Question 1

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. 
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 2

Which of the following statements comparing qualified defined contribution plans and nonqualified deferred compensation plans is false?

Accepted Answer

A)  Employers must fund qualified defined contribution plans but not nonqualified deferred compensation plans. 
B)  Qualified defined contribution plans are subject to formal vesting requirements while nonqualified deferred compensation plans are not. 
C)  Distributions from both types of plans are taxed at ordinary income tax rates. 
D)  In terms of tax consequences to the employee, earnings on qualified plans (except Roth plans) are deferred until distributed to the employee but earnings on nonqualified plans are immediately taxable. 
A)  Employers must fund qualified defined contribution plans but not nonqualified deferred compensation plans. 
B)  Qualified defined contribution plans are subject to formal vesting requirements while nonqualified deferred compensation plans are not. 
C)  Distributions from both types of plans are taxed at ordinary income tax rates. 
D)  In terms of tax consequences to the employee, earnings on qualified plans (except Roth plans) are deferred until distributed to the employee but earnings on nonqualified plans are immediately taxable.

Question 3

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)?

Accepted Answer

A)  $12,250. 
B)  $42,000. 
C)  $7,350. 
D)  $0. 
A)  $12,250. 
B)  $42,000. 
C)  $7,350. 
D)  $0.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

A)  Shauna is 60 years of age but not yet retired when she receives the distribution. 
B)  Shauna is 58 years of age but not yet retired when she receives the distribution. 
C)  Shauna is 56 years of age and retired when she receives the distribution. 
D)  Shauna is 69 years of age but not yet retired when she receives the distribution. 
A)  Shauna is 60 years of age but not yet retired when she receives the distribution. 
B)  Shauna is 58 years of age but not yet retired when she receives the distribution. 
C)  Shauna is 56 years of age and retired when she receives the distribution. 
D)  Shauna is 69 years of age but not yet retired when she receives the distribution.

Question 8

Amy is single. During 2018, 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. 
A)  $750. 
B)  $1,000. 
C)  $1,500. 
D)  $0.

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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% before-tax rate of return no matter which plan she contributes to. Which of the following statements is true?

Accepted Answer

A)  If Jenny's marginal tax rate in the year of contribution is higher than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan. 
B)  If Jenny's marginal tax rate in the year of contribution is lower than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan. 
C)  Jenny will earn the same after-tax rate of return no matter which plan she contributes to. 
D)  Jenny is not allowed to make a one-time contribution to either plan. 
A)  If Jenny's marginal tax rate in the year of contribution is higher than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan. 
B)  If Jenny's marginal tax rate in the year of contribution is lower than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan. 
C)  Jenny will earn the same after-tax rate of return no matter which plan she contributes to. 
D)  Jenny is not allowed to make a one-time contribution to either plan.

Question 11

Aiko (single, age 29) earned $40,000 in 2018. He was able to contribute $1,800 ($150/month) to his employer sponsored 401(k). What is the total saver's credit that Aiko can claim for 2018? Exhibit 13-9

Accepted Answer

$0
Single taxpayers

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not 
A)  are; are not 
B)  are; are 
C)  are not; are 
D)  are not; are not

Question 14

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

Accepted Answer

A)  SEP IRA. 
B)  SERA 403(c). 
C)  Individual 401(k). 
D)  None of the choices are correct. All of the choices are self-employed retirement accounts. 
A)  SEP IRA. 
B)  SERA 403(c). 
C)  Individual 401(k). 
D)  None of the choices are correct. All of the choices are self-employed retirement accounts.

Question 15

Individual 401(k) plans generally have higher contribution limits than SEP IRAs.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

In 2018, Madison is a single taxpayer who is 25 years of age. During 2018, she contributed $3,000 to her employer sponsored 401(k) account. Her 2018 AGI was $67,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make her to IRA?

Accepted Answer

$3,025
Because she participates in an em

Question 18

Kathy is 60 years of age and self-employed. During 2018 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 a simplified employee pension (SEP) IRA for 2018? (Round your final answer to the nearest whole number)

Accepted Answer

A)  $55,000. 
B)  $61,000. 
C)  $77,337. 
D)  $369,400. 
A)  $55,000. 
B)  $61,000. 
C)  $77,337. 
D)  $369,400.

Question 19

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

Question 20

Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2017 and he plans on retiring on July 1, 2019. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Accepted Answer

A)  By April 1, 2017. 
B)  By April 1, 2018. 
C)  By April 1, 2019. 
D)  By April 1, 2020. 
A)  By April 1, 2017. 
B)  By April 1, 2018. 
C)  By April 1, 2019. 
D)  By April 1, 2020.

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 comparing qualified defined contribution plans and nonqualified deferred compensation plans is false?

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

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.

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.

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?

Amy is single. During 2018, 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?

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.

Aiko (single, age 29) earned $40,000 in 2018. He was able to contribute $1,800 ($150/month) to his employer sponsored 401(k). What is the total saver's credit that Aiko can claim for 2018? Exhibit 13-9

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

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

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

Individual 401(k) plans generally have higher contribution limits than SEP IRAs.

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.

In 2018, Madison is a single taxpayer who is 25 years of age. During 2018, she contributed $3,000 to her employer sponsored 401(k) account. Her 2018 AGI was $67,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make her to IRA?

Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2017 and he plans on retiring on July 1, 2019. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

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