Certified Plan Sponsor Professional (CPSP) Practice Exam

What is true about rollover contributions from another plan or IRA?

1. They are treated the same as regular contributions

2. They must be accounted for separately in the plan

3. They can be pooled with other contributions

4. They are always subject to additional restrictions

The correct answer is: They must be accounted for separately in the plan

Rollover contributions from another plan or IRA must be accounted for separately in the plan. This is important because rollover contributions can come with different tax implications and rules compared to regular contributions. Keeping them distinct helps maintain clarity in tracking contributions and their tax status, ensuring compliance with IRS regulations. When rollover contributions are handled separately, it allows for specific tracking of funds that may come from different types of accounts, such as 401(k)s, IRAs, or other retirement accounts. This separation is crucial for both reporting and distribution purposes, particularly when determining eligible distributions for participants. The unique nature of rollover contributions means they may have different rules regarding withdrawals and tax treatments that necessitate individual accounting. This careful accounting helps to ensure that participants can take advantage of potential tax benefits, and it provides transparency in how their retirement assets are managed.