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Exam 13: Retirement Savings and Deferred Compensation

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Question 41

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

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

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

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Question 42

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Carmello and Leslie (ages 34 and 35, respectively) are married and want to contribute to a Roth IRA. In 2014, their AGI totaled $42,000. 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?

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Question 43

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What is the maximum saver's credit available to any taxpayer in 2014?

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. Henry's vested benefit percentage is 80 percent (40 years × 2 percent for each full year). Henry retired on January 1, 2014 Henry received annual salaries of $520,000, $540,000, and $560,000 for 2011, 2012, and 2013, respectively. What is the maximum benefit Henry can receive under the plan in 2014?

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.

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

Which of the following statements is true regarding employer-provided qualified retirement plans?

Sean (age 74 at end of 2013) retired five years ago. The balance in his 401(k) account on December 31, 2013 was $1,700,000 and the balance in his account on December 31, 2014 was $1,800,000. Using the IRS tables below, what is Sean's required minimum distribution for 2014? $\begin{array} { | c | c | l | } \hline \begin{array} { c } \text { Age of } \\\text { Participant }\end{array} & \begin{array} { c } \text { Distribution } \\\text { Period }\end{array} & { \begin{array} { c } \text { Applicable } \\\text { Percentage }\end{array} } \\\hline 70 & 27.4 & 3.65 \% \\\hline 71 & 26.5 & 3.77 \% \\\hline 72 & 25.6 & 3.91 \% \\\hline 73 & 24.7 & 4.05 \% \\\hline 74 & 23.8 & 4.20 \% \\\hline 75 & 22.9 & 4.37 \% \\\hline\end{array}$

Kathy is 48 years of age and self-employed. During the year she reported $400,000 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) ?

In 2014, 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 a 6-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 2014 contributions to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.

Which of the following statements concerning individual 401(k) s is false?

In 2014, 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 2014?

Which of the following statements concerning nonqualified deferred compensation plans is true?

Which of the following describes a defined contribution plan?

Yvette is a 44-year-old self-employed contractor (no employees). During 2014, her Schedule C net income was 400,000. 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)?

Which of the following is true concerning SEP IRAs?

Which of the following is true concerning employer funding of nonqualified deferred compensation plans?

Darren is eligible to contribute to a traditional 401(k) in 2014. He forgot to contribute before year end. If he contributes before April 15, 2015, he is allowed to treat the contribution as though he made it during 2014.

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 on 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 invested $4,000 in her Roth 401(k) on January 1, 2006. This was her only contribution to the account. On July 1, 2014, 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?