Question 1

Compare a § 401(k)plan with an IRA.

Accepted Answer

An instructor can use Concept Summary 19-4 to cover this comparison.Most employees will find a § 401(k)plan more attractive than an IRA.Probably the biggest limitation of an IRA is the $5,000 maximum shelter in 2012 (ignoring the catch-up provision).Under § 401(k),employees are permitted to shelter compensation up to $17,000 (in 2012).The restrictions on deducting contributions to IRAs for many middle-income and upper-income taxpayers may cause many employees to utilize § 401(k)plans more frequently.
Another difference between § 401(k)plans and IRAs is the manner in which the money is treated.Money placed in an IRA may be tax deductible,whereas dollars placed in a § 401(k)plan are considered to be deferred compensation.Thus,a § 401(k)reduction may reduce profit sharing payments,group term life insurance,and Social Security benefits.

Question 2

Kay,a single individual,participates in her employer's SIMPLE § 401(k)plan.The plan permits participants to contribute a percentage of their salary.Kay elects to contribute 5% of her annual salary of $111,000 to the plan.On what amount of her salary does Kay pay income taxes in 2012?

Accepted Answer

A)  $5,550. 
B)  $11,500. 
C)  $105,450. 
D)  $111,000. 
E)  None of above. 
A)  $5,550. 
B)  $11,500. 
C)  $105,450. 
D)  $111,000. 
E)  None of above. C

Question 3

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2012.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

Accepted Answer

A)  $2,800. 
B)  $3,500. 
C)  $4,000. 
D)  $5,000. 
E)  None of the above. 
A)  $2,800. 
B)  $3,500. 
C)  $4,000. 
D)  $5,000. 
E)  None of the above. D

Question 4

The maximum annual contribution to a Roth IRA for an unmarried taxpayer who is age 35 is the smaller of $5,000 or the individual's compensation for the year.

Accepted Answer

A) True 
 B)False

Question 5

The compensation paid by Green Corporation to the plan participants of a profit sharing plan in 2012 was $38,300.During 2012,Green Corporation contributed $10,000 to the plan.Green's deductible amount for 2012 is what amount,if any?

Accepted Answer

A)  $0. 
B)  $7,660. 
C)  $9,575. 
D)  $10,000. 
E)  None of the above. 
A)  $0. 
B)  $7,660. 
C)  $9,575. 
D)  $10,000. 
E)  None of the above.

Question 6

A defined benefit plan must reduce the $200,000 (in 2012)maximum benefits payable by one-tenth for each year of participation under 10 years that an employee has performed.

Accepted Answer

A) True 
 B)False

Question 7

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.What amount,if any,is deductible by the bank?

Accepted Answer

A)  $0. 
B)  $50,000. 
C)  $110,000. 
D)  $390,000. 
E)  Some other amount. 
A)  $0. 
B)  $50,000. 
C)  $110,000. 
D)  $390,000. 
E)  Some other amount.

Question 8

A qualified pension and profit sharing plan must satisfy which requirements?

Accepted Answer

A qualifie

Question 9

For the spousal IRA provision to apply,a joint return must be filed.

Accepted Answer

A) True 
 B)False

Question 10

Dana contributes $2,000 too much to a § 401(k)plan which is not returned within 2 1/2 months after the close of the tax year.The employer will have to pay a tax of $200.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  Deduction limitation. 
B)  Early withdrawal option without penalty. 
C)  Loans from the plan. 
D)  Record keeping. 
E)  All of the above are advantages of § 401(k) plan. 
A)  Deduction limitation. 
B)  Early withdrawal option without penalty. 
C)  Loans from the plan. 
D)  Record keeping. 
E)  All of the above are advantages of § 401(k) plan.

Question 12

If an employer's contribution to a SEP IRA is less than $50,000 in 2012 (or 25% of the employee's earned income,if less),the employee can contribute the difference.

Accepted Answer

A) True 
 B)False

Question 13

A participant,who is age 38,in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2012?

Accepted Answer

A)  $12,000. 
B)  $16,500. 
C)  $17,000. 
D)  $17,500. 
E)  None of the above. 
A)  $12,000. 
B)  $16,500. 
C)  $17,000. 
D)  $17,500. 
E)  None of the above.

Question 14

An incentive stock option (ISO)plan is considered to be a deferred compensation arrangement.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Pony,Inc.,issues restricted stock to employees in July 2012,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 2012,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 2016 at $36 per share.What amount and type of income will Sam recognize in 2016?

Accepted Answer

A)  $26,000 capital gain. 
B)  $26,000 ordinary income. 
C)  $23,000 capital gain. 
D)  $23,000 ordinary income. 
E)  $36,000 capital gain. 
A)  $26,000 capital gain. 
B)  $26,000 ordinary income. 
C)  $23,000 capital gain. 
D)  $23,000 ordinary income. 
E)  $36,000 capital gain.

Question 17

Joyce,age 39,and Sam,age 40,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2012 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Accepted Answer

A)  $0. 
B)  $3,000. 
C)  $4,000. 
D)  $8,000. 
E)  None of the above. 
A)  $0. 
B)  $3,000. 
C)  $4,000. 
D)  $8,000. 
E)  None of the above.

Question 18

Defined contribution plans are generally more favorable to older employees.

Accepted Answer

A) True 
 B)False

Question 19

Restricted stock cannot be sold or treated as owned by an employee until it vests.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following characteristics describes a defined benefit plan?

Accepted Answer

A)  Subject to PBGC plan termination insurance rules. 
B)  An account for each participant is not established. 
C)  Defines the amount the employer is required to contribute. 
D)  Only a. and b. 
E)  a., b., and c. 
A)  Subject to PBGC plan termination insurance rules. 
B)  An account for each participant is not established. 
C)  Defines the amount the employer is required to contribute. 
D)  Only a. and b. 
E)  a., b., and c.

Compare a § 401(k)plan with an IRA.

Kay,a single individual,participates in her employer's SIMPLE § 401(k)plan.The plan permits participants to contribute a percentage of their salary.Kay elects to contribute 5% of her annual salary of $111,000 to the plan.On what amount of her salary does Kay pay income taxes in 2012?

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2012.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

The maximum annual contribution to a Roth IRA for an unmarried taxpayer who is age 35 is the smaller of $5,000 or the individual's compensation for the year.

The compensation paid by Green Corporation to the plan participants of a profit sharing plan in 2012 was $38,300.During 2012,Green Corporation contributed $10,000 to the plan.Green's deductible amount for 2012 is what amount,if any?

A defined benefit plan must reduce the $200,000 (in 2012)maximum benefits payable by one-tenth for each year of participation under 10 years that an employee has performed.

A qualified pension and profit sharing plan must satisfy which requirements?

For the spousal IRA provision to apply,a joint return must be filed.

Dana contributes $2,000 too much to a § 401(k)plan which is not returned within 2 1/2 months after the close of the tax year.The employer will have to pay a tax of $200.

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

If an employer's contribution to a SEP IRA is less than $50,000 in 2012 (or 25% of the employee's earned income,if less),the employee can contribute the difference.

A participant,who is age 38,in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2012?

An incentive stock option (ISO)plan is considered to be a deferred compensation arrangement.

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

Joyce,age 39,and Sam,age 40,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2012 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Defined contribution plans are generally more favorable to older employees.

Restricted stock cannot be sold or treated as owned by an employee until it vests.

Which of the following characteristics describes a defined benefit plan?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Corporations and Partnerships

Filters

Exam 19: Deferred Compensation

Compare a § 401(k)plan with an IRA.

Kay,a single individual,participates in her employer's SIMPLE § 401(k)plan.The plan permits participants to contribute a percentage of their salary.Kay elects to contribute 5% of her annual salary of $111,000 to the plan.On what amount of her salary does Kay pay income taxes in 2012?

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2012.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

The maximum annual contribution to a Roth IRA for an unmarried taxpayer who is age 35 is the smaller of $5,000 or the individual's compensation for the year.

The compensation paid by Green Corporation to the plan participants of a profit sharing plan in 2012 was $38,300.During 2012,Green Corporation contributed $10,000 to the plan.Green's deductible amount for 2012 is what amount,if any?

A defined benefit plan must reduce the $200,000 (in 2012)maximum benefits payable by one-tenth for each year of participation under 10 years that an employee has performed.

A qualified pension and profit sharing plan must satisfy which requirements?

For the spousal IRA provision to apply,a joint return must be filed.

Dana contributes $2,000 too much to a § 401(k)plan which is not returned within 2 1/2 months after the close of the tax year.The employer will have to pay a tax of $200.

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

If an employer's contribution to a SEP IRA is less than $50,000 in 2012 (or 25% of the employee's earned income,if less),the employee can contribute the difference.

A participant,who is age 38,in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2012?

An incentive stock option (ISO)plan is considered to be a deferred compensation arrangement.

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

Joyce,age 39,and Sam,age 40,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2012 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Defined contribution plans are generally more favorable to older employees.

Restricted stock cannot be sold or treated as owned by an employee until it vests.

Which of the following characteristics describes a defined benefit plan?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Corporations and Partnerships

Filters