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Exam 13: Retirement Savings and Deferred Compensation

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Question 41

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Which of the following statements regarding self-employed retirement accounts is true?

A) A self-employed taxpayer who has hired employees may not set up a SEP IRA.
B) A self-employed taxpayer who has hired employees may set up either a SEP IRA or an individual 401(k) .
C) A self-employed taxpayer who has hired employees may not set up an individual 401(k) .
D) All of these statements are false.See discussion of nontax factors of self-employed retirement accounts in text.

E) C) and D)
F) A) and C)

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Question 42

Multiple Choice

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

A) A taxpayer who retires at age 71 in 2013 is required to pay a minimum distribution penalty if she does not receive a distribution in 2013.
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.Early distribution and minimum distribution penalties are not tax deductible.

E) C) and D)
F) A) and D)

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Question 43

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

Taxpayers withdrawing funds from an IRA before they turn 70½ are generally subject to a 10 percent penalty on the amount of the withdrawal.

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

Gordon is a 52-year-old self-employed contractor (no employees) .During 2013,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)

Riley participates in his employer's 401(k) plan.He turns 69 years of age on February 15,2013,and he plans on retiring on July 1,2013.When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

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.

Heidi has contributed $20,000 in total to her Roth 401(k) account over a six year period.In 2013,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?

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.

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.

Amy files as a head of household.She determined her 2013 adjusted gross income was $60,000.During the year,she contributed $2,500 to a Roth IRA.What is the maximum saver's credit she may claim for 2013?

During 2013 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 2013 is $5,500.How much of a tax-deductible contribution can Jacob make to an IRA?

Employee contributions to traditional 401(k) accounts are deductible by the employee,but employee contributions to Roth 401(k) accounts are not.

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.

Daniela retired at the age of 65.The current balance in her Roth IRA is $200,000.Daniela established the Roth IRA 10 years ago.Through a rollover and annual contributions Daniela has contributed $80,000 to her account.If Daniela receives a $50,000 distribution from the Roth IRA,what amount of the distribution is taxable?

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) ?

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

Amy is single.During 2013,she determined her adjusted gross income was $12,000.During the year,Amy also contributed $2,500 to a Roth IRA.What is the maximum saver's credit she may claim for the year?

When an employer matches an employee's contribution to the employee's 401(k) account,the employee is immediately taxed on the amount of the employer's matching contribution.