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Exam 13: Retirement Savings and Deferred Compensation

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Question 31

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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 2017 is required to pay a minimum distribution penalty if she does not receive a distribution in 2017.
B) Taxpayers are not allowed to deduct either early distribution penalties or minimum distribution penalties.
C) The minimum distribution penalty is 30% of the amount required to have been distributed.
D) 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.

E) A) and D)
F) B) and D)

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Question 32

Multiple Choice

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What is the maximum saver's credit available to any taxpayer in 2017?

A) $500.
B) $1,000.
C) $2,000.
D) It depends on the filing status of the taxpayer.

E) A) and B)
F) A) and C)

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Question 33

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

Heidi, age 45, has contributed $20,000 in total to her Roth 401(k) account over a six-year period. 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?

During 2017, 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 to an IRA during 2017 is $5,500. How much of atax-deductible contribution can Jacob make to an IRA?

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.

Just like distributions from qualified retirement plans, distributions from nonqualified deferred compensation plans are taxed as ordinary income to the recipient.

Kathy is 60 years of age and self-employed. During 2017 she reported $100,000 ofrevenues 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 2017? (Round your final answer to the nearest whole number)

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

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

Which of the following statements concerning individual 401(k) s is false?

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.

Which of the following is a true statement regarding saving for retirement?

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs) under any circumstances.

Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan. This year, Katrina defers 20 percent of her $400,000 salary. Katrina's deemed investment choice will earn 7 percent annually on the deferred compensation until she takes a lump sum distribution in 10 years. Katrina's current marginal tax rate is 30 percent and she expects her marginal tax rate will be 35 percent upon receipt of the deferred salary. What is her after-taxaccumulation from the deferred salary in 10 years? (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Shauna received a distribution from her 401(k) account this year. In which of the following situations will Shauna be subject to an early distribution penalty?

In 2017, Tyson (age 52) earned $50,000 of salary. Assuming he does not participate in anemployer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in2017?

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?

Which of the following statements regarding Roth IRAs is false?

Heidi (age 57) invested $4,000 in her Roth 401(k) on January 1, 2009. This was her onlycontribution to the account. On July 1, 2017, 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?