Exam 19: Deferred Compensation

Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2016,when the fair market value is $120 per share.She holds the stock for only two years and sells the shares for $115 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.

A major disadvantage of a NQSO is that an employee must recognize ordinary income on the exercise of the option or at the date of the grant without receiving cash to pay the tax.

In a direct transfer from one qualified retirement plan to another qualified retirement plan,the employer does not have to withhold 20% of the amount of the direct transfer.

If a married taxpayer is an active participant in another qualified retirement plan,the traditional IRA deduction phaseout begins at $98,000 of AGI for a joint return in 2016.

Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax).He has a profit sharing plan (i.e. ,defined contribution plan).What is the maximum amount Fred can contribute to his retirement plan?

Saysha is an officer of a local bank that merges with a national bank,resulting in a change of ownership.She loses her job as a result of the merger,but she receives a cash settlement of $390,000 from her employer under her golden parachute.Her average annual compensation for the past five tax years is $110,000.Calculate any nondeductible excise tax Saysha must pay,if any.

On February 1,2016,Tuan withdrew $15,000 from his IRA #1.He deposited the funds back into IRA #1 within 60 days (a"rollover").Tuan may do one more nontaxable rollover distribution from either IRA #1 or IRA #2 starting in April 2016.

Income is taxed if a taxpayer's control over the amount earned is subject to substantial restrictions.

Under a nonqualified stock option (NQSO)plan which is granted to Damon on March 15,2014,he may purchase 200 shares of stock from his employer at $15 per share.At that date,the option does not have a readily ascertainable fair market value.Eight months later on the date of exercise the fair market value of the stock is $20.On December 1,2016,Damon sells 100 shares for $24 each.Which of the following would be the result of these transactions on the date of exercise and the date of sale?

Which of the followings is not a characteristic of a Keogh plan?

Which of the following characteristics is not a characteristic of a cash balance plan?

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

Any pre-tax amount elected by an employee as a plan contribution to a § 401(k)plan that does not exceed the statutory limit is not includible in gross income in the year of deferral and is 100% vested.

Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2016,when the fair market value is $120 per share.She holds the stock for only seven months and sells the shares for $140 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.

Dianna participates in a defined benefit plan that uses a fixed formula providing an employee with a benefit of 2% for each year of service,up to a maximum of 30 years.The total percentage accumulated before retirement is applied to the average of her three highest years of salary.Dianna works for 21 years,and the average of her three highest years of salary is $290,000.Calculate the amount of retirement benefits she will receive each year.

Traditional IRA contributions made after an individual reaches the age of 65 are treated as excess contributions and are subject to a nondeductible 6% excise penalty tax.

In a profit sharing plan,a separate account is not maintained for each participant.

Which is not an advantage of a § 401(k)plan over a traditional IRA?

Zackie has five years of service completed as of February 5,2016,which is his employment anniversary date.If his defined benefit plan [not a § 401(m)arrangement] uses the graded vesting rule,determine Zackie's nonforfeitable percentage.