SIE Exam Question 784: Answer and Explanation

Question: 784

Which of the following is correct regarding IRA contributions?

• A. IRA contributions made above the maximum annual limit are subject to a 10% nondeductible excise tax.
• B. A nonworking divorced person, age 40, who receives alimony may contribute to an IRA the lesser of the maximum contribution limit or 100% of the alimony received.
• C. An employee who makes voluntary contributions to a 401(k) plan is not considered an active participant for the purpose of making IRA contributions.
• D. An employee participating in a 457 plan is considered an active participant for the purpose of making IRA contributions.

Correct Answer: B

Explanation:

The nondeductible excise tax for over-contributing to an IRA is 6%, not 10%. An employee who makes voluntary contributions to a 401(k) plan is considered an active participant. However, an employee participating in a 457 plan is not an active participant. A nonworking divorced person, age 40, who receives alimony may contribute to an IRA the lesser of the maximum contribution limit or 100% of the alimony received.