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Exam 13: Retirement Savings and Deferred Compensation

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Question 51

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Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2017 and he plans on retiring on July 1, 2019. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

A) By April 1, 2017.
B) By April 1, 2018.
C) By April 1, 2019.
D) By April 1, 2020.

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

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Question 52

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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?

A) $0.
B) $10,000.
C) $12,000.
D) $18,000.
E) $30,000.

F) B) and C)
G) C) and D)

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Question 53

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

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $30,000, she received a distribution of the entire $30,000 balance of her traditional IRA. She retained $5,000 of the distribution to help her pay the taxes due from the distribution and she immediately contributed the remaining $25,000 to a Roth IRA. What amount of tax and early distribution penalty is she required to pay on the $30,000 distribution from the traditional IRA if her marginal tax rate is 25 percent?

In 2018, Madison is a single taxpayer who is 25 years of age. During 2018, she contributed $3,000 to her employer sponsored 401(k) account. Her 2018 AGI was $67,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make her to IRA?

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)

Dean has earned $70,000 annually for the past 4½ years working as an architect for MWC. Under MWC's defined benefit plan (which uses a 5-year cliff 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 MWC. What is Dean's vested benefit (or annual benefit he has earned so far) ?

Retired taxpayers over 59½ years of age at the end of the year must receive minimum distributions from defined contribution plans or they are subject to a penalty.

Qualified distributions from traditional IRAs are nontaxable while qualified distributions from Roth IRAs are fully taxable as ordinary income.

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

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) ?

If a taxpayer's marginal tax rate is decreasing, a taxpayer contributing to a traditional IRA can earn an after-tax rate of return greater than her before-tax rate of return.

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 an individual 401(k) for 2018? (Round your final answer to the nearest whole number)

Henry has been working for Cars Corp. for 40 years and 4 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, 2018 Henry received annual salaries of $520,000, $540,000, and $560,000 for 2015, 2016, and 2017, respectively. What is the maximum benefit Henry can receive under the plan in 2018?

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?

Daniela retired at the age of 65. The current balance in her Roth IRA is $200,000. Daniela established the Roth IRA 10 years ago. Through a rollover and annual contributions Daniela has contributed $80,000 to her account. If Daniela receives a $50,000 distribution from the Roth IRA, what amount of the distribution is taxable?

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

Which of the following statements regarding vesting in a defined benefit plan is correct?

Scott and his wife Leanne (ages 39 and 37 respectively) earned $50,000 in 2018. 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 2018?

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