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Exam 13: Retirement Savings and Deferred Compensation

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Question 51

True/False

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Taxpayers who participate in an employer-sponsored retirement plan are not allowed to contribute to individual retirement accounts (IRAs).

A) True
B) False

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Question 52

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

A) Employers are required to invest salary deferred by employees in investments specified by the employees.
B) Employers are required to annually fund their deferred compensation obligations to employees.
C) Employers annually deduct the amount earned by employees under the plan.
D) Employers may discriminate in terms of who they allow to participate in the plan.

E) A) and B)
F) All of the above

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Question 53

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Both traditional 401(k)plans and Roth 401(k)plans are forms of defined contribution plans.

Gordon is a 52-year-old self-employed contractor (no employees). During 2019, 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.)

Darren is eligible to contribute to a traditional 401(k)in 2019. He forgot to contribute before year-end. If he contributes before April 15, 2020, he is allowed to treat the contribution as though he made it during 2019.

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

Which of the following describes a defined benefit plan?

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?

Riley participates in his employer's 401(k) plan. He turns 69 years of age on February 15, 2019, and he plans on retiring on July 1, 2019. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Deborah (single, age 29)earned $25,000 in 2019. 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 2019? Use Exhibit 13-8.

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

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.

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

Which of the following describes a defined contribution plan?

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

Kathy is 60 years of age and self-employed. During 2019 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 2019? (Round your final answer to the nearest whole number.)

Heidi retired from GE (her employer)at age 56. At the end of the year, when she was 56 years of age, Heidi received a distribution from her GE-sponsored 401(k)account. Because Heidi was not at least 59½ years of age at the time of the distribution, she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution.

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

Amy is single. During 2019, 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?

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. (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)