Exam 13: Retirement Savings and Deferred Compensation

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 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?

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.)

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?

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 (not a coronavirus-related distribution). 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.

Which of the following describes a defined contribution plan?

If a taxpayer's marginal tax rate is decreasing, a taxpayer contributing to a traditional IRA can earn an after-tax rate of return greater than her before-tax rate of return.

Heidi retired from GE (her employer)at age 56. At the end of the year, when she was 56 years of age, Heidi received a distribution from her GE-sponsored 401(k)account. Because Heidi was not at least 59½ years of age at the time of the distribution, she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution.

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

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1, 2012. This was her only contribution to the account. On July 1, 2020, when the account balance was $6,000, she received a nonqualified distribution of $4,500. What is the taxable portion of the distribution and what amount of early distribution penalty will Heidi be required to pay on the distribution?

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

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 $90,000 to her account. If Daniela receives a $60,000 distribution from the Roth IRA, what amount of the distribution is taxable?

Which of the following statements is true regarding distributions from Roth 401(k)accounts?

Participating in an employer-sponsored nonqualified deferred compensation plan is potentially risky because employers are not required to fund nonqualified plans. If the employer is not able to pay the employee when the payment is due, the employee usually becomes an unsecured creditor of the employer.

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?

The standard retirement benefit an employee will receive under a defined benefit plan depends on the number of years of service the employee provides, but does not consider the amount of the employee's compensation.

Which of the following statements regarding defined benefit plans is false?

Sean (age 70 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,960,000 and the balance in his account on December 31, 2020, was $1,990,000. In 2020, Sean received a distribution of $30,000 from his 401(k)account(not a coronavirus-related distribution). Assuming Sean's marginal tax rate is 25 percent, what amount of the $30,000 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).

Riley participates in his employer's 401(k)plan. He turns 72 years of age on February 15, 2019, and he plans on retiring on July 1, 2021. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Kathy is 48 years of age and self-employed. During 2020, 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 an individual 401(k)for 2020?Assume she paid $8,478 of self-employment tax for 2020. (Round your final answer to the nearest whole number.)

Amy files as a head of household. She determined her 2020 adjusted gross income was $70,000. During the year, she contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for 2020?