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Small Business 401k Plans Trivia

(September 20th, 2008)

This trivia will quiz you on the concepts explained in the article 401k Plans for a Small Business Owner. If there is any question you do not understand, it is advised to refer to that page for explanation. After selecting your answers, choose the "Grade Me!" button at the bottom to know your result & the right answers.

1) A small business 401k is also known by its other names
a) Individual(K)
b) Solo 401k
c) Self Employed 401(k)
d) All of the above
2) Only sole proprietors, and not partnerships & corporations can own Small Business 401k plans?
a) True
b) False
3) You can require an employee to perform atleast ___ year of work service before he/she becomes eligible to make salary deferral 401k contributions.
a) 4
b) 3
c) 2
d) 1
4) For eligibility purposes, an employee has done 1 year of service if he/she has worked atleast _____ hours during the year.
a) 1000
b) 1500
c) 1600
d) 2000
5) Salary deferral contribution limit for small business 401k plans for the year 2007 is:
a) $14,500
b) $15,000
c) $15,500
d) $16,000
6) A small business owner can contribute upto ___% of his net business income towards his small business 401k plan, but no more than $_____ for 2007.
a) 20%; $40,000
b) 25%, $45,000
c) 30%, $48,000
d) 32%, $50,000
7) The Small business 401k allows you to deduct plan contributions of up to ___% of your eligible compensation.
a) 20%
b) 25%
c) 30%
d) 15%
8) For plan purposes, total compensation is limited to $_______ for 2006 and $_________ for 2007.
a) $200,000; $205,000
b) $210,000; $215,000
c) $218,000; $220,000
d) $220,000; $225,000
9) A small business 401k plan must be established by the ____________________________
a) December 31st, of the current year
b) April 30th, the tax filing deadline
c) Last date of the fiscal operating year
d) November 11th, Halloween Day
10) John is a small businessman and earned $85,000 net income for 2006. His maximum employer matched small business 401k contribution limit for 2006 is:
a) $12,750 (15% x $85,000)
b) $17,000 (20% x $85,000)
c) $21,250 (25% x $85,000)
d) $25,500 (30% x $85,000)

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401k Interesting Facts

-> Roth 401k is voluntary for employers. In order to offer Roth 401k for their employees, employers have to set up a tracking system that segregates Roth assets from the company's existing plan. This tracking system is expensive to build and maintain, and employers may not choose to do it at all. If so, your employer will not be eligible to offer Roth 401k.

-> Upto $10,000 can be withdrawn from a Roth IRA without any penalty if the owner wishes to purchase a home or principal residence. The home must be purchased by either the Roth IRA owner, his spouse, ancestors or descendants. Also, the Roth IRA owner must not have previously owned a home for atleast 24 months.

-> Roth 401k Works Best if:

- The federal government increases taxes over time
- You are a high income earner who has a compensation cap on Roth IRAs (maximum compensation cap of $225,000 in 2007)
- The mutual funds or stocks where you put your Roth 401k capital experience significant returns
- You are a young investor and need more time for your account to grow across various investments such as mutual funds, stocks, commodities, etc.
- You are in a lower tax bracket now and will be in a higher tax bracket upon retirement.

401k Contribution Limits
2005 $14,000 $18,000
2006 $15,000 $20,000
2007 $15,000 $20,500
2008 $15,500 $20,500

Roth IRA Contribution Limits
2002 $3000 $3500
2003 $3000 $3500
2004 $3000 $3500
2005 $4000 $4500
2006 $4000 $5000
2007 $4000 $5000
2008 $5000 $6000

Simple 401k / IRA Contribution Limits
Year
Annual Contribution Limits
2002 $7000
2003 $8000
2004 $9000
2005 $10,000
2006 $10,000
2007 $10,500
2008 $11,000

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