Exam 13: Retirement Savings and Deferred Compensation

Kathy is 60 years of age and self-employed.During 2019,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 2019? Assume she paid $8,478 of self-employment tax for 2019.(Round your final answer to the nearest whole number.)

Which of the following describes a defined contribution plan?

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Which of the following statements concerning individual 401(k)s is false?

Tatia,age 38,has made deductible contributions to her traditional IRA over the past few years.When her account balance was $32,000,she 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 rollover?

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

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

Which of the following statements is true regarding employer-provided qualified retirement plans?

Jessica retired at age 65.On the date of her retirement,the balance in her traditional IRA was $200,000.Over the years,Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account.If Jessica receives a $50,000 distribution from the IRA on the date of retirement,what amount of the distribution is taxable?

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

Both traditional 401(k)plans and Roth 401(k)plans are forms of defined contribution plans.

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to contribute to individual retirement accounts (IRAs).

Shauna received a distribution from her 401(k)account this year.In which of the following situations will Shauna be subject to an early distribution penalty?

Jenny (35 years old)is considering making a one-time contribution to either a traditional 401(k)plan or to a Roth 401(k)plan.She plans to withdraw the account balance when she retires in 40 years.Jenny expects to earn a 7 percent before-tax rate of return no matter which plan she contributes to.Which of the following statements is true?

Dean has earned $70,000 annually for the past five years working as an architect for WCC Inc.Under WCC's defined benefit plan (which uses a seven-year graded vesting schedule)employees earn a benefit equal to 3.5 percent of the average of their three highest annual salaries for every full year of service with WCC.Dean has worked for five full years for WCC and his vesting percentage is 60 percent.What is Dean's vested benefit (or annual retirement benefit he has earned so far)?

Taxpayers withdrawing funds from an IRA before they turn 70½ are generally subject to a 10 percent penalty on the amount of the withdrawal.

Riley participates in his employer's 401(k)plan.He turns 70 years of age on February 15,2018,and he plans on retiring on July 1,2020.When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1,2011.This was her only contribution to the account.On July 1,2019,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?

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.What amount of income tax and penalty must Tyson pay on this series of transactions?

Retired taxpayers over 59½ years of age at the end of the year must receive minimum distributions from defined contribution plans or they are subject to a penalty.