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 23: SIMPLE IRA
True/False
23.1 A SIMPLE IRA can be partially funded with salary reductions by employees.
23.2 Contribution limits for a SIMPLE IRA are the same as other qualified plans, but with less administrative cost
23.3 An employer can make contributions to the SIMPLE IRA of an employee aged 72.
Answers:
23.1 true [p. 200]
23.2 false [p. 200]
23.3 true [p. 201]
Multiple Choice
23.4 An employer who adopts a SIMPLE IRA cannot also, in the same year offer employees a. a qualified plan b. a tax sheltered annuity c. a SEP d. all of the above e. only b and c
Answer: D [p. 200]
23.5 Advantages of a SIMPLE IRA from the viewpoint of the employee include:

a. benefits are easily portable b. contribution limits are higher than in a traditional or Roth IRA c. contributions and earnings are tax deferred d. all of the above e. only b and c
Answer: D [p. 199-200]
23.6 Which of the following is true about a SIMPLE IRA? a. only employee contributions can be made to a SIMPLE IRA b. there is a 25% early distribution penalty for the first two years of participation c. employee salary reduction contributions are not subject to FICA and FUTA taxes d. an unlimited, refundable tax credit is available to SIMPLE IRA participants e. distributions from a SIMPLE IRA are eligible for the 10 year averaging provisions available for some qualified plan distributions
Answer: B [p. 200-201]
Application
23.7 Ira Evergreen owns and operates a large greenhouse and floral shop called Every
Bloomin’ Thing as a sole proprietorship. Ira employs 110 full time workers besides herself.
A SIMPLE IRA plan would allow Ira to make contributions to IRAs for her employees. a. true b. false
Answer: B [p. 200]
23.8 Bob Jolly is 73 this year. He has been a key employee of Appleton Bookkeeping Services since he joined the company 50 years ago. The owner of Appleton would love it if Bob stayed on indefinitely. Bob is in excellent health and has developed a wide clientele that enjoy his wit and charm as well as his broad experience and expertise. Bob is in good health and says he’ll retire at 75 “while he still has some time to enjoy retirement.” Appleton
Bookkeeping established SIMPLE IRAs for employees 5 years ago. Which of the following is (are) true for Bob? a. Bob can make a deductible contribution to his own traditional IRA b. Appleton can not make a matching contribution to Bob’s SIMPLE IRA because he is over 70
½ c. Appleton can make a salary reduction contribution to Bob’s SIMPLE IRA d. a and b e. a and c
Answer: C [p. 201]

23.9 Ima Sapp is the sole proprietor of Maple Sweet, a candy business that uses Maple syrup.
Maple Sweet is an unincorporated business. Based on this information, can Ima adopt a
SIMPLE IRA? a. yes b. no
Answer: A [p. 200]
23.10 June Tandy is covered under a SIMPLE IRA at Barker Jones Auction House, where she is employed. This year, no salary deductions or employer contributions were allocated to her
SIMPLE IRA. If June makes a contribution to her personal IRA this year, her deduction limit will be based on those applying to a person who is not an active participant in a qualified retirement plan. a. true b. false
Answer: A [p. 202]