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Exam 13: Retirement Savings and Deferred Compensation

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Question 1

True/False

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

A) True
B) False

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Question 2

Multiple Choice

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Riley participates in his employer's 401(k) plan.He retired in 2019 at age 75.When must Riley receive his distribution pertaining to 2019 to avoid minimum distribution penalties?

A) April 1,2019.
B) April 1,2020.
C) December 31,2019.
D) December 31,2020.

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

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Question 3

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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.

Lisa,age 45,needed some cash so she withdrew $50,000 from her Roth IRA.At the time of the distribution,the balance in the Roth IRA was $200,000.Lisa established the Roth IRA eight 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?

Lisa,age 45,needed some cash so she withdrew $50,000 from her Roth IRA.At the time of the distribution,the balance in the Roth IRA was $200,000.Lisa established the Roth IRA 10 years ago.Over the years,she has contributed $20,000 to her account.What amount of the distribution is taxable and subject to early distribution penalty?

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 percent,what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Which of the following taxpayers is most likely to qualify for the saver's credit?

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.

Yvette is a 44-year-old self-employed contractor (no employees).During 2019,her Schedule C net income was $500,000.Assume 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)? (Round your answers to the nearest whole number.)

Which of the following statements regarding defined benefit plans is false?

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

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?

Aiko (single,age 29)earned $40,000 in 2019.He was able to contribute $1,800 ($150/month)to his employer-sponsored 401(k).What is the total saver's credit that Aiko can claim for 2019? Exhibit 13-8

Kathy is 60 years of age and self-employed.During 2019,she reported $500,000 of revenues and $100,000 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 an individual 401(k) for 2019? Assume she pays $27,192 in self-employment for 2019.(Round your final answer to the nearest whole number.)

Scott and his wife,Leanne (ages 39 and 37,respectively),earned $50,000 in 2019.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 2019?

Which of the following statements is true regarding distributions from Roth 401(k) accounts?

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.

In 2019,Tyson (age 22)earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income).Assuming he does not participate in an employer-sponsored plan,what is the maximum deductible IRA contribution Tyson can make in 2019?

Both employers and employees may contribute to defined contribution plans.However,the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

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.