Exam 13: Retirement Savings and Deferred Compensation

Riley participates in his employer's 401(k) plan. He turns 69 years of age on February 15, 2014, and he plans on retiring on July 1, 2014. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Which of the following statements regarding traditional IRAs is true?

High-income taxpayers are not allowed to receive the saver's credit.

Deborah (single, age 29) earned $25,000 in 2014. Deborah was able to contribute $1,800 ($150/month) to her employer sponsored 401(k). What is the total saver's credit that Deborah can claim for 2014?

Distributions from defined benefit plans are taxed as long-term capital gains to beneficiaries.

Amy files as a head of household. She determined her 2014 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 2014?

Taxpayers never pay tax on the earnings of a traditional 401(k) account.

Which of the following statements regarding Roth IRAs distributions is true?

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

The standard retirement benefit an employee will receive under a defined benefit plan depends on the number of years of service the employee provides, but does not consider the amount of the employee's compensation near retirement.

Employers may choose whom they allow to participate and whom they do not allow to participate in their nonqualified deferred compensation plans.

Jacob participates in his employer's defined benefit plan. He has worked for his employer for four full years. If his employer uses a five-year cliff vesting schedule, Jacob will need to work another year in order to vest in any of his defined benefit plan retirement benefits.

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

In 2014, Christina made a one-time contribution of $12,000 to her 401(k) account, and she received a matching contribution from her employer in the amount of $4,000. Christina expects to earn a 6-percent before-tax rate of return on her account balance. Assuming Christina withdraws the entire balance in 25 years when she retires, what is Christina's after-tax accumulation from the 2014 contributions to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.

Which of the following best describes distributions from a traditional defined contribution plan?

Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Heidi has contributed $20,000 in total to her Roth 401(k) account over a six year period. In 2014, when her account was worth $50,000 and Heidi was in desperate need of cash, Heidi received a $30,000 nonqualified distribution from the account. How much of the distribution will be subject to income tax and 10% penalty?

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?

Which of the following statements concerning nonqualified deferred compensation plans is true?

Dean has earned $70,000 annually for the past 4½ years working as an architect for MWC. Under MWC's defined benefit plan (which uses a 5-year cliff vesting schedule) employees earn a benefit equal to 3.5% of the average of their three highest annual salaries for every full year of service with MWC. What is Dean's vested benefit (or annual benefit he has earned so far)?