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Exam 13: Retirement Savings and Deferred Compensation

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Question 61

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In 2017,Madison is a single taxpayer who is 25 years of age.During 2017,she contributed $3,000 to her employer sponsored 401(k)account.Her 2017 AGI was $66,500 (before considering IRA deductions).What is the maximum deductible contribution,if any,that Madison can make her to IRA?

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$3,025
Because she participates in an em...

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Question 62

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Riley participates in his employer's 401(k) plan.He turns 70 years of age on February 15,2016 and he plans on retiring on July 1,2018.When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

A) by April 1, 2016.
B) by April 1, 2017.
C) by April 1, 2018.
D) by April 1, 2019.

E) All of the above
F) A) and D)

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Question 63

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

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)

Jessica retired at age 65.On the date of her retirement,the balance in her traditional IRA was $200,000.Over the years,Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account.If Jessica receives a $50,000 distribution from the IRA on the date of retirement,what amount of the distribution is taxable?

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 the distribution?

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 years at 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?

Just like distributions from qualified retirement plans,distributions from nonqualified deferred compensation plans are taxed as ordinary income to the recipient.

Qualified retirement plans include defined benefit plans but not defined contribution plans.

Gordon is a 52-year-old self-employed contractor (no employees).During 2017,his Schedule C net income was $88,000.What is the maximum amount that Gordon can contribute to (1)a SEP IRA and (2)an individual 401(k)? (Round your answers 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 $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?

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 $1,750,000.In 2017,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 IRS table below in determining the minimum distribution penalty,if any). $\begin{array} { c c c } \text { Age of Participarit } & \text { Distribution Period } & \text { Applicable Percentage } \\70 & 27.4 & 3.65 \% \\71 & 26.5 & 3.77 \% \\72 & 25.6 & 3.91 \% \\73 & 24.7 & 4.05 \% \\74 & 23.8 & 4.20 \% \\75 & 22.9 & 4.37 \%\end{array}$

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

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1,2009.This was her only contribution to the account.On July 1,2017,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?

Which of the following describes a defined benefit plan?