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Exam 13: Retirement Savings and Deferred Compensation

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Question 41

Multiple Choice

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Which of the following describes a defined contribution plan?

A) Provides guaranteed income on retirement to plan participants.
B) Employers and employees generally may contribute to the plan.
C) Generally set up to defer income for executives and highly compensated employees but not other employees.
D) Retirement account set up to provide an individual a fixed amount of income on retirement.

E) All of the above
F) A) and C)

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Question 42

Multiple Choice

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Which of the following statements regarding traditional IRAs is true?

A) Once a taxpayer reaches age 55 years of age she is allowed to contribute an additional $1,000 a year.
B) Taxpayers with high income are not allowed to contribute to traditional IRAs.
C) Taxpayers who participate in an employer-sponsored retirement plan are allowed to deduct contributions to a traditional IRA regardless of their AGI.
D) A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.

E) A) and D)
F) A) and C)

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Question 43

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Taxpayers who participate in an employer-sponsored retirement plan are not allowed to contribute to individual retirement accounts (IRAs).

In general, which of the following statements regarding self-employed retirement accounts is true?

Which of the following is true concerning employer funding of nonqualified deferred compensation plans?

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Daniela retired at the age of 65. The current balance in her Roth IRA is $200,000. Daniela established the Roth IRA 10 years ago. Through a rollover and annual contributions Daniela has contributed $80,000 to her account. If Daniela receives a $50,000 distribution from the Roth IRA, what amount of the distribution is taxable?

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs) under any circumstances.

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Tyson's marginal tax rate is 25%. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA. He retains $12,500 to pay tax on the distribution and he contributes $37,500 to a Roth IRA. What amount of income tax and penalty must Tyson pay on this series of transactions?

Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return) , he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA) . Assuming his marginal ordinary income tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Kathy is 48 years of age and self-employed. During 2018 she reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to a simplified employee pension (SEP) IRA for 2018? (Round your final answer to the nearest whole number)

Riley participates in his employer's 401(k) plan. He retired in 2018 at age 75. When must Riley receive his distribution pertaining to 2018 to avoid minimum distribution penalties?

During 2018, Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions to an IRA during 2018 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?

Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan. This year, Katrina defers 20 percent of her $400,000 salary. Katrina's deemed investment choice will earn 7 percent annually on the deferred compensation until she takes a lump sum distribution in 10 years. Katrina's current marginal tax rate is 30 percent and she expects her marginal tax rate will be 35 percent upon receipt of the deferred salary. What is her after-tax accumulation from the deferred salary in 10 years? (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $32,000, she transferred the entire $32,000 out of her traditional IRA and immediately into a Roth IRA. Her current marginal tax rate is 25 percent. What amount of tax and penalty is she required to pay on this rollover?

Which of the following taxpayers is most likely to qualify for the saver's credit?

In 2018, Tyson (age 22) earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income). Assuming he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in 2018?

Darren is eligible to contribute to a traditional 401(k) in 2018. He forgot to contribute before year-end. If he contributes before April 15, 2019, he is allowed to treat the contribution as though he made it during 2018.