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Exam 13: Retirement Savings and Deferred Compensation

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Question 21

True/False

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

A) True
B) False

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Question 22

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Which of the following statements concerning traditional IRAs and Roth IRAs is true?

A) A taxpayer may contribute to a Roth IRA at any age but a taxpayer is not allowed to contribute to a traditional IRA after reaching 70½ years of age.
B) The annual contribution limits for a traditional IRA and Roth IRA are the same.
C) Taxpayers with high income are allowed to contribute to traditional IRAs but not to Roth IRAs.
D) All of the choices are true.

E) None of the above
F) All of the above

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Question 23

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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 concerning individual 401(k) s is false?

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

Carmello and Leslie (ages 34 and 35, respectively) are married and want to contribute to a Roth IRA. In 2018, 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?

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.

An employer may contribute to an employee's traditional 401(k) account but the employer may not contribute to an employee's Roth 401(k) account.

When employees contribute to a traditional 401(k) plan, they ________ allowed to deduct the contributions and they ________ taxed on distributions from the plan.

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

Cassandra, age 33, has made deductible contributions to her traditional IRA over the years. When the balance in her IRA was $40,000, Cassandra received a distribution of $34,000 from her IRA in order to purchase a new car. How much of the $34,000 distribution will she have remaining after paying income taxes and early distribution penalties on the distribution? Her marginal tax rate is 25 percent.

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

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.

A SEP IRA is an example of a self-employed retirement account.

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

Amy files as a head of household. She determined her 2018 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 2018?

From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.

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

Which of the following statements regarding Roth IRAs is false?

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?