Exam 13: Retirement Savings and Deferred Compensation

During 2019,Jacob,a 19-year-old full-time student,earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan.The general limit for deductible contributions to an IRA during 2019 is $6,000.How much of a tax-deductible contribution can Jacob make to an IRA?

Which of the following statements regarding Roth IRAs is false?

Amy files as a head of household.She determined her 2019 adjusted gross income was $70,000.During the year,she contributed $2,500 to a Roth IRA.What is the maximum saver's credit she may claim for 2019?

When an employer matches an employee's contribution to the employee's 401(k)account,the employee is immediately taxed on the amount of the employer's matching contribution.

Joan recently started her career with PDEK Accounting,LLP,which provides a defined benefit plan for all employees.Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service.Plan benefits vest under a five-year cliff schedule.Joan worked five and a half years at PDEK before leaving for another opportunity.She received an annual salary of $49,000,$52,000,$58,000,$65,000,and $75,000 for years one through five,respectively.Joan earned $40,000 of her $80,000 annual salary in year six.What is the vested benefit Joan is entitled to receive from PDEK for her retirement? Use Exhibit 13-1.

Just like distributions from qualified retirement plans,distributions from nonqualified deferred compensation plans are taxed as ordinary income to the recipient.

Which of the following is not a self-employed retirement account?

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

Gordon is a 52-year-old self-employed contractor (no employees).During 2019,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.)

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs)under any circumstances.

In general,which of the following statements regarding self-employed retirement accounts is true?

A SEP IRA is an example of a self-employed retirement account.

Which of the following is true concerning SEP IRAs?

Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan.In the current year,Katrina defers 15 percent of her $300,000 salary.Katrina's deemed investment choice will earn 8 percent annually on the deferred compensation until she takes a lump-sum distribution in 10 years.Katrina's current marginal tax rate is 30 percent and she expects her marginal tax rate to be 28 percent upon receipt on the deferred salary.What is her after-tax accumulation from the deferred salary in 10 years? (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Ryan,age 48,received an $8,000 distribution from his traditional IRA to pay for medical expenses.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?

Qualified distributions from traditional IRAs are nontaxable while qualified distributions from Roth IRAs are fully taxable as ordinary income.

Darren is eligible to contribute to a traditional 401(k)in 2019.He forgot to contribute before year-end.If he contributes before April 15,2020,he is allowed to treat the contribution as though he made it during 2019.

Which of the following statements describes how a traditional 401(k)account is similar to a Roth 401(k)account?

Kathy is 48 years of age and self-employed.During 2019 she reported $500,000 of revenues and $100,000 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)?

Joan recently started her career with PDEK Accounting,LLP,which provides a defined benefit plan for all employees.Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service.Plan benefits vest under a five-year cliff schedule.Joan worked four and a half years at PDEK before leaving for another opportunity.She received an annual salary of $49,000,$52,000,$58,000,and $65,000 for years one through four,respectively.Joan earned $35,000 of her $70,000 annual salary in year five.What is the vested benefit Joan is entitled to receive from PDEK for her retirement?