Exam 19: Deferred Compensation

An individual is considered an active participant in an employer-sponsored retirement plan merely because an individual's spouse is an active participant for any part of a plan year in applying the IRA phase-out provision.

Jana has $225,000 of earned income in 2016.Calculate the amount she can contribute to a SEP.

If an employer's contribution to a SEP IRA is less than $53,000 in 2016 (or 25% of the employee's earned income,if less),the employee can contribute the difference.

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2016.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years.The account is now worth $376,000.How much of these funds can Frank withdraw tax-free?

Pony,Inc. ,issues restricted stock to employees in July 2016,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2016,the stock is trading at $13 per share.How much income,if any,must Sam recognize in 2016?

Deidre has five years of service completed as of February 5,2016,her employment anniversary date.If the defined benefit plan [not a § 401(m)arrangement] uses the cliff vesting schedule,determine Deidre's nonforfeitable percentage.

Contributions to a Roth IRA can be made up to the due date (excluding extensions)of the taxpayer's income tax return.

Which of the following characteristics does not describe a defined benefit pension plan?

An individual,age 40,who is not subject to the phase-out provision may contribute a nondeductible amount to a Roth IRA up to $5,500 per year in 2016.

Brown,Inc. ,uses the three-to-seven year graded vesting approach for its defined benefit retirement plan.Peter has five years of service completed as of February 5,2016,his employment anniversary date.Determine Peter's nonforfeitable percentage.

What statement is false with respect to an incentive stock option (ISO)?

Pony,Inc. ,issues restricted stock to employees in July 2016,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when Sam is issued 1,000 shares,and he proceeds to make a § 83(b)election.At the end of 2016,the stock is selling for $13 per share.Sam remains a full-time employee of Pony for the required two-year vesting period at which time the stock is worth $30 per share.Sam sells his 1,000 shares in 2020 at $36 per share.What amount and type of income will Sam recognize in 2020?

Under a defined benefit plan,the annual benefit payable to an employee is limited to the smaller of $210,000 (in 2016)or 100% of the employee's average compensation for the highest 3 years of employment.

Dana,age 31 and unmarried,is an active participant in a qualified retirement plan.Her AGI is $120,000.What amount,if any,may Dana contribute to a Roth IRA in 2016?

Which of the following characteristics is not a characteristic of a stock bonus plan?

A 20% excise tax is imposed on nondeductible contributions by an employer to a qualified plan.

On January 1,2013,Gail (an executive)receives a warrant to purchase one share of stock at $70 and on the same date the fair market value of the stock is $100.The warrant has no restrictions and has a readily ascertainable fair market value on a stock exchange of $30.She exercises the warrant on May 15,2013,and sells the stock for $200 on December 20,2016. a.Calculate the amount Gail would recognize in 2013,if any. b.Calculate the amount Gail would recognize in 2016,if any. c.Suppose she sells the warrant in 2017 for $39.What amount would Gail recognize?

Joey has been an active participant in a defined benefit plan for 21 years.During his last 5 years of employment,Joey earned $32,000,$48,000,$55,000,$95,000,and $105,000,respectively (representing his highest-income years). a.Calculate Joey's maximum allowable benefits from this qualified plan (assume there are fewer than 100 participants). b.Assume that Joey's average compensation for his three high years is $203,000.Calculate Joey's maximum allowable benefits.

From an employee's point of view,discuss the difference between the tax treatment accorded to a nonqualified stock option (NQSO)that has an ascertainable fair market value and one that does not.