Competency 13 Section 3

Question 1

1. If a participant continues to work past age 70½, required minimum distributions can be deferred until retirement for all employer provided qualified plans and IRAs that the individual owns

Answer 1

False. The exception that allows deferrals only applies to the qualified plan of the current employer**. The exception **does not apply to IRAs. (LO 13-3-1)

Question 2

2. Unfortunately, any distributions during the distribution year that are not taxable cannot count toward satisfying the requirement minimum distribution rules.

Answer 2

False. Both taxable and nontaxable distributions during the specified distribution year count toward satisfying the rules. (LO 13-3-1)

Question 3

3. If the investment in an IRA is a deferred annuity, this plan will be subject to the account plan rules when determining whether the plan satisfies the required minimum distribution requirements

Answer 3

True. (LO 13-3-1)

Question 4

4. If the full balance in an IRA is used to purchase a single life annuity at age 70, after the year of purchase there are no additional calculations required to ensure compliance with the required minimum distribution rules

Answer 4

True. (LO 13-3-1)

Question 5

5. If the IRA beneficiary is not the spouse, you only need to know the age of the participant at the end of the distribution year, and the account value at of the end of the prior year to calculate the required minimum distribution

Answer 5

True. (LO 13-3-1)

Question 6

6. To use the alternative method for a particular year for calculating the required minimum distribution when the beneficiary is a spouse more than 10 years younger than the participant, the participant needs to be married and name the spouse as beneficiary as of January 1st of the year and not change the beneficiary form during the year.

Answer 6

True. (LO 13-3-1)

Question 7

7. Inherited IRAs can be aggregated with other IRAs to determine if the required minimum distribution rules have been satisfied

Answer 7

False. Inherited IRAs cannot be aggregated with other IRAs. (LO 13-3-1)

Question 8

8. A participant who has failed to satisfy the required minimum distribution rules must pay the 50% excise tax along with Form 5329, but can ask for a refund of the tax if the participant has a good reason for failing to satisfy the rules.

Answer 8

False. A request for a waiver can be made on Form 5329, but the request can be made without paying the tax. (LO 13-3-1)

Question 9

9. The primary beneficiary dies after beginning to receive IRA benefits. Now the contingent beneficiary is entitled to any remaining benefit

Answer 9

False. The contingent beneficiary is only entitled to benefits if the primary beneficiary dies prior to the death of the participant or the primary beneficiary waives his or her right to the benefit. (LO 13-3-2)

Question 10

10.A participant dies in November of 2011 having named The American College and his sole daughter Emily as equal beneficiaries of his IRA account. The American College is paid its share of the benefit in June of 2012. Under the required minimum distribution rules, Emily is the sole beneficiary for determining the applicable life expectancy for determining the stream of future distributions

Answer 10

True. (LO 13-3-2)

Question 11

11.If the beneficiary is older than the participant, when determining the required distributions after the death of the participant the life expectancy of the participant is used to calculate the applicable life expectancy.

Answer 11

True. (LO 13-3-2)

Question 12

12.If a 75-year-old IRA participant dies leaving his 62-year-old spouse as the beneficiary, by rolling the benefit into her own IRA there is no required minimum distribution in the year of the participant’s death.

Answer 12

False. There is always a required distribution in the year of death. There will not be one in the following year as the spouse has not yet attained age 70½. (LO 13-3-2)

Question 13

10. Pete, age 74, is retired and owns two IRAs, an inherited IRA from his father, and a 403(b) annuity. Which of the following statements concerning the required minimum distributions for these plans for the current year is correct? (LO 13-3-1)

A. Pete can take the required distribution for the 403(b) plan from the inherited IRA.

B. Pete can take the required distribution for both of his IRAs from one IRA.

C. Pete can take the required distributions for all plans from the inherited IRA.

D. Pete can take the required distributions for both of his IRAs from his 403(b) plan.

Answer 13

10. The answer is B. A is incorrect, inherited IRAs and 403(b) plans cannot be aggregated. C is incorrect as IRAs and 403(b) plans cannot be aggregated with an inherited IRA. D is incorrect as IRAs and 403(b) plans cannot be aggregated

Question 14

11. Peter attained age 70½ on 9/1/2012. His IRA account balance was $250,000 on 12/31/2011. According to the uniform lifetime table, the divisor is 27.4 for a 70-year-old, 26.5 for a 71-year-old and 25.6 for a 72-year-old. The minimum distribution that must be distributed by the required beginning date is (LO 13-3-1)

A. $0

B. $9,124

C. $9,434

D. $10,377

Answer 14

11. The answer is B. The calculation is $250,000 divided by 27.4 (as Peter is age 70 at the end of the first distribution year).

Question 15

12. Peter attained age 70½ on 9/1/2012. His IRA account balance was $250,000 on 12/31/2011 and $275,000 on 12/31/2012. According to the uniform lifetime table, the divisor is 27.4 for a 70-year-old, 26.5 for a 71-year-old and 25.6 for a 72-year-old. The minimum distribution that is required for the second distribution year is (LO 13-3-1)

A. $0

B. $9,434

C. $10,377

D. $10,742

Answer 15

12. The answer is C. The calculation is $275,000 divided by 26.5.

Question 16

13. Barry dies on 12/1/2011 at age 80 with an IRA account valued $300,000 on 12/31/2010 and $280,000 on 12/31/2011. On 9/30/2012, his sole beneficiary is Daryl, his daughter who was born 9/1/1958. The divisor from the uniform lifetime table for an 80-year-old is 18.7. Under the single life expectancy table, the life expectancy is 31.4 for a 53-year-old, 30.5 for age 54, 29.6 for age 55, 28.7 for age 56. What is the required minimum distribution for 2012, the year following death? (LO 13-3-2)

A. $0

B. $9,180

C. $9,554

D. $14,973

Answer 16

13. The answer is B. The calculation is $280,000 divided by 30.5.

Question 17

14. Barry dies on 12/1/2011 at age 80 with an IRA account valued $300,000 on 12/31/2010 and $280,000 on 12/31/2011. On 9/30/2012, his sole beneficiary is Daryl, his daughter who was born 9/1/1958. The divisor from the uniform lifetime table for an 80-year-old is 18.7. Under the single life expectancy table, the life expectancy is 31.4 for a 53-year-old, 30.5 for age 54, 29.6 for age 55, 28.7 for age 56. What is the required minimum distribution for 2013 if the account balance on 12/31/2012 was $270,000? (LO 13-3-2)

A. $8,599

B. $9,122

C. $9,153

D. $9,407

Answer 17

14. The answer is C. The calculation is $270,000 divided by 29.5. The 29.5 is determined by taking the beneficiary’s life expectancy in the year following death (for a 54 year old it is 30.5) reduced by 1.

Question 18

41. Which of the following statements about electing to take advantage of the net unrealized appreciation (NUA) tax treatment is (are) correct? (LO 13-2-3)

I. Since the 10% early withdrawal penalty applies to the portion of the distribution subject to ordinary income tax, electing the special tax treatment is more advantageous once an individual has attained age 59½.

II. Electing the special tax treatment, instead of rolling the benefit into an IRA, is beneficial for an individual planning to spend the proceeds from the sale of the stock in the near future.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

Answer 18

41. The answer is C. Statement I is correct since the 10% early withdrawal penalty no longer applies after attainment of age 59½. Statement II is correct since in almost all cases the long-term capital gains rate is lower than the ordinary income rate, making the election appropriate for anyone planning to sell and spend the proceeds of the employer stock.

Question 19

42. Which of the following statements concerning Roth Conversions is (are) correct? (LO 13-2-4)

I. If an IRA is converted on 6/10/2011 and is recharacterized on 10/14/2011 the account can be reconverted 11/15/2011.

II. A participant can convert a 401(k) plan benefit into a Roth IRA.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

Answer 19

42. The answer is B. Statement I is incorrect, the reconversion cannot occur until 1/1/2012, the first day of the year following the conversion

Question 20

43. Which of following statements concerning the calculation of required minimum distributions after the death of an 80-year-old IRA participant is (are) correct? (LO 13-3-2)

I. If the spouse is the sole beneficiary, and the spouse does not roll the benefit into his or her own account, the life expectancy of the spouse can be recalculated each year.

II. If a nonperson is the sole beneficiary, required distributions are tied to the life expectancy of the participant in the year of death.

A. I only

B. II only

C. Both I and II

D. Neither I nor II

Answer 20

43. The answer is C. Both statements are correct.

Question 21

1. If a participant continues to work past age 70½, required minimum distributions can be deferred until retirement for all employer provided qualified plans and IRAs that the individual owns

Answer 21

False. The exception that allows deferrals only applies to the qualified plan of the current employer**. The exception **does not apply to IRAs. (LO 13-3-1)