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Exam 13: Retirement Savings and Deferred Compensation

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Question 1

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

A) Individual 401(k) .
B) SEP IRA.
C) SEM 403(c) .
D) None of the choices are correct. All of the choices are self-employed retirement accounts.

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

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Question 2

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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) Employees of the taxpayer cannot be included in SEP IRAs.
C) Taxpayers with a SEP IRA must contribute for their employees.
D) Taxpayers may contribute unlimited amounts to SEP IRAs.

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

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Question 3

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Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan. In the current year, Katrina defers 15 percent of her $300,000 salary. Katrina's deemed investment choice will earn 8 percent annually on the deferred compensation until she takes a lump sum distribution in 10 years. Katrina's current marginal tax rate is 30 percent and she expects her marginal tax rate to be 28 percent upon receipt on the deferred salary. What is her after-tax accumulation from the deferred salary in 10 years? (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Jenny (35 years old) is considering making a one-time contribution to either a traditional401(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% before-tax rate of return no matter which plan she contributes to. Which of the following statements is true?

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 8 years ago. Through a rollover and annual contributions, she has contributed$80,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Aiko (single, age 29) earned $40,000 in 2017. He was able to contribute $1,800 ($150/month) to his employer sponsored 401(k). What is the total saver's credit that Aiko can claim for 2017? Exhibit13-9

Kathy is 60 years of age and self-employed. During 2017 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 a simplified employee pension (SEP) IRA for 2017? (Round your final answer to the nearest whole number)

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.

Georgeanne has been employed by SEC Corp. for the last 2½ years. Georgeanne participates inSEC's 401(k) plan. During her employment, Georgeanne has contributed $6,000 to her 401(k)account. SEC has contributed $3,000 to Georgeanne's 401(k) account (it matched 50 cents of every dollar contributed). SEC uses a three-year cliff vesting schedule. If Georgeanne were to quit her job with SEC, what would be her vested benefit in her 401(k) account (assume the account balance is$9,000)?

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

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

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?

Kathy is 60 years of age and self-employed. During 2017, 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 2017? (Round your final answer to the nearest whole number)

Yvette is a 44-year-old self-employed contractor (no employees). During 2017, her Schedule C net income was 500,000. Assuming Yvette has no contributions to other retirement plans. What is the maximum amount that Yvette can contribute to (1) a SEP IRA and (2) an individual 401(k)?(Round your answers to the nearest whole number).

Kathy is 48 years of age and self-employed. During 2017, 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 2017? (Round your final answer to the nearest whole number)

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 thedistribution?

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years.When her account balance was $32,000, she transferred the entire $32,000 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 rollover?

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

Sean (age 74 at end of 2017) retired five years ago. The balance in his 401(k) account on December 31, 2016 was $1,700,000 and the balance in his account on December 31, 2017 was $1,800,000. Using the IRS tables below, what is Sean's required minimum distribution for 2017?