Exam 13: Retirement Savings and Deferred Compensation

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can)contribute to an employee's plan.

Sean (age 71 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,840,000 and the balance in his account on December 31, 2020, was $1,955,000. Using the Treasury table below, what is Sean's required minimum distribution for 2020?

Which of the following statements concerning traditional IRAs and Roth IRAs is false?

Sean (age 74 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,700,000 and the balance in his account on December 31, 2020, was $1,800,000. Using the Treasury tables below, what is Sean's required minimum distribution for 2020?

Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA (not a coronavirus-related distribution). At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA eight years ago. Through aconversion and annual contributions, she has contributed $80,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

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 (not a coronavirus-related distribution). 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?

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

Kathy is 60 years of age and self-employed. During 2020 she reported $500,000 of revenues and $100,000 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 $27,787 in self-employment for 2020. (Round your final answer to the nearest whole number.)

Which of the following statements regarding Roth 401(k)accounts is false?

Joan recently started her career with PDEK Accounting LLP, which provides a defined benefit plan for all employees. Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service. Plan benefits vest under a five-year cliff schedule. Joan worked five and a half years at PDEK before leaving for another opportunity. She received an annual salary of $49,600, $52,300, $58,150, $65,300, and $75,450 for years one through five, respectively. Joan earned $40,300 of her $80,600 annual salary in year six. What is the vested benefit Joan is entitled to receive from PDEK for her retirement? (Use Exhibit 13-1 ).

Which of the following statements regarding IRAs is false?

In 2020, Tyson (age 52)earned $50,000 of salary. Assuming he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in 2020?

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

Christina made a one-time contribution of $12,000 to her 401(k)account, and she received a matching contribution from her employer in the amount of $4,000. Christina expects to earn a 6-percent before-tax rate of return on her account balance. Assuming Christina withdraws the entire balance in 25 years when she retires, what is Christina's after-tax accumulation from the $12,000 contribution to her 401(k)account? Assume her marginal tax rate at retirement is 35 percent. (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were above the 7.5% of AGI threshold and claimed as itemized deductions on his tax return), he received a $20,000 non coronavirus-related distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15 percent, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Cassandra, age 33, has made deductible contributions to her traditional IRA over the years. When the balance in her IRA was $40,000, Cassandra received a distribution of $34,000 from her IRA in order to purchase a new car. How much of the $34,000 distribution will she have remaining after paying income taxes and early distribution penalties on the distribution? Her marginal tax rate is 25 percent.

Ryan, age 48, received an $11,800 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, assuming the distribution is not a coronavirus-related distribution?