Primerica Life Producer Practice Test

How much would an employee receive from a plan administrator if they roll over $10,000 from their qualified plan to a Traditional IRA, assuming a 20% withholding tax?

1. $10,000

2. $8,000

3. $7,500

4. $9,000

The correct answer is: $8,000

When an employee rolls over funds from a qualified plan to a Traditional IRA, a 20% withholding tax typically applies. In this scenario, if the employee has $10,000 in their qualified plan and elects to roll it over, the plan administrator is required to withhold 20% for taxes, which amounts to $2,000. Therefore, when the employee rolls over the $10,000, they will receive $8,000 after the withholding tax is deducted. It’s important to note that this $8,000 will be the amount that can be directly deposited into the Traditional IRA, while the $2,000 withheld can be reclaimed when the employee files their tax return, provided the rollover is handled properly. In this case, the correct choice reflects the amount that the employee actually receives after the withholding is applied.