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Exam 13: Retirement Savings and Deferred Compensation

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Question 21

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On March 30, Rodger (age 56)was laid off from his employer of 30 years due to rough economic times. During his 30 years of employment, Rodger contributed $300,000 to his traditional 401(k)account. When Rodger was let go, his 401(k)account balance was $900,000 (this included both employer matching and account earnings). Rodger immediately withdrew $40,000 to use as an emergency savings fund. What amount of tax and early distribution penalties must Rodger pay on the $40,000 withdrawal if his ordinary marginal tax rate is 28 percent?

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Tax is $11,200 ($40,000 × 28%)...

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Question 22

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

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B) False

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Question 23

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Georgeanne has been employed by SEC Corp. for the last two and a half years. Georgeanne participates in SEC'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)?

Which of the following statements regarding Roth IRAs is false?

This year, Ryan contributed 10 percent of his $75,000 annual salary to a Roth 401(k)account sponsored by his employer, XYZ. XYZ offers a dollar-for-dollar match up to 10 percent of the employee's salary. The employer contributions are placed in a traditional 401(k)account on the employee's behalf. Ryan expects to earn an 8-percent before-tax rate of return on contributions to his Roth and traditional 401(k)accounts. Assuming Ryan leaves the funds in the accounts until he retires in 25 years, what are his after-tax accumulations in the Roth 401(k)and in the traditional 401(k)accounts if his marginal tax rate at retirement is 30 percent? If Ryan's marginal tax rate this year is 35 percent, will he earn a higher after-tax rate of return from the Roth 401(k)or the traditional 401(k)? Explain. (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Amy is single. During 2019, she determined her adjusted gross income was $12,000. During the year, Amy also contributed $1,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year?

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. How much of the distribution will be subject to income tax and 10 percent penalty?

Taxpayers contributing to and receiving distributions from a Roth IRA generally earn a before-tax rate of return on their contributions equal to their after-tax rate of return.

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Which of the following statements regarding vesting in a defined benefit plan is correct?

What is the maximum saver's credit available to any taxpayer in 2019?

A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.

When a taxpayer receives a nonqualified distribution from a Roth 401(k)account the taxpayer contributions are deemed to be distributed first. If the amount of the distribution exceeds the taxpayer contributions, the remainder is from the account earnings.

Scott and his wife, Leanne (ages 39 and 37, respectively), earned $50,000 in 2019. 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 2019?

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

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?

Kathy is 60 years of age and self-employed. During 2019, 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 an individual 401(k) for 2019? Assume she pays $27,192 in self-employment for 2019. (Round your final answer to the nearest whole number.)

In general, which of the following statements regarding self-employed retirement accounts is true?

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 IRAs is false?