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Exam 13: Retirement Savings and Deferred Compensation

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Question 61

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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?

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$7,500 income tax; $500 early distributi...

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Question 62

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Participating in an employer-sponsored nonqualified deferred compensation plan is potentially risky because employers are not required to fund nonqualified plans. If the employer is not able to pay the employee when the payment is due, the employee usually becomes an unsecured creditor of the employer.

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B) False

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Question 63

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

In 2019, Madison is a single taxpayer who is 25 years of age. During 2019, she contributed $3,000 to her employer-sponsored 401(k)account. Her 2019 AGI was $68,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make to her IRA?

Jenny (35 years old) is considering making a one-time contribution to either a traditional 401(k) plan or to a Roth 401(k) plan. She plans to withdraw the account balance when she retires in 40 years. Jenny expects to earn a 7 percent before-tax rate of return no matter which plan she contributes to. Which of the following statements is true?

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

Kathy is 48 years of age and self-employed. During 2019 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 a simplified employee pension (SEP) IRA for 2019? (Round your final answer to the nearest whole number.)

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

Ryan, age 48, received an $8,000 distribution from his traditional IRA to pay for medical expenses. Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent. What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?

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.

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

Amy files as a head of household. She determined her 2019 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 2019?