Question 1

Sean (age 72 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,760,000 and the balance in his account on December 31, 2020, was $1,825,000. In 2020, Sean received a distribution of $65,000 from his 401(k)account(not a coronavirus-related distribution). Assuming Sean's marginal tax rate is 25 percent, what amount of the $65,000 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).

Accepted Answer

The answer of Sean (age 72 at end of 2020)retired...

Question 2

Sean (age 72 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,760,000 and the balance in his account on December 31, 2020, was $1,825,000. In 2020, Sean received a distribution of $65,000 from his 401(k)account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $65,000 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).

Accepted Answer

The answer of Sean (age 72 at end of 2020)retired...

Question 3

Which of the following statements regarding contributions to defined contribution plans is true?

Accepted Answer

A) Employer contributions to a defined contribution plan are not limited by the tax law. 
B) Employee contributions to a defined contribution plan are not limited by the tax law. 
C) An employee who is at least 60 years of age as of the end of the year may contribute more to a defined contribution plan than an employee who has not reached age 60 by year-end. 
D) The tax laws limit the sum of the employer and employee contributions to a defined contribution plan.

Question 4

Kathy is 60 years of age and self-employed. During 2020 she reported $538,000 of revenues and $119,000 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 a SEP IRA for 2020?Assume she pays $28,484 in self-employment for 2020. (Round your final answer to the nearest whole number.)

Accepted Answer

A) $57,000. 
B) $63,500. 
C) $80,952. 
D) $390,516.

Question 5

Lisa, age 47, needed some cash so she withdrew $51,000 from her Roth IRA. 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 $20,200 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Accepted Answer

A) $0. 
B) $5,100. 
C) $30,800. 
D) $51,000.

Question 6

Which of the following statements regarding traditional IRAs is true?

Accepted Answer

A) Once a taxpayer reaches 55 years of age she is allowed to contribute an additional $1,000 a year. 
B) Taxpayers with high income are not allowed to contribute to traditional IRAs. 
C) Taxpayers who participate in an employer-sponsored retirement plan are allowed to deduct contributions to a traditional IRA regardless of their AGI. 
D) A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.

Question 7

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.)

Accepted Answer

The answer of Gordon is a 52-year-old self-employed contractor (no...

Question 8

Which of the following is a true statement regarding saving for retirement?

Accepted Answer

A) In a given year, a taxpayer may participate in either an employer-sponsored defined benefit plan or defined contribution plan but not both. 
B) In a given year, a taxpayer who receives salary as an employee and also receives self-employment income may participate in an employer-sponsored defined contribution plan or may contribute to a self-employed retirement account but not both. 
C) In a given year, a taxpayer may contribute to an IRA (either traditional or Roth)or contribute to a self-employment retirement account but not both. 
D) None of the choices are correct.

Question 9

Ryan, age 48, received an $10,800 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?

Accepted Answer

The answer of Ryan, age 48, received an $10,800 distribution...

Question 10

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $32,000, shedirectly transferred the entire $32,000 out of her traditional IRA and immediately into a Roth IRA. Her current marginal tax rate is 25 percent. What amount of tax and penalty is she required to pay on this conversion?

Accepted Answer

The answer of Tatia, age 38, has made deductible contributions...

Question 11

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

A) $750. 
B) $1,000. 
C) $1,500. 
D) $0.

Question 13

Riley participates in his employer's 401(k)plan. He turns 71 years of age on February 15, 2020, and he plans on retiring on July 1, 2020. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Accepted Answer

A) By April 1, 2020. 
B) By April 1, 2021. 
C) By April 1, 2022. 
D) By April 1, 2023.

Question 14

Gordon is a 52-year-old self-employed contractor (no employees). During 2020, his Schedule C net income was $86,000. 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.)

Accepted Answer

The answer of Gordon is a 52-year-old self-employed contractor (no...

Question 15

Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA. 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?

Accepted Answer

A) $0. 
B) $5,000. 
C) $30,000. 
D) $50,000.

Question 16

Which of the following describes a defined contribution plan?

Accepted Answer

A) Provides guaranteed income on retirement to plan participants. 
B) Employers and employees generally may contribute to the plan. 
C) Generally set up to defer income for executives and highly compensated employees but not other employees. 
D) Retirement account set up to provide an individual a fixed amount of income on retirement.

Question 17

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

Accepted Answer

A) A taxpayer who retires at age 73 in 2020 must pay a required minimum distribution penalty if she does not receive a distribution in 2020. 
B) The required minimum distribution penalty is 25 percent of the amount required to have been distributed. 
C) A taxpayer who receives a distribution from a retirement account before she is 55 years old is subject to a 10 percent penalty on both the distributed and undistributed portions of her retirement account. 
D) Taxpayers are not allowed to deduct either early distribution penalties or required minimum distribution penalties.

Question 18

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?

Accepted Answer

A) $0 income tax; $0 penalty. 
B) $12,500 income tax; $1,250 penalty. 
C) $12,500 income tax; $3,000 penalty. 
D) $12,500 income tax; $5,000 penalty.

Question 19

A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.

Accepted Answer

A) True 
 B)False

Question 20

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.

Accepted Answer

A) True 
 B)False

Exam 13: Retirement Savings and Deferred Compensation

Which of the following statements regarding contributions to defined contribution plans is true?

Which of the following statements regarding traditional IRAs is true?

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 is a true statement regarding saving for retirement?

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

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?

Riley participates in his employer's 401(k) plan. He turns 71 years of age on February 15, 2020, and he plans on retiring on July 1, 2020. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Gordon is a 52-year-old self-employed contractor (no employees). During 2020, his Schedule C net income was $86,000. 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 describes a defined contribution plan?

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

A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.