Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
Associate Professor
CFP® Program Director
Personal Financial Planning Department
University of Missouri-Columbia
Please Note: Correct answers for each question are indicated in bold type. After each question, the number of the page containing information relevant to answering the question is given. When a calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale for the correct answer is also given.
Chapter 8: Qualified Plans: Distributions and Loans
True/False
8.1 Defined benefit plans must have a joint and survivor annuity as the default form of benefit.
8.2 Some defined contribution plans that are subject to ERISA must meet pre-retirement and joint and survivor annuity requirements.
8.3 The penalty for early withdrawal from a qualified plan does not apply to distributions from the plan if the employee has separated from service after attaining age 55.
Answers
8.1 true [p.76]
8.2 true[p. 77]
8.3 true [p. 81]
Multiple Choice
8.4 Requirements for participant loans from qualified retirement plans include which of the following: a. the loan must bear reasonable repayment terms b. the loan may not exceed specific dollar limits c. a written loan contract signed by all parties must be used d. a and b e. b and c
Answer: D [p. 81]

8.5 Any distribution from a qualified retirement plan is eligible for a rollover except which of the following? a. hardship withdrawal b. a required minimum distribution c. a distribution from a series of substantially equal payments d. all of the above e. only a and c
Answer: E [p. 84]
8.6 Under a qualified domestic relations order (QDRO) a. a demand for cash payment can be made even if the plan has no provision for the account owner b. a person who receives a distribution because of a QDRO can roll over the distribution to their own retirement account and preserve the tax deferral c. a means is provided to circumvent the provision that qualified plan benefits cannot be assigned to another d. a and b e. b and c
Answer: E [p. 81-82]
Application
8.7 Blake Johnston retired from Brumley Enterprises a month after his 56 th birthday. Blake began receiving a series of supstantially equal periodic payments from his qualified plan based on his life expectancy. When he turned 59, he decided that he wanted to alter his payments so that he would receive a higher monthly payment. If Blake does this a. he will not incur any additional taxes b. he will pay an early withdrawal penalty for the additional amount withdrawn until he reaches age 59 1/2 c. a penalty with interest will be imposed for early withdrawal backdated to his original retirement date d. he can avoid a penalty tax if he uses the additional income to pay for health insurance
Answer: A [p. 82 – If Johnson had retired and started distributions before age 55, the answer wou ld be C, but since he separated from service after age 55, distributions from his employer’s plan are not subject to the 10% premature distribution penalty.
8.8 Jim Tandy, age 65, will retire next month from Algor Industries. Last month, Jim withdrew
$40,000 from his qualified retirement savings plan at work. Before the withdrawal, Jim had an account balance of $500,000. While employed at Algor, Jim made $100,000 of after-tax contributions to his retirement plan. The taxable portion of his withdrawal is: a. $8,000 b. $20,000

c. $32,000 d. $40,000 e. not enough information to calculate
Answer: C [p. 78 – distribution x (cost basis / total account balance) = nontaxable amount; 40,000 x (100,000 / 500,000) = 8,000; 40,000 – 8,000 = $32,000]
8.9 Foster Tate, age 64, died this year before retiring. Foster’s beneficiary receives a lump sum death benefit of $200,000 from a cash value life insurance plan that was part of
Foster’s retirement plan. The cash value of the insurance was $120,000 at the time of
Foster ’s death. Foster had reported a total of $20,000 of insurance costs for this contract on his income tax returns. The taxable amount of this benefit to the beneficiary is a. zero – life insurance proceeds are never taxed b. $200,000 c. $120,000 d. $100,000 e. $80,000
Answer: D [p. 80 - $200,000 distribution – $80,000 pure insurance - $20,000 cost basis =
$100,000 taxable amount of benefit]
8.10 Angela Snider, age 32, has $19,000 in her qualified retirement plan. The maximum amount that Angela can borrow against her account is a. zero – qualified retirement plans do not permit loans b. $8,000 c. $ 9,500 d. $10,000 e. $50,000
Answer: D [p. 81]