Exam 13: Retirement Savings and Deferred Compensation

Which of the following statements regarding Roth IRAs is false?

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

During 2016, 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 during 2016 is $4,500. How much of a tax-deductible contribution can Jacob make to an IRA?

Which of the following statements regarding vesting in a defined benefit plan is correct?

Gordon is a 52-year-old self-employed contractor (no employees). During 2016, 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).

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?

Which of the following is true concerning SEP IRAs?

Taxpayers contributing to and receiving distributions from a Roth IRA generally earn a before-tax rate of return on their contributions equal to their after-tax rate of return.

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k) accounts than employees who are not 50 years old by year-end.

This year, Ryan contributed 10 percent of his $75,000 annual salary to a Roth 401(k) account sponsored by his employer, XYZ. XYZ offers a dollar-for-dollar match up to 10 percent of the employee's salary. The employer contributions are placed in a traditional 401(k) account on the employee's behalf. Ryan expects to earn an 8-percent before-tax rate of return on contributions to his Roth and traditional 401(k) accounts. Assuming Ryan leaves the funds in the accounts until he retires in 25 years, what are his after-tax accumulations in the Roth 401(k) and in the traditional 401(k) accounts if his marginal tax rate at retirement is 30 percent? If Ryan's marginal tax rate this year is 35 percent will he earn a higher after tax rate of return from the Roth 401(k) or the traditional 401(k)? Explain.

Carmello and Leslie (ages 34 and 35, respectively) are married and want to contribute to a Roth IRA. In 2015, their AGI totaled $42,000. Of the $42,000, Carmello earned $35,000 and Leslie earned $7,000. How much can each spouse contribute to a Roth IRA if they file jointly? How much can each spouse contribute to a Roth IRA if they file separately?

Which of the following statements regarding traditional IRAs is true?

Kathy is 48 years of age and self-employed. During 2016 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 a simplified employee pension (SEP) IRA for 2016?

Which of the following statements is true regarding distributions from Roth 401(k) accounts?

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 $12,000 contribution to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.

Yvette is a 44-year-old self-employed contractor (no employees). During 2016, her Schedule C net income was 400,000. Assuming Yvette has no contributions to other retirement plans. What is the maximum amount that Yvette can contribute to (1) a SEP IRA and (2) an individual 401(k)?

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.

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?

Sean (age 74 at end of 2016) retired five years ago. The balance in his 401(k) account on December 31, 2015 was $1,700,000 and the balance in his account on December 31, 2016 was $1,750,000. In 2016, Sean received a distribution of $50,000 from his 401(k) account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $50,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the IRS table below in determining the minimum distribution penalty, if any).

When employees contribute to a Roth 401(k) account, they _____ allowed to deduct the contributions and they _______ taxed on distributions from the plan.