Which of the following qualified plans is an employer-sponsored IRA?

Rationale

Simple Employee Pension Plan (SEP) is an employer-sponsored IRA.

A SEP is a type of retirement plan established by employers to provide tax-deferred contributions to their employees’ IRAs. It allows employers to contribute to traditional IRAs set up for their employees, making it an employer-sponsored IRA option.

A (Simple Employee Pension Plan (SEP).) CORRECT

This choice is correct as a SEP is indeed an employer-sponsored plan that allows employers to contribute to IRAs for themselves and their eligible employees. Contributions made by employers are tax-deductible, and the accounts grow tax-deferred until withdrawal, aligning with the characteristics of an employer-sponsored IRA.

B (Key-employee plan.) YOUR ANSWER

A key-employee plan is typically a type of non-qualified deferred compensation plan designed to provide additional retirement benefits to select high-level employees. Unlike employer-sponsored IRAs, these plans do not involve direct contributions to an IRA and are not subject to the same tax advantages as qualified plans.

C (Tax-Sheltered Annuities.) YOUR ANSWER

Tax-sheltered annuities, or 403(b) plans, are retirement plans available to employees of certain tax-exempt organizations. While they offer tax advantages, they are not classified as IRAs, nor are they employer-sponsored in the same manner as SEPs, making this choice incorrect.

D (Deferred Compensation.) YOUR ANSWER

Deferred compensation plans allow employees to defer a portion of their income to be paid out at a later date, usually upon retirement. These plans are typically non-qualified and do not function as IRAs, as they do not involve the direct contributions to an IRA or the associated tax advantages.

Conclusion

In summary, a Simple Employee Pension Plan (SEP) qualifies as an employer-sponsored IRA, allowing tax-deductible contributions to employees' retirement accounts. Other options listed, such as key-employee plans, tax-sheltered annuities, and deferred compensation plans, do not fit the criteria of an employer-sponsored IRA, either because of their structure or lack of direct IRA involvement. Understanding the distinctions between these plans is crucial for effective retirement planning.

Which of the following qualified plans is an employer-sponsored IRA?

Simple Employee Pension Plan (SEP) is an employer-sponsored IRA.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test