Question 1

When employees contribute to a traditional 401(k) plan, 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

Question 2

Which of the following statements is true regarding employer-provided qualified retirement plans?

Accepted Answer

A)  May discriminate against rank and file employees. 
B)  Deductible contributions are generally phased-out based on AGI. 
C)  Executives are generally ineligible to participate in these plans. 
D)  They are generally referred to as defined benefit plans or defined contribution plans.

Question 3

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

Accepted Answer

A)  Under a cliff vesting schedule, a portion of an employee's benefits vest each year. 
B)  Under a graded vesting schedule, an employee's entire benefit vests all at the same time. 
C)  When an employee's benefits vest, she is entitled to participate in the employer's defined benefit plan. 
D)  When an employee's benefits vest, she is legally entitled to receive the vested benefits.

Question 4

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 5

When a taxpayer receives a nonqualified distribution from a Roth 401(k) account the taxpayer contributions are deemed to be distributed first. If the amount of the distribution exceeds the taxpayer contributions, the remainder is from the account earnings.

Accepted Answer

A) True 
 B)False

Question 6

Cassandra, age 33, has made deductible contributions to her traditional IRA over the years. When the balance in her IRA was $40,000, Cassandra received a distribution of $34,000 from her IRA in order to purchase a new car. How much of the $34,000 distribution will she have remaining after paying income taxes and early distribution penalties on the distribution? Her marginal tax rate is 25 percent.

Accepted Answer

The answer of Cassandra, age 33, has made deductible contributions...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Amy files as a head of household. She determined her 2018 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 2018?

Accepted Answer

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

Question 9

On March 30, Rodger (age 56) was laid off from his employer of 30 years due to rough economic times. During his 30 years of employment, Rodger contributed $300,000 to his traditional 401(k) account. When Rodger was let go, his 401(k) account balance was $900,000 (this included both employer matching and account earnings). Rodger immediately withdrew $40,000 to use as an emergency savings fund. What amount of tax and early distribution penalties must Rodger pay on the $40,000 withdrawal if his ordinary marginal tax rate is 28 percent?

Accepted Answer

The answer of On March 30, Rodger (age 56) was...

Question 10

Which of the following statements concerning traditional IRAs and Roth IRAs is true?

Accepted Answer

A)  A taxpayer may contribute to a Roth IRA at any age but a taxpayer is not allowed to contribute to a traditional IRA after reaching 70½ years of age. 
B)  The annual contribution limits for a traditional IRA and Roth IRA are the same. 
C)  Taxpayers with high income are allowed to contribute to traditional IRAs but not to Roth IRAs. 
D)  All of the choices are true.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements regarding Roth IRAs is false?

Accepted Answer

A)  Contributions to Roth IRAs are not deductible. 
B)  Qualified distributions from Roth IRAs are not taxable. 
C)  Whether or not they participate in an employer-sponsored retirement plan, taxpayers are allowed to contribute to Roth IRAs as long as their modified AGI does not exceed certain thresholds. 
D)  Taxpayers who are married and file separately are not allowed to contribute to Roth IRAs.

Question 13

Which of the following statements concerning individual 401(k)s is false?

Accepted Answer

A)  In general, individual 401(k)s have higher administrative costs than SEP IRAs. 
B)  Employees of the taxpayer cannot participate in individual 401(k)s. 
C)  Individual 401(k)s are available only to self-employed taxpayers with 100 or fewer employees. 
D)  Individual 401(k)s have contribution limitations.

Question 14

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

An employer may contribute to an employee's traditional 401(k) account but the employer may not contribute to an employee's Roth 401(k) account.

Accepted Answer

A) True 
 B)False

Question 17

Carmello and Leslie (ages 34 and 35, respectively) are married and want to contribute to a Roth IRA. In 2018, their AGI totaled $42,000 before any IRA-related transactions. 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?

Accepted Answer

The answer of Carmello and Leslie (ages 34 and 35,...

Question 18

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

Accepted Answer

A)  In a given year, a taxpayer may participate in either an employer-sponsored defined benefit plan or defined contribution plan but not both. 
B)  In a given year, a taxpayer who receives salary as an employee and also receives self-employment income may participate in an employer-sponsored defined contribution plan or may contribute to a self-employed retirement account but not both. 
C)  In a given year, a taxpayer may contribute to an IRA (either traditional or Roth) or contribute to a self-employment retirement account but not both. 
D)  None of the choices is a true statement.

Question 19

Scott and his wife Leanne (ages 39 and 37 respectively) earned $50,000 in 2018. Scott was able to contribute $2,400 ($200/month) to his employer sponsored 401(k). What amount of saver's credit can Scott and Leanne claim in 2018?

Accepted Answer

The answer of Scott and his wife Leanne (ages 39...

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 13: Retirement Savings and Deferred Compensation

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

Which of the following statements is true regarding employer-provided qualified retirement plans?

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

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

When a taxpayer receives a nonqualified distribution from a Roth 401(k) account the taxpayer contributions are deemed to be distributed first. If the amount of the distribution exceeds the taxpayer contributions, the remainder is from the account earnings.

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

Amy files as a head of household. She determined her 2018 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 2018?

Which of the following statements concerning traditional IRAs and Roth IRAs is true?

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

Which of the following statements regarding Roth IRAs is false?

Which of the following statements concerning individual 401(k) s is false?

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.

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

An employer may contribute to an employee's traditional 401(k) account but the employer may not contribute to an employee's Roth 401(k) account.

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

Scott and his wife Leanne (ages 39 and 37 respectively) earned $50,000 in 2018. Scott was able to contribute $2,400 ($200/month) to his employer sponsored 401(k). What amount of saver's credit can Scott and Leanne claim in 2018?

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.