What's New for 2006

Qualified Roth contribution program

1.  For tax years beginning after December 31, 2005, your 401(k) plan may allow an employee to contribute to a qualified Roth contribution program by designating all or a portion of his or her elective deferrals as after-tax Roth contributions.

A.  True

B.  False    

Elective deferrals
2. The limit on elective deferrals for participants in SARSEPS and 401(k) plans in 2006 is:
A. $15,000
B. $12,000
C. $13,000
D. $14,000
E. None of the above

Catch-up Contributions

3.  A plan can permit participants who are age 50 or over at the end of the year to also make catch-up contributions limited to $5,000 in 2006 and 2007.

A.  True

B.  False

SIMPLE plan salary reduction contribution

4.  The limit on salary reduction contributiions to a SIMPLE plan is $10,000 in 2006 and increases to $10,500 in 2007..

A.  True

B.  False

SIMPLE plan catch-up contributions

5.  A SIMPLE plan can permit participants who are age 50 or over at the end of the calander year to make catch-up contributions. The catch-up contribution limit for 2006 and 2007 is $2,500.

A.  True

B.  False

What's New for 2007

Rollovers by nonspouse beneficiaries

6.  For tax years beginning after December 31, 2006,  non-spouse designated beneficiaries may not make direct trustee-to-trustee transfers from eligible retirement plans of deceased employees to their own IRAs.

A.  True

B.  False

Retirement savings contributions credit

7.  The retirement savings contribution credit, originally set to terminate after December 31, 2006, was made permanent in the Pension Protection Act of 2006.

A.  True

B.  False

Reminders

Credit for Start-up Costs

8.  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan.

A.  True

B.  False

Introduction
9. If you are a sole proprietor, you can deduct contributions you make for yourself to a SEP, SIMPLE and Qualified plan.
A. True
B. False

SEP plans

10. Under a SEP plan, you must make contributions through a trust, rather than making contributions directly to an individual retirement account.
A. True
B. False

SIMPLE plans

11. To qualify to participate in a SIMPLE plan, an employee must have earned $5,000 in compensation for the preceding calendar year.
A. True
B. False

12. Types of SIMPLE plans are:
A. SIMPLE IRA plan
B. SIMPLE 401(k) plan
C. SIMPLE Keogh plan
D. A and B
E. A, B and C

Qualified plans
13. Qualified plan rules are more complex than the SEP plan and SIMPLE plan rules.

A. True
B. False
Definitions

Definitions You Need To Know

14. A common-law employee with no other income, such as a full-time insurance salesperson, can set up a retirement plan for income that is designated self-employment income for social security tax purposes.
A. True
B. False

15. Anyone designated a common-law employee can not also qualify as self-employed for a qualified plan, such as an attorney practicing on her own during off work evenings.
A. True
B. False

16. Compensation for plan allocations includes amounts deferred in a SIMPLE IRA plan, or a SARSEP, unless excluded by a salary reduction agreement elected by the employee.
A. True
B. False

17. Compensation for plan allocations can not include reimbursements or other expense allowances, unless paid under a non-accountable plan. A. True
B. False

18. If you have more than one business, but only one that has a retirement plan, the earned income from any of your businesses is considered net earnings from self-employment for plan allocations.
A. True
B. False

19. For retirement plan purposes, a sole proprietor is treated as his or her own employer.
A. True

B. False

20. Highly compensated employees includes individuals who received compensation from you of over $95,000 in 2005 and increases to over $100,000 in 2006.
A. True
B. False

21. A leased employee is never treated as your employee for pension plan purposes unless they qualify as a common-law employee.
A. True
B. False

22. For SEP and qualified plans, you take into account the deduction for contributions to a qualified plan made on your behalf to figure net earnings.
A. True
B. False

23. Net earnings from self-employment for SIMPLE plan is before subtracting any contributions made to the SIMPLE IRA plan for yourself.
A. True
B. False

24. For retirement plans, a sole proprietor can not be treated as both an employer and an employee.
A. True

B. False

SIMPLIFIED EMPLOYEE PENSIONS (SEP)
25. SEP IRAs are owned and controlled by the employer.
A. True
B. False

Excludible employee

26. Employees covered by a union agreement can be excluded from coverage under a SEP.
A. True
B. False

Setting Up a SEP

27. You must execute a formal written agreement to provide benefits to all employees under a SEP.
A. True
B. False

28. If you adopt an IRS model SEP using Form 5305-SEP, you must obtain prior IRS approval and a determination letter.
A. True
B. False

29. You cannot use Form 5305 if you currently maintain any other qualified retirement plan.
A. True
B. False

How Much Can I Contribute
30. The contributions you make under a SEP are deductible within limits and generally not taxable to the plan participants.
A. True
B. False

Contribution Limits
31. Your employee, Steve Thomas, earned $200,000 in 2006. The maximum contribution he can make to his SEP-IRA for 2006 is:
A. $25,000
B. $42,000
C. $44,000
D. $45,000

Annual Compensation Limit
32. You can consider the part of an employee's compensation over $220,000 when figuring your 2006 contribution limit for that employee.
A. True
B. False

More than one plan
33. Contributions to a SEP are included with other defined contribution plans to determine the annual limit.
A. True
B. False

34. SEP contributions must be included on your employee's Form W-2, Wage and Tax Statement, unless contributions were made under a salary reduction arrangement.
A. True
B. False

Deducting Contributions
35.  The most you can deduct for your 2006 contributions to a SEP-IRA (other than elective deferrals) for for participants is the lessor of  your contribution or 25% of compensation (limited to $220,000 per participant) paid to them during the year from the business that has the plan, not to exceed $44,000 per participant.

A.  True

B.  False

36. The SEP-IRA deduction limit for self-employed individuals is based upon net earnings that is reduced by the SEP-IRA contribution itself.
A. True
B. False

37. You can not carry over and deduct in later years, SEP contributions made in excess of the deduction limit (non-deductible contributions).
A. True
B. False

38. If you make non-deductible (excess) contributions to a SEP, you may be subject to a 10% excise tax.
A. True
B. False

When To Deduct Contributions
39. Contributions to a SEP a deducted in the calendar year when paid, without regard to the tax year on which the SEP is maintained.
A. True
B. False

Where To Deduct Contributions
40. Deductions for SEP contributions for yourself when self-employed are on:
A. line 28 of Form 1040
B. Schedule C (Form 1040)
C. Schedule F (Form 1040)
D. Form 1120 S E. all of the above

Salary Reduction Simplified Employee Pension (SARSEP)
41. A SARSEP must have been established before 1997.
A. True
B. False

42. A SARSEP provides employees the opportunity to elect to have you contribute part of their compensation to their SEP-IRAs as an elective deferral that remains tax free until withdrawn.
A. True
B. False

43. Employees hired after 1996 can not elect to have you contribute part of their pay to a SARSEP even though it was established before 1997.
A. True
B. False

44. Fifty percent or more of eligible employees must choose the salary reduction arrangement for a SAR SEP established before 1997 to be available.
A. True
B. False

45. Under the SARSEP ADP test, the amount deferred each year can not exceed 125% of the average deferral percentage (ADP) of all other employees, by each eligible highly compensated employee as a percentage of pay.
A. True
B. False

SARSEP Employee compensation

46. Elective deferrals under the SARSEP are not included in figuring your employees deferral percentage because they are not included in the income of your employees for income tax purposes.
A. True
B. False

Limit on Elective Deferrals
47. In 2006, the compensation limit on elective deferrals increases to:
A. $200,000
B. $210,000
C. $220,000
D. $250,000

48. The $15,000 limit for calendar year 2006 applies to the total elective deferrals the employee makes for the year to a SEP and:
A. Cash or deferred arrangement (section 401(k) plan
B. Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan
C. SIMPLE IRA plan
D. All of the above

49. The total of non-elective and elective 2006 contributions to a SEP-IRA cannot be more than the smaller of 25% of employees total compensation (limited to $220,000 of employee's compensation in 2006) or:
A. $35,000
B. $42,000
C. $44,000

Tax Treatment of Deferrals
50. Elective deferrals are no longer subject to deduction limits but cannot exceed $44,000..
A. True
B. False

Excess deferrals

51. For 2006, excess deferrals (for participants not eligible for catch-up) are the elective deferrals for the year that are more than the $15,000 limit.
A. True
B. False

Excess SEP contributions
52. You must notify your highly compensated highly compensated employees within 2 1/2 months after the end of the plan year of their excess SEP contributions.
A. True
B. False

Reporting on Form W-2
53. You must include elective deferrals in the "Social security wages" and "Medicare wages and tips" boxes on Form W-2.
A. True
B. False

Distributions (Withdrawals)
54. As an employer, you can prohibit distributions from a SEP-IRA and make your contributions on the condition that they be kept in the account.
A. True
B. False

Additional Taxes
Effects on employee
55. If an employee improperly uses his or her SEP-IRA, it could trigger income tax and a tax on premature distributions.
A. True
B. False

SIMPLE Plans
56. A SIMPLE plan can be set up:
A. using IRAs (SIMPLE IRA plan)
B. as part of a 401 (k) plan (SIMPLE 401(k) plan)
C. as part of a Keogh plan
D. A and B
E. A, B and C

Who Can Set Up a SIMPLE IRA Plan
57. You can set up a SIMPLE IRA if you had more than 100 employees.
A. True
B. False

58. You can set up a SIMPLE IRA if you maintain another qualified plan when the other plan excludes collective bargaining employees.
A. True
B. False

Who Can Participate in a SIMPLE Plan
59. You can establish less restrictive eligibility requirements for participation in a SIMPLE IRA plan by eliminating or reducing the prior year compensation requirements.
A. True
B. False

60. All employees must be covered under a SIMPLE IRA plan unless excludable as covered by a union agreement or nonresident aliens with no U.S. source compensation from you.
A. True
B. False

61. If you are self-employed, compensation for a SIMPLE IRA plan is your net earnings from self-employment ____________ subtracting contributions made to the SIMPLE-IRA plan for yourself.
A. before
B. after

How To Set Up a SIMPLE IRA Plan
62. The form used to set up a SIMPLE-IRA plan does not depend upon whether you select a financial institution or your employees select the institution that will receive the contributions.
A. True
B. False

63. If you previously maintained a SIMPLE-IRA plan, you can establish a SIMPLE-IRA plan effective on any date between January 1 and October 1 of a year.
A. True
B. False

64. A SIMPLE-IRA cannot be designated a Roth IRA.
A. True
B. False

65. Deadline for setting up a SIMPLE-IRA for an employee is the first date by which a contribution is required to be deposited into the employees IRA.
A. True
B. False

66. If you adopt a SIMPLE-IRA plan, the 60-day employee election period is generally the 60-day period immediately preceding January 1 of a calendar year.
A. True
B. False

Contribution Limits
67. Salary reduction contributions and employer contributions are not the only contributions that can be made to the SIMPLE-IRA plan.
A. True
B. False

68. Contributions under the SIMPLE-IRA plan are included in the ($15,000 for 2006) annual limit on exclusion of salary reductions and other elective deferrals.
A. True
B. False

Employer Matching Contributions
69. If you make non-elective contributions to a SIMPLE-IRA, you are generally required to match each employee's salary reduction contribution in an amount not more than 3% of employee's compensation.
A. True
B. False

70. If you elect to make a matching contribution, it can not be less than 3% for more than 2 years during the 5 year period that ends with (and includes) the year the election is effective.
A. True
B. False

Nonelective contributions
71. The $220,000 limit on the amount of employee compensation that can be taken into account does not apply, if you elect to make non-elective contributions of 2% of compensation on behalf of each eligible employee.
A. True
B. False

Time Limits for contributing funds
72. Matching contributions or non-elective contributions must be made by the due date (including extensions) for filing your federal income tax return for the year.
A. True
B. False

Tax Treatment of Contributions
73. You can deduct your contributions to a SIMPLE-IRA and your employees can exclude the contributions from their gross income.
A. True
B. False

74. Matching a non-elective contribution is subject to Social Security, Medicare, and Federal Unemployment (FUTA) taxes.
A. True
B. False

75. SIMPLE-IRA contributions are not included in the "Wages, tips, and other compensation box" of Form W-2.
A. True
B. False

Distributions (Withdrawals)
76. Early withdrawals from a SIMPLE-IRA generally are subject to a 10% (or 25% if withdrawn within 2 years) additional tax.
A. True
B. False

SIMPLE 401(k) Plan
77. One of the conditions that must be met for a SIMPLE 401(k) to establish that it does not discriminate in favor of highly compensated employees, is that the employee's rights to any contributions are non-forfeitable.
A. True
B. False

78. More than $220,000 in 2006 of the employee's compensation can be taken into account in figuring contribution limits for a SIMPLE 401(k) plan.
A. True
B. False

79. Notification rules that apply to SIMPLE-IRA plans do not apply to SIMPLE 401(k) plans.
A. True
B. False

Qualified Plans
80. A common-law employee or partner can establish a Qualified plan.
A. True
B. False

81. A self-employed individual can usually deduct, subject to limits, contributions made to a qualified plan made for her own retirement.
A. True
B. False

Kinds of Plans
82. The two kinds of qualified plans are defined contribution and defined benefit plans.
A. True
B. False

83. You can only have one qualified plan, even if you limit your contributions.
A. True
B. False

Defined Contribution Plan
84. Benefits from a defined contribution plan are based upon the amount contributed to the participant's account, income, expenses, gains, losses and forfeitures of other accounts.
A. True
B. False

85. A money purchase qualified pension plan is a type of defined contribution plan.
A. True
B. False

86. A profit sharing qualified plan is not a type of defined contribution plan.
A. True
B. False

87. You can be more flexible in making contributions to a money purchase pension plan than a profit sharing plan.
A. True
B. False

88. Contributions to a money purchase qualified pension plan are based on your business profits.
A. True
B. False

Defined Benefit Plan
89. Actuarial assumptions and calculations are required to figure contributions for a defined benefit qualified plan.
A. True
B. False

90. Forfeitures under a defined benefit qualified plan must be used to reduce employer contributions and cannot increase benefits any employee would otherwise receive under the plan.
A. True
B. False

Setting Up a Qualified Plan
91. If you are self-employed, you must have employees besides yourself to sponsor and set up a qualified plan.
A. True
B. False

92. If you set up an individually designed qualified plan, advance IRS approval through the determination letter process is required.
A. True
B. False

Investing Plan Assets
93. You do not need a trust or custodial account to invest qualified plan funds in annuity contracts or face amount certificates.
A. True
B. False

Minimum Funding Requirements
94. If your qualified plan is a defined benefits plan subject to minimum funding requirements, you must make quarterly installment payments.
A. True
B. False

Contributions
95. If you have a net loss from self-employment, you can make a contribution to your qualified plan for yourself if you can contribute for common-law employees based upon their compensation.
A. True
B. False

When Contributions Are Considered Made
96. You can only apply your qualified plan contributions to the year in which you make them.
A. True
B. False

97. An employer's promissory note to the qualified plan satisfies the payment requirement for the qualified plan deduction.
A. True
B. False

Limits on Contributions and Benefits
98. Qualified plans must meet not to exceed limits for contributions or benefits.
A. True
B. False

Defined Benefit Plan
99. A defined benefit qualified plan's annual benefit cannot be more than the smaller of the annual dollar limit or:
A. 100% of participant's average compensation for his or her highest 3 consecutive calendar years.
B. 25% of the compensation paid to the participant for his or her highest 3 consecutive calendar years.
C. 75% of participant's compensation in the most recent calendar year.

Defined Contribution Plan
100. A defined contribution plans annual contributions can not exceed the lessor of the annual limit or 25% of compensation paid to the recipient.
A. True
B. False

Excess Annual Additions
101. A qualified plan can correct excess annual additions (amounts contributed that exceed limits) when they occur because of:
A. reasonable error in estimating compensation
B. reasonable error in determining elective deferrals
C. forfeitures allocated to a participant's account
D. all of the above
E. none of the above

Employee Contributions
102. Qualified plan participants may be permitted to make nondeductible contributions to a plan that would defer the tax on earnings until distributed in later years.
A. True
B. False

Employer Deduction
103. The deduction limit for your contributions to a profit sharing qualified plan cannot be more than 25% of the compensation paid to your eligible employees participating in the plan.
A. True
B. False

104. Your deduction for contributions to a money purchase pension plan is generally limited to 25% of compensation paid to eligible employees.
A. True
B. False

Deduction Limit for Self-Employed Individuals
105. The qualified plan deduction limit for self-employed individuals is lower than the contribution rate called for in the plan.
A. True
B. False

Carryover of Excess Contributions
106. If you contribute more to the qualified plans than you can deduct for the year, no carryover and deduction of the excess is allowed in future years.
A. True
B. False

Excise Tax for Nondeductible (Excess) Contributions
107. If you contribute more than your deduction limit to a qualified retirement plan, you may be liable for a 10% excise tax.
A. True
B. False

Elective Deferrals (401(k) plans)
108. A qualified plan cannot include a 401(k) plan if the qualified plan is a profit sharing plan.
A. True
B. False

109. If the limit on elective deferrals for a qualified 401(k) plan is exceeded, the excess is included in the employees gross income.
A. True
B. False

Treatment of Excess Deferrals
Excess not withdrawn by April 15
110. An excess deferral left in a qualified 401(k) plan is taxed twice, once when contributed and again when distributed.
A. True
B. False

Elective Deferrals

111.  Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year ($15,000 for 2006, $20,000 if 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions.

A.  True

B.  False

Distributions
112. Distributions from a qualified plan can not be lump sum distributions.
A. True
B. False

Required Distributions
Required beginning date
113. A participant does not have to begin to receive distributions from his or her qualified retirement plan by April 1 of the year following the calendar year in which he or she reaches age 70 1/2, if he or she has not retired and is not a 5% or greater owner.
A. True
B. False

Distributions From 401(k) Plans
114. A distribution may not generally be made from a 401(k) plan until an employee retires.
A. True
B. False

115. If an employee reaches age 59 1/2 or suffers financial hardship, a distribution may be made from a profit-sharing 401(k) plan.
A. True
B. False

Tax Treatment of Distributions
116. An eligible rollover distribution from a qualified plan that is rolled over into an IRA or other eligible retirement plan is subject to income tax in the year rolled over.
A. True
B. False

117. No withholding is required when a rollover distribution is paid directly to an IRA or another eligible retirement plan (a direct rollover).
A. True
B. False

Tax on Early Distributions
118. The 10% tax on premature (early) distributions applies when distribution occurs before the employee reaches age:
A. 65
B. 55
C. 59 1/2
D. 70 1/2

Tax on Excess Benefits
119. A 5% owner that receives more than the benefits provided under the 401(k) plan is not subject to the 10% excess benefit tax if the owner is age 70- 1/2 or older.
A. True
B. False

Reversion of Plan Assets
120. A 20% or 50% excise tax generally is imposed on any direct or indirect reversion of qualified plan assets to an employer.
A. True
B. False

Prohibited Transactions
121. A disqualified person who takes part in a prohibited transaction for a qualified pension plan must pay a tax.
A. True
B. False

122. A disqualified person, as defined for purposes of a retirement plan prohibited transaction is:
A. a person providing services to the plan
B. a employer whose employees are covered by the plan
C. any direct or indirect owner of 50% or more of the employer
D. all of the above
E. none of the above

Tax on Prohibited Transactions
123. The initial tax on prohibited transactions is 15% of the amount involved for each year in the taxable period.
A. True
B. False

Correction Period
124. If a prohibited transaction is not corrected during the taxable period, the correction period can be extended.
A. True
B. False

Reporting Requirements
125. If you are a sole proprietor and your plan meets all the conditions for filing Form 5500-EZ, you must file Form 5500-EZ.
A. True
B. False

Qualification Rules
126. A SIMPLE 401(k) plan must satisfy the top-heavy rules and nondiscrimination rules of qualified plans.
A. True
B. False

Course Evaluation
127. Indicate your professional designation.
A. CPA
B. Public Accountant
C. Enrolled Agent
D. CMA
E. Other___________________

128. Indicate years professional experience in the course subject matter.
A. Less than 5
B. 5 to 10 years
C. 11 to 15 years
D. 16 to 20 years
E. 21 and over

129. Did the program meet your learning objectives?
A. Yes
B. No

130. Did the program materials contribute to the achievement of your learning objectives?
A. Yes
B. No

131. Did you find the program content relevant and timely?
A. Yes
B. No

132. Was the difficulty of the questions:
A. about right
B. too easy
C. too difficult

133. Was the indicated prerequisites (if any) for the program appropriate?
A. Yes
B. No

134. Do you plan to use additional courses from CPE Accounting & Tax Institute.
A. Yes
B. No