Exam 13: Retirement Savings and Deferred Compensation

Sean (age 72 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,760,000 and the balance in his account on December 31, 2020, was $1,825,000. In 2020, Sean received a distribution of $65,000 from his 401(k)account(not a coronavirus-related distribution). Assuming Sean's marginal tax rate is 25 percent, what amount of the $65,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the Treasury table below in determining the required minimum distribution penalty, if any).

Sean (age 72 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,760,000 and the balance in his account on December 31, 2020, was $1,825,000. In 2020, Sean received a distribution of $65,000 from his 401(k)account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $65,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the Treasury table below in determining the required minimum distribution penalty, if any).

Which of the following statements regarding contributions to defined contribution plans is true?

Kathy is 60 years of age and self-employed. During 2020 she reported $538,000 of revenues and $119,000 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 SEP IRA for 2020?Assume she pays $28,484 in self-employment for 2020. (Round your final answer to the nearest whole number.)

Lisa, age 47, needed some cash so she withdrew $51,000 from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,200 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Which of the following statements regarding traditional IRAs is true?

Gordon is a 52-year-old self-employed contractor (no employees). During 2020, his Schedule C net income was $88,000. What is the maximum amount that Gordon can contribute to (1)a SEP IRA and (2)an individual 401(k)? (Round your answers to the nearest whole number.)

Which of the following is a true statement regarding saving for retirement?

Ryan, age 48, received an $10,800 distribution from his traditional IRA to pay for medical expenses (above the 7.5% of AGI floor). Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent. What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $32,000, shedirectly 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 conversion?

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.

Amy is single. During 2020, she determined her adjusted gross income was $12,000. During the year, Amy also contributed $1,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year?

Riley participates in his employer's 401(k)plan. He turns 71 years of age on February 15, 2020, and he plans on retiring on July 1, 2020. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Gordon is a 52-year-old self-employed contractor (no employees). During 2020, his Schedule C net income was $86,000. What is the maximum amount that Gordon can contribute to (1)a SEP IRA and (2)an individual 401(k)? (Round your answers to the nearest whole number.)

Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Which of the following describes a defined contribution plan?

Which of the following statements is true regarding taxpayers receiving distributions from traditional defined contribution plans?

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 percent. 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 five days after the distribution. What amount of income tax and penalty must Tyson pay on this series of transactions?

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

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.