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Exam 13: Retirement Savings and Deferred Compensation

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Question 61

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Kathy is 48 years of age and self-employed. During 2018 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) ?

A) $55,000.
B) $61,000.
C) $77,337.
D) $83,333.

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Question 62

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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 2018 is required to pay a minimum distribution penalty if she does not receive a distribution in 2018.
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.

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Question 63

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

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 5 decimal places and the future value and final answers to the nearest whole number)

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

Dean has earned $70,000 annually for the past five years working as an architect for WCC Inc. Under WCC's defined benefit plan (which uses a 7-year graded 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 WCC. Dean has worked for five full years for WCC and his vesting percentage is 60%. What is Dean's vested benefit (or annual retirement benefit he has earned so far) ?

Participating in an employer-sponsored nonqualified deferred compensation plan is potentially risky because employers are not required to fund nonqualified plans. If the employer is not able to pay the employee when the payment is due, the employee usually becomes an unsecured creditor of the employer.

Heidi (age 57) invested $4,000 in her Roth 401(k) on January 1, 2010. This was her only contribution to the account. On July 1, 2018, when the account balance was $6,000, she received a nonqualified distribution of $4,500. What is the taxable portion of the distribution and what amount of early distribution penalty will Heidi be required to pay on the distribution?

Which of the following statements regarding IRAs is false?

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

Kathy is 60 years of age and self-employed. During 2018, 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 2018? (Round your final answer to the nearest whole number)

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?

Jessica retired at age 65. On the date of her retirement, the 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 on the date of retirement, what amount of the distribution is taxable?

Which of the following statements regarding Roth IRAs distributions is true?

Kathy is 60 years of age and self-employed. During 2018 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 2018? (Round your final answer to the nearest whole number)