, instead of W-2 compensation, in calculating his/her contribution to a Keogh plan.

5. The maximum catch-up contribution that a 55 year old 401(k) plan participant may make in 2014 was $___________.

6. A ________________ ________________ __________________ is the only type of retirement plan which may be adopted up to and including the extended due date of the plan sponsor's tax return.

7. Reimbursements of health care costs received as a result of employer provided health plans are ___________________ from gross income.

8. Whether a contribution to an individual retirement account ("IRA") is __________________ depends upon two factors, one of which is whether the individual is an active participant in a retirement plan, and the other of which is the individual’s adjusted gross income.

9. The type of IRA that is not subject to the required minimum distribution rules is called the __________________________ IRA.

10. Under the reporting and disclosure rules, a qualified plan with 100 or more participants at the beginning of the plan year must also attach _______________________ financial statements to its Form 5500.

Written Responses

1. a. List three attractions of the Roth IRA.
b. List one advantage of the SEP.
c. List one disadvantage of the SEP.

2. For purposes of the continuation coverage requirements for group health plans under COBRA
a. List 5 qualifying events.
b. List 2 qualified beneficiaries.
c. Under what circumstances is continuation coverage 18 months? 36 months?
d. List 4 circumstances under which the period of continuation coverage will stop.

3. Facts:Jackson, Inc. sponsors the Jackson, Inc. 401(k) Plan. In 2014, the ADP of the highly compensated employees was 4.5% and the ADP of the non-highly compensated employees was 2%.
a. Do the test results satisfy the requirements for passing ADP test?
b. If not, what is the highest ADP for the highly compensated employees that would allow the test to pass?
c. Describe the two different discrimination tests applicable to 401(k) plans which are called the 2&2 test and the 1.25 test.

Solution Preview

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1. List three attractions of the Roth IRA
1) One may continue making contributions after age 70.5 if they have earned income
2) Unrestricted, tax and penalty-free withdrawals of one’s contributions
3) One is not required to take mandatory distributions at any age during their lifetime

b. List one advantage of the SEP
1) One can opt not to make a contribution to the plan in years when profits are low...

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