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Exam 13: Retirement Savings and Deferred Compensation

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Question 41

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Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA (not a coronavirus-related distribution) . At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

A) $0.
B) $5,000.
C) $30,000.
D) $50,000.

E) B) and C)
F) C) and D)

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Question 42

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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?

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Tax is $11,200 ($40,000 × 28%)...

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Question 43

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Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs)under any circumstances.

Riley participates in his employer's 401(k) plan. He turns 72 years of age on February 15, 2019, and he plans on retiring on July 1, 2021. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Which of the following describes a defined benefit plan?

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

In 2021, taxpayers withdrawing funds from an IRA before they turn 72 are generally subject to a 10 percent penalty on the amount of the withdrawal.

Which of the following is not a self-employed retirement account?

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

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1, 2012. This was her only contribution to the account. On July 1, 2020, when the account balance was $6,000, she received a nonqualified distribution of $4,500. What is the taxable portion of the distribution and what amount of early distribution penalty will Heidi be required to pay on the distribution?

Keisha (50 years of age)is considering whether to participate in her company's Roth 401(k)or traditional 401(k). This year, she plans to invest either $4,000 in a Roth 401(k)or $5,000 in a traditional 401(k). Keisha plans on leaving the contribution in the retirement account for 20 years, when she will receive a distribution of the entire balance in the account. Her employer does not have a matching program for employee contributions to retirement accounts. Assume Keisha can earn a 6 percent before-tax return in either account and that she anticipates that in 20 years her tax rate will be 30 percent. 1)What would be Keisha's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k)account? 2)What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k)account? (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?

Which of the following statements regarding self-employed retirement accounts is true?

Christina made a one-time contribution of $16,000 to her 401(k)account, and she received a matching contribution from her employer in the amount of $4,800. Christina expects to earn a 8-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 $16,000 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.)

Deborah (single, age 29)earned $25,600 in 2020. Deborah was able to contribute $1,944 ($162/month)to her employer-sponsored 401(k). What is the total saver's credit that Deborah can claim for 2020? (Use Exhibit 13-8)

Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan. This year, Katrina defers 20 percent of her $404,000 salary. Katrina's deemed investment choice will earn 8 percent annually on the deferred compensation until she takes a lump-sum distribution in 11 years. Katrina's current marginal tax rate is 24 percent and she expects her marginal tax rate will be 35 percent upon receipt of the deferred salary. What is her after-tax accumulation from the deferred salary in 11 years? (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Kathy is 48 years of age and self-employed. During 2020 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) ?

Lisa, age 47, needed some cash so she withdrew $60,000 from her Roth IRA (not a coronavirus-related distribution) . At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $22,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Sean (age 74 at end of 2020)retired five years ago. The balance in his 401(k)account on December 31, 2019, was $1,700,000 and the balance in his account on December 31, 2020, was $1,750,000. In 2020, Sean received a distribution of $50,000 from his 401(k)account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $50,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the Treasury table below in determining therequired minimum distribution penalty, if any).

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $47,000, shedirectly transferred the entire $47,000 out of her traditional IRA and immediately into a Roth IRA. Her current marginal tax rate is 25 percent. What amount of tax and penalty is she required to pay on this conversion?