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Exam 13: Retirement Savings and Deferred Compensation

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Question 61

Multiple Choice

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In 2014, Jessica retired at the age of 65. The current balance in her traditional IRA was $200,000. Over the years, Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account. If Jessica receives a $50,000 distribution from the IRA, what amount of the distribution is taxable?

A) $0
B) $5,000
C) $37,500
D) $45,000
E) $50,000

F) D) and E)
G) All of the above

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Question 62

Multiple Choice

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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?

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.

E) C) and D)
F) None of the above

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Question 63

Multiple Choice

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During 2014 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 2014 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?

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

Lisa, age 45, needed some cash so she received a $50,000 distribution from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 8 years ago. Through a rollover and annual contributions, she has contributed $80,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

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

In 2014, Tyson (age 52) earned $50,000 of salary. Assuming he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in 2014?

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA and he immediately contributes the $50,000 to a Roth IRA. Assuming his marginal tax rate is 25%, what amount of penalty, if any, must Tyson pay on the distribution from the traditional IRA?

Which of the following statements regarding Roth IRAs is false?

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

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

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

Yvette is a 44-year-old self-employed contractor (no employees). During 2014, her Schedule C net income was 400,000. Assuming Yvette has no contributions to other retirement plans. What is the maximum amount that Yvette can contribute to (1) a SEP IRA and (2) an individual 401(k)?

Qualifying distributions from traditional IRAs are nontaxable while qualifying distributions from Roth IRAs are fully taxable as ordinary income.