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Exam 13: Retirement Savings and Deferred Compensation

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Question 41

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

A) $95,351.
B) $77,351.
C) $54,000.
D) $60,000.

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

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Question 42

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Which of the following statements regarding Roth 401(k) accounts is false?

A) Employees can make contributions to a Roth 401(k) .
B) Employers can make contributions to Roth accounts on behalf of their employees.
C) Qualified distributions from Roth 401(k) plans are not taxable.
D) Contributions to Roth 401(k) plans are not deductible.

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

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Question 43

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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.

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

In 2017, Madison is a single taxpayer who is 25 years of age. During 2017, she contributed $3,000 to her employer sponsored 401(k) account. Her 2017 AGI was $66,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make her to IRA?

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

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. Thebalance 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 adistribution of the entire $50,000 balance of his traditional IRA and he immediatelycontributes 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?

Sean (age 74 at end of 2017) retired five years ago. The balance in his 401(k) account on December31, 2016 was $1,700,000 and the balance in his account on December 31, 2017 was $1,750,000. In2017, Sean received a distribution of $50,000 from his 401(k) account. Assuming Sean's marginaltax rate is 25 percent, what amount of the $50,000 distribution will Sean have left after paying incometax on the distribution and paying any minimum distribution penalties (use the IRS table below in determining the minimum distribution penalty, if any).

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

Which of the following statements is true regarding employer-provided qualified retirement plans?

In general, which of the following statements regarding self-employed retirement accounts is true?

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

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

This year, Ryan contributed 10 percent of his $75,000 annual salary to a Roth 401(k) account sponsored by his employer, XYZ. XYZ offers a dollar-for-dollar match up to 10 percent of the employee's salary. The employer contributions are placed in a traditional 401(k) account on the employee's behalf. Ryan expects to earn an 8-percent before-tax rate of return on contributions to his Roth and traditional 401(k) accounts. Assuming Ryan leaves the funds in the accounts until heretires in 25 years, what are his after-tax accumulations in the Roth 401(k) and in the traditional401(k) accounts if his marginal tax rate at retirement is 30 percent? If Ryan's marginal tax rate this year is 35 percent will he earn a higher after tax rate of return from the Roth 401(k) or the traditional401(k)? Explain. (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Amy files as a head of household. She determined her 2017 adjusted gross income was$70,000. During the year, she contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for 2017?

Taxpayers never pay tax on the earnings of a traditional 401(k) account.

Which of the following describes a defined benefit plan?

Kathy is 48 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)

Gordon is a 52-year-old self-employed contractor (no employees). During 2017, 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).

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 istaxable?