SIMPLE & SEP

Question 1

Sarah works for a company that offers a SIMPLE IRA plan. She started working there in 2020. Based on her annual income in each of the following years, when was the first year she was eligible to contribute to the plan?

a. 2020 - $15,000
b. 2021 - $4,500
c. 2022 - $18,500
d. 2023 - $25,500
e. 2024 - $30,000
f. 2025 - $35,000

Answer 1

e. 2024

Rationale:
* Must have 2 qualifying years of income over (or expected to be over) $5,000 annually.
* 2024 was the first year with 2 previous years of qualifying income and the expectation of qualifying income for 2024.

Question 2

A SIMPLE IRA eligible employer making $260,000 per year has a $1,000 employee deferral election. Based on this information, what is the maximum employer match?

a. $0 - Past the income cap.
b. $500 - Is in the middle of the phas-out range.
c. $1,000
d. $2,000

Answer 2

c. $1,000

Rationale:
* There are no income caps or phase-out ranges.
* The match is the lesser of a dollar-to-dollar match up to 3%. The $1,000 is less than the $7,800 (3% of $260,000). Therefore, the match is capped at $1,000.

Question 3

When does the 2 year period for SIMPLE IRA distributions subject to the 25% early distribution penalty begin?

a. The individual’s date of hire.
b. The date the individual was first eligible to participate in the SIMPLE IRA plan?
c. The 1st day contributions were deposited in the individual’s SIMPLE IRA.
d. January 1 of the year the individual was hired.

Answer 3

c. The 1st day contributions were deposited in the individual’s SIMPLE IRA.

Question 4

Which of the following contribution formulas is NOT permitted under a SIMPLE IRA plan?

a. Match employee deferrals dollar-for-dollar up to 6% of the employee’s compensation.
b. Make a 2% nonelective contribution to all eligible employees who have at least $5,000 in compensation for that year.
c. Match employee’s deferrals dollar-for-dollar up to 1% of the employee’s compensation. May not be used for more than 2 years out of the 5-year period.
d. Match employee deferrals dollar-for-dollar up to 3% of the employee’s compensation.

Answer 4

a. Match employee deferrals dollar-for-dollar up to 6% of the employee’s compensation.

Question 5

Which of the following describes an eligible employer for purposes of establishing a SIMPLE IRA plan?

a. An employer who had no more than 100 employees that received at least $5,000 in compensation from the employer for the preceding calendar year.
b. An employer who has no more than 100 employees.
c. An employer who has no more than 25 employees.
d. An employer who has at least 50% of the eligible employees defer into the SIMPLE IRA plan.

Answer 5

a. An employer who had no more than 100 employees that received at least $5,000 in compensation from the employer for the preceding calendar year.

Question 6

Devon maintains a SIMPLE IRA that was established with a $2,000 employer contribution on June 10, 2020. What is the earliest date Devon can convert the SIMPLE IRA to a ROTH IRA?

a. January 1, 2021
b. June 10, 2021
c. January 1, 2022
d. June 10, 2022

Answer 6

d. June 10, 2022