Exam 13: Retirement Savings and Deferred Compensation

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?

Ryan, age 48, received an $8,000 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?

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

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 $420,000 salary. Katrina's deemed investment choice will earn 6 percent annually on the deferred compensation until she takes a lump-sum distribution in 12 years. Katrina's current marginal tax rate is 24 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 12 years? (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Kathy is 48 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 an individual 401(k)?

Aiko (single, age 29)earned $40,000 in 2020. He was able to contribute $1,800 ($150/month)to his employer-sponsored 401(k). What is the total saver's credit that Aiko can claim for 2020? Exhibit 13-8

Heidi, age 45, has contributed $20,000 in total to her Roth 401(k)account over a six-year period. When her account was worth $50,000 and Heidi was in desperate need of cash, Heidi received a $30,000 nonqualified distribution from the account. How much of the distribution will be subject to income tax and 10 percent penalty?

Aiko (single, age 29)earned $40,600 in 2020. He was able to contribute $2,160 ($180/month)to his employer-sponsored 401(k). What is the total saver's credit that Aiko can claim for 2020? Exhibit 13-8

When an employer matches an employee's contribution to the employee's 401(k)account, the employee is immediately taxed on the amount of the employer's matching contribution.

On March 30, Rodger (age 56)was laid off from his employer of 30 years due to rough economic times. During his 30 years of employment, Rodger contributed $300,000 to his traditional 401(k)account. When Rodger was let go, his 401(k)account balance was $900,000 (this included both employer matching and account earnings). Rodger immediately withdrew $40,000 to use as an emergency savings fund. What amount of tax and early distribution penalties must Rodger pay on the $40,000 withdrawal if his ordinary marginal tax rate is 28 percent?

Gordon is a 52-year-old self-employed contractor (no employees). During 2020, his Schedule C net income was $92,000. 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.)

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 statements regarding Roth IRAs is false?

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. 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 and he immediately contributes the $50,000 to a Roth IRA. Assuming his marginal tax rate is 25 percent, what amount of penalty, if any, must Tyson pay on the distribution from the traditional IRA?

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?

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 $1,750,000. In 2020, Sean received a distribution of $50,000 from his 401(k)account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $50,000 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 therequired minimum distribution penalty, if any).

Shauna received a distribution from her 401(k)account in 2021. In which of the following situations will Shauna be subject to an early distribution penalty?

Ryan, age 48, received an $10,200 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?

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

Kathy is 48 years of age and self-employed. During 2020 she reported $534,000 of revenues and $106,800 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 an individual 401(k)?