Question

Fawn worked for Filbert Company for 4 years before leaving her job. She had $40,000 in the Filbert Co. profit sharing plan, $10,000 of which she contributed. How much of the $40,000 may she roll over to an IRA if the company uses 2-6 year graduated vesting?

a.) $40,000
b.) $28,000
c.) $18,000
d.) $10,000

Answer 1

If the company uses a 2-6 year graduated vesting period, Fawn will be able to roll over c) $18,000 of the $40,000 to an IRA.

Step-by-step explanation:

If the company uses a 2-6 year graduated vesting period, Fawn will be able to roll over 60% of the employer-contributed amount ($40,000 - $10,000 = $30,000) to an IRA. The graduated schedule means that for each year of service, Fawn will be entitled to a certain percentage of the employer-contributed amount.

For the first two years, Fawn is 0% vested. From the third year, Fawn is 20% vested, and for each subsequent year, an additional 20% is vested until year six, when she will be 100% vested. So, for the four years that Fawn worked, she is entitled to 60% of the employer-contributed amount.

Therefore, Fawn may roll over $18,000 ($30,000 x 60%) of the $40,000 to an IRA.