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Exam 13: Retirement Savings and Deferred Compensation

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Question 71

Multiple Choice

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Which of the following is true concerning SEP IRAs?

A) SEP IRAs are difficult to set up and have high administrative costs.
B) Taxpayers may contribute unlimited amounts to SEP IRAs .
C) Employees of the taxpayer cannot be included in SEP IRAs.
D) Taxpayers with a SEP IRA must contribute for their employees.

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

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Question 72

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Employers may choose whom they allow to participate and whom they do not allow to participate in their nonqualified deferred compensation plans.

A) True
B) False

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Question 73

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Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA and he immediately contributes the $50,000 to a Roth IRA (not a coronavirus-related distribution) . Assuming his marginal tax rate is 25 percent, what amount of penalty, if any, must Tyson pay on the distribution from the traditional IRA?

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

Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were above the 7.5% of AGI threshold and claimed as itemized deductions on his tax return) , he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA) . Assuming his marginal ordinary income tax rate is 15 percent, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Jacob participates in his employer's defined benefit plan. He has worked for his employer for four full years. If his employer uses a five-year cliff vesting schedule, Jacob will need to work another year in order to vest in any of his defined benefit plan retirement benefits.

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

Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA eight years ago. Through aconversion and annual contributions, she has contributed $80,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

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.

Kathy is 60 years of age and self-employed. During 2020 she reported $102,000 of revenues and $40,400 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 SEP IRA for 2020? (Round your final answer to the nearest whole number.)

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 (not a coronavirus-related distribution). 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?

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 (not a coronavirus-related distribution) . How much of the distribution will be subject to income tax and 10 percent penalty?

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.

Which of the following statements describes how a traditional 401(k) account is similar to a Roth 401(k) account?

Riley participates in his employer's 401(k) plan. He retired in 2020 at age 75. When must Riley receive his distribution pertaining to 2020 to avoid minimum distribution penalties?

Kathy is 48 years of age and self-employed. During 2020 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 SEP IRA for 2020? (Round your final answer to the nearest whole number.)

Ryan, age 48, received an $8,600 distribution from his traditional IRA to pay for medical expenses (above the 7.5% of AGI floor). 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?

Carmello and Leslie (ages 34 and 35, respectively)are married and want to contribute to a Roth IRA. In 2020, 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?

Retired taxpayers over 59½ years of age at the end of the year must receiverequired minimum distributions from defined contribution plans or they are subject to a penalty, unless the distribution requirement is waived under the CARES Act.

In 2020, Madison is a single taxpayer who is 25 years of age. During 2020, she contributed $3,160 to her employer-sponsored 401(k)account. Her 2020 AGI was $69,100 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make to her IRA?