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Exam 13: Retirement Savings and Deferred Compensation

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Question 21

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Scott and his wife Leanne (ages 39 and 37 respectively) earned $50,000 in 2017. 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 2017?

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$200
$2,000 (maximum contribut...

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Question 22

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If a taxpayer's marginal tax rate is decreasing, a taxpayer contributing to a traditionalIRA can earn an after-tax rate of return greater than her before-tax rate of return.

A) True
B) False

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Question 23

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Dean has earned $70,000 annually for the past five years working as an architect forWCC Inc. Under WCC's defined benefit plan (which uses a 7-year graded vestingschedule) employees earn a benefit equal to 3.5% of the average of their three highest annual salaries for every full year of service with WCC. Dean has worked for five full years for WCC and his vesting percentage is 60%. What is Dean's vested benefit (or annual retirement benefit he has earned so far) ?

The standard retirement benefit an employee will receive under a defined benefit plandepends on the number of years of service the employee provides, but does not consider the amount of the employee's compensation near retirement.

Which of the following taxpayers is most likely to qualify for the saver's credit?

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

In 2017, Tyson (age 22) earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income). Assuming he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in 2017?

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 10 years ago. Over the years, she has contributed $20,000 to her account. Whatamount of the distribution is taxable and subject to early distribution penalty?

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

When an employer matches an employee's contribution to the employee's 401(k)account, the employee is immediately taxed on the amount of the employer's matching contribution.

Joan recently started her career with PDEK Accounting, LLP which provides a defined benefit plan for all employees. Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service. Plan benefits vest under a 5-year cliff schedule. Joan worked 4½ yearsat PDEK before leaving for another opportunity. She received an annual salary of $49,000, $52,000,$58,000 and $65,000 for years one through four, respectively. Joan earned $35,000 of her $70,000 annual salary in year five. What is the vested benefit Joan is entitled to receive from PDEK for her retirement?

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 regarding Roth IRAs distributions is true?

Which of the following statements regarding contributions to defined contribution plans is true?

Dean has earned $70,000 annually for the past 4½ years working as an architect for MWC. Under MWC's defined benefit plan (which uses a 5-year cliff vesting schedule) employees earn a benefit equal to 3.5% of the average of their three highest annual salaries for every full year of service with MWC. What is Dean's vested benefit (orannual benefit he has earned so far) ?

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

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

Riley participates in his employer's 401(k) plan. He turns 69 years of age on February 15,2017, and he plans on retiring on July 1, 2017. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Christina made a one-time contribution of $12,000 to her 401(k) account, and she received a matching contribution from her employer in the amount of $4,000. Christina expects to earn a6-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 $12,000 contribution to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.(Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Henry has been working for Cars Corp. for 40 years and 4 months. Cars Corp. provides a defined benefit plan for its employees. Under the plan, employees receive 2 percent of the average of their three highest annual salaries for each full year of service. Cars Corp. uses a five year cliff vesting schedule. Henry retired on January 1, 2017 Henry received annual salaries of $520,000, $540,000, and $560,000 for 2014, 2015, and 2016, respectively. What is the maximum benefit Henry canreceive under the plan in 2017?