FIN 4133 MODULE 1-3 || 100% NO ERROR.
Northwest Instruments Corp. made matching contributions to its SIMPLE 401 ( k ) in the last
three years . Assume all eligible employees earn at least the maximum includible compensation
limit and all defer the maximum amount allowed . Due to extensive capital expenses anticipated
this year , the company is considering how to reduce expenses . It will not be able to continue to
make the 3 % matching contribution and has called you to discuss their options . correct answers
By providing adequate notice , Northwest Instruments Corp. could move to the 2 % non- elective
contribution this year , although the savings would be minimal .
Under a profit - sharing plan correct answers the company has flexibility regarding annual
funding .
Netcyber , Inc. , is a 10 - year - old C corporation that has experienced dramatic growth during
three of the past five years . There are currently 168 employees . The two owners , who are 35
and 31 years old wish to establish a retirement plan . Which plan would probably be the best for
them ? correct answers Profit - sharing plan
An employee stock ownership plan ( ESOP ) is a defined contribution plan that may provide the
employer with which of the following advantages ?
I. Increased corporate cash flow
II . The ability to borrow money to purchase corporate stock
III . A market for employer stock
IV . Financial resources to expand the business correct answers I, II, III, and IV
To be eligible to adopt a SIMPLE 401 ( k ) , an employer may have no more than correct
answers 100 employees who earned at least $ 5,000 last year .
Which of the following plans is a cross- tested plan ? 1. New comparability plan II . Employee
stock ownership plan ( ESOP ) III . Age - based profit - sharing plan IV . Stock bonus plan
correct answers I and III
, Grant , age 51 , made an initial contribution of $ 10,000 to a Roth 401 ( k ) six years ago . He
made subsequent contributions of $ 6,000 annually for the next four years . Grant separated from
service this year and took a $ 50,000 distribution from his Roth 401 ( k ) to purchase a boat .
correct answers It is partially taxable because Grant was not age 59 % or older , disabled or
deceased .
Which of these statements regarding the safe harbor rules for Section 401 ( k ) plans is
CORRECT ?
I. The employer can avoid ACP and ADP testing if it matches 100 % up to 4 % of compensation
for non - highly compensated employees .
II . The employer can avoid ACP and ADP testing if it makes contributions of 3 % or more of
compensation for all employees who are eligible to participate in the plan , whether or not the
employee chooses to participate
III . To meet the safe harbor requirements , the matching and non- elective contributions must be
immediately 100 % vested .
IV . The employer must provide notice to each eligible employee about rights and obligations
under the plan . correct answers I , II , III , and IV
Which of the following statements regarding profit - sharing plans is CORRECT ? correct
answers The maximum tax- deductible employer contribution to a profit- sharing plan is 25 % of
total covered employee compensation .
All of these statements regarding a traditional Section 401 ( k ) plan are correct EXCEPT correct
answers employer contributions and their accrued earnings are always immediately 100 % vested
in the plan .
A Section 401 ( k ) plan allows plan participants the opportunity to defer taxation on a portion of
regular salary or bonuses simply by electing to have such amounts contributed to the plan instead
of receiving them in cash . Which of these is a rule that applies to Section 401 ( k ) plan elective
deferrals ?
I. Section 401 ( k ) plan elective deferrals are immediately 100 % vested and cannot be forfeited .
II . In - service withdrawals are to be made only if an individual has attained age 62 .
Northwest Instruments Corp. made matching contributions to its SIMPLE 401 ( k ) in the last
three years . Assume all eligible employees earn at least the maximum includible compensation
limit and all defer the maximum amount allowed . Due to extensive capital expenses anticipated
this year , the company is considering how to reduce expenses . It will not be able to continue to
make the 3 % matching contribution and has called you to discuss their options . correct answers
By providing adequate notice , Northwest Instruments Corp. could move to the 2 % non- elective
contribution this year , although the savings would be minimal .
Under a profit - sharing plan correct answers the company has flexibility regarding annual
funding .
Netcyber , Inc. , is a 10 - year - old C corporation that has experienced dramatic growth during
three of the past five years . There are currently 168 employees . The two owners , who are 35
and 31 years old wish to establish a retirement plan . Which plan would probably be the best for
them ? correct answers Profit - sharing plan
An employee stock ownership plan ( ESOP ) is a defined contribution plan that may provide the
employer with which of the following advantages ?
I. Increased corporate cash flow
II . The ability to borrow money to purchase corporate stock
III . A market for employer stock
IV . Financial resources to expand the business correct answers I, II, III, and IV
To be eligible to adopt a SIMPLE 401 ( k ) , an employer may have no more than correct
answers 100 employees who earned at least $ 5,000 last year .
Which of the following plans is a cross- tested plan ? 1. New comparability plan II . Employee
stock ownership plan ( ESOP ) III . Age - based profit - sharing plan IV . Stock bonus plan
correct answers I and III
, Grant , age 51 , made an initial contribution of $ 10,000 to a Roth 401 ( k ) six years ago . He
made subsequent contributions of $ 6,000 annually for the next four years . Grant separated from
service this year and took a $ 50,000 distribution from his Roth 401 ( k ) to purchase a boat .
correct answers It is partially taxable because Grant was not age 59 % or older , disabled or
deceased .
Which of these statements regarding the safe harbor rules for Section 401 ( k ) plans is
CORRECT ?
I. The employer can avoid ACP and ADP testing if it matches 100 % up to 4 % of compensation
for non - highly compensated employees .
II . The employer can avoid ACP and ADP testing if it makes contributions of 3 % or more of
compensation for all employees who are eligible to participate in the plan , whether or not the
employee chooses to participate
III . To meet the safe harbor requirements , the matching and non- elective contributions must be
immediately 100 % vested .
IV . The employer must provide notice to each eligible employee about rights and obligations
under the plan . correct answers I , II , III , and IV
Which of the following statements regarding profit - sharing plans is CORRECT ? correct
answers The maximum tax- deductible employer contribution to a profit- sharing plan is 25 % of
total covered employee compensation .
All of these statements regarding a traditional Section 401 ( k ) plan are correct EXCEPT correct
answers employer contributions and their accrued earnings are always immediately 100 % vested
in the plan .
A Section 401 ( k ) plan allows plan participants the opportunity to defer taxation on a portion of
regular salary or bonuses simply by electing to have such amounts contributed to the plan instead
of receiving them in cash . Which of these is a rule that applies to Section 401 ( k ) plan elective
deferrals ?
I. Section 401 ( k ) plan elective deferrals are immediately 100 % vested and cannot be forfeited .
II . In - service withdrawals are to be made only if an individual has attained age 62 .
