Question 1

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?

Accepted Answer

A)  by April 1, 2014 
B)  by April 1, 2015 
C)  by April 1, 2016 
D)  by April 1, 2017

Question 2

Which of the following statements regarding traditional IRAs is true?

Accepted Answer

A)  Once a taxpayer reaches age 55 years of age she is allowed to contribute an additional $1,000 a year. 
B)  Taxpayers with high income are not allowed to contribute to traditional IRAs. 
C)  Taxpayers who participate in an employer-sponsored retirement plan are allowed to deduct contributions to a traditional IRA regardless of their AGI. 
D)  A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

The answer of Deborah (single, age 29) earned $25,000 in...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  $1,000 
B)  $2,000 
C)  $2,500 
D)  $1,250 
E)  $0

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  A distribution is not a qualifying distribution unless the distribution is at least two years after the taxpayer has opened the Roth IRA. 
B)  A taxpayer receiving a distribution from a Roth IRA before reaching the age of 55 is generally not subject to an early distribution penalty. 
C)  A Roth IRA does not have minimum distribution requirements. 
D)  The full amount of all nonqualifying distributions is subject to tax at the taxpayer's marginal tax rate.

Question 9

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.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

A)  A taxpayer who retires at age 71 in 2014 is required to pay a minimum distribution penalty if she does not receive a distribution in 2014. 
B)  The minimum distribution penalty is 30% of the amount required to have been distributed. 
C)  A taxpayer who receives a distribution from a retirement account before she is 55 years old is subject to a 10% penalty on both the distributed and undistributed portions of her retirement account. 
D)  Taxpayers are not allowed to deduct either early distribution penalties or minimum distribution penalties.

Question 14

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.

Accepted Answer

The answer of In 2014, Christina made a one-time contribution...

Question 15

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

Accepted Answer

A)  Distributions from defined contribution plans are fully taxable as ordinary income. 
B)  Distributions from defined contribution plans are partially taxable as ordinary income and partially nontaxable as a return of capital. 
C)  Distributions from defined contribution plans are fully taxable as capital gains. 
D)  Distributions from defined contribution plans are partially taxable as capital gains and partially nontaxable as a return of capital.

Question 16

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?

Accepted Answer

A)  $3,000 income tax; $2,000 early distribution penalty 
B)  $3,000 income tax; $0 early distribution penalty 
C)  $0 income tax; $2,000 early distribution penalty 
D)  $0 income tax; $0 early distribution penalty

Question 17

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?

Accepted Answer

A)  $0 
B)  $10,000 
C)  $12,000 
D)  $18,000 
E)  $30,000

Question 18

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.

Question 19

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

Accepted Answer

A)  If an employer doesn't have the funds to pay the employee, the employee becomes an unsecured creditor of the employer. 
B)  These plans can be an important tax planning tool for employers if they expect their marginal tax rate to decrease over time. 
C)  These plans can be an important tax planning tool for employees who expect their marginal tax rate to increase over time. 
D)  Distributions are taxed at the same tax rate as long-term capital gains.

Question 20

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

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?

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

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?