Series 65 – Uniform Investment Adviser Law Exam Retirement Plans and Taxation 2 — Questions and Answers
Question 1: A SEP-IRA allows employers to contribute up to what percentage of an employee's compensation (subject to the annual dollar limit)?
- 10%
- 15%
- 25% (Correct answer)
- 50%
Correct answer: 25%
Employers may contribute up to 25% of an employee's compensation (or $69,000 in 2024, whichever is less) to a SEP-IRA.
Question 2: What distinguishes a SIMPLE IRA from a SEP-IRA?
- SIMPLE IRAs allow employee salary deferrals; SEP-IRAs are funded only by employers (Correct answer)
- SEP-IRAs allow employee salary deferrals; SIMPLE IRAs are funded only by employers
- Both allow employee salary deferrals with no employer contribution required
- SIMPLE IRAs have higher contribution limits than SEP-IRAs
Correct answer: SIMPLE IRAs allow employee salary deferrals; SEP-IRAs are funded only by employers
SIMPLE IRAs allow employees to make salary deferral contributions, while SEP-IRAs are funded exclusively by employer contributions.
Question 3: Under a 403(b) plan, which of the following types of employers is eligible to sponsor the plan?
- Publicly traded corporations
- S-corporations with fewer than 100 employees
- Tax-exempt organizations and public school systems (Correct answer)
- Partnerships and sole proprietorships
Correct answer: Tax-exempt organizations and public school systems
403(b) plans are available to employees of tax-exempt organizations under Section 501(c)(3) and public educational institutions.
Question 4: When a participant rolls over funds from a 401(k) plan to a Traditional IRA, what is the tax treatment if done as a direct rollover?
- The rollover is a taxable event subject to 20% mandatory withholding
- The rollover is tax-free and penalty-free with no withholding (Correct answer)
- The rollover is taxable but exempt from the 10% penalty
- The rollover triggers a 10% penalty only if under age 59½
Correct answer: The rollover is tax-free and penalty-free with no withholding
A direct rollover (trustee-to-trustee transfer) is not a taxable event, avoids mandatory 20% withholding, and incurs no early withdrawal penalty.
Question 5: Which of the following best describes 'vesting' in a qualified retirement plan?
- The tax treatment applied to employer contributions at distribution
- The employee's ownership rights over employer-contributed funds over time (Correct answer)
- The maximum contribution percentage allowed by the IRS
- The process of converting a defined benefit plan to a defined contribution plan
Correct answer: The employee's ownership rights over employer-contributed funds over time
Vesting refers to the schedule by which an employee gains nonforfeitable ownership of employer contributions to the retirement plan.
Question 6: What type of retirement account is exclusively available to self-employed individuals and small business owners, allowing contributions both as employee and employer?
- SIMPLE IRA
- Solo 401(k) (Correct answer)
- 403(b)
- 457 plan
Correct answer: Solo 401(k)
A Solo 401(k) (also called an Individual 401(k)) is designed for self-employed individuals, allowing contributions in both the employee deferral and employer profit-sharing capacity.
Question 7: Which retirement plan is available to state and local government employees and allows deferrals without the 10% early withdrawal penalty upon separation from service at any age?
- 401(k) plan
- 403(b) plan
- 457(b) governmental plan (Correct answer)
- Defined benefit pension plan
Correct answer: 457(b) governmental plan
A 457(b) governmental plan has no early withdrawal penalty upon separation from service, making it uniquely flexible for government employees.
Series 65 – Uniform Investment Adviser Law Exam Retirement Plans and Taxation 2
A SEP-IRA allows employers to contribute up to what percentage of an employee's compensation (subject to the annual dollar limit)?