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Exam 13: Retirement Savings and Deferred Compensation

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Question 21

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

A) Distributions from defined benefit plans are taxable as ordinary income.
B) Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
C) Distributions from defined benefit plans are taxable as capital gains.
D) Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.

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

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Question 22

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

A) If an employer doesn't have the funds to pay the employee,the employee becomes an unsecured creditor of the employer.
B) These plans can be an important tax planning tool for employers if they expect their marginal tax rate to decrease over time.
C) These plans can be an important tax planning tool for employees who expect their marginal tax rate to increase over time.
D) Distributions are taxed at the same tax rate as long-term capital gains.

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

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Question 23

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Deborah (single,age 29)earned $25,000 in 2019.Deborah was able to contribute $1,800 ($150/month)to her employer-sponsored 401(k).What is the total saver's credit that Deborah can claim for 2019? Use Exhibit 13-8.

When a taxpayer receives a nonqualified distribution from a Roth 401(k)account the taxpayer contributions are deemed to be distributed first.If the amount of the distribution exceeds the taxpayer contributions,the remainder is from the account earnings.

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

Georgeanne has been employed by SEC Corp.for the last two and a half years.Georgeanne participates in SEC's 401(k)plan.During her employment,Georgeanne has contributed $6,000 to her 401(k)account.SEC has contributed $3,000 to Georgeanne's 401(k)account (it matched 50 cents of every dollar contributed).SEC uses a three-year cliff vesting schedule.If Georgeanne were to quit her job with SEC,what would be her vested benefit in her 401(k)account (assume the account balance is $9,000)?

Henry has been working for Cars Corp.for 40 years and four months.Cars Corp.provides a defined benefit plan for its employees.Under the plan,employees receive 2 percent of the average of their three highest annual salaries for each full year of service.Cars Corp.uses a five-year cliff vesting schedule.Henry retired on January 1,2019.Henry received annual salaries of $520,000,$540,000,and $560,000 for 2016,2017,and 2018,respectively.What is the maximum benefit Henry can receive under the plan in 2019?

Which of the following describes a defined benefit plan?

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

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

Employee contributions to traditional 401(k)accounts are deductible by the employee,but employee contributions to Roth 401(k)accounts are not.

Amy is single.During 2019,she determined her adjusted gross income was $12,000.During the year,Amy also contributed $1,500 to a Roth IRA.What is the maximum saver's credit she may claim for the year?

Distributions from defined benefit plans are taxed as long-term capital gains to beneficiaries.

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

Shauna received a $100,000 distribution from her 401(k) account this year.Assuming Shauna's marginal tax rate is 25 percent,what is the total amount of tax and penalty Shauna will be required to pay if she receives the distribution on her 59^th birthday and she has not yet retired?

Carmello and Leslie (ages 34 and 35,respectively)are married and want to contribute to a Roth IRA.In 2019,their AGI totaled $42,000 before any IRA-related transactions.Of the $42,000,Carmello earned $35,000 and Leslie earned $7,000.How much can each spouse contribute to a Roth IRA if they file jointly? How much can each spouse contribute to a Roth IRA if they file separately?

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

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 percent penalty?

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

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