Tax Ch 13

18 June 2024
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32. Which of the following statements is true regarding employer-provided qualified retirement plans? A. May discriminate against rank and file employees. B. Deductible contributions are generally phased-out based on AGI. C. Executives are generally ineligible to participate in these plans. D. They are generally referred to as defined benefit plans or defined contribution plans.
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D. They are generally referred to as defined benefit plans or defined contribution plans.
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33. Which of the following describes a defined benefit plan? A. Provides fixed income to the plan participants based on a formula. B. Distribution amounts determined by employee and employer contributions. C. Allows executives to defer income for a period of years. D. Retirement account set up by an individual.
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A. Provides fixed income to the plan participants based on a formula.
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34. Which of the following statements regarding defined benefit plans is false? A. The benefits are based on a fixed formula. B. The vesting period can be based on a graded or cliff schedule. C. Employees bear the investment risks of the plan. D. Employers are generally required to make annual contributions to meet expected future liabilities.
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C. Employees bear the investment risks of the plan.
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35. Which of the following statements regarding vesting in a defined benefit plan is correct? A. Under a cliff vesting schedule, a portion of an employee's benefits vest each year. B. Under a graded vesting schedule, an employee's entire benefit vests all at the same time. C. When an employee's benefits vest, she is entitled to participate in the employer's defined benefit plan. D. When an employee's benefits vest, she is legally entitled to receive the vested benefits.
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D. When an employee's benefits vest, she is legally entitled to receive the vested benefits.
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36. Dean has earned $70,000 annually for the past five years working as an architect for MWC Inc. Under MWC's defined benefit plan (which uses a 7-year graded 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. Dean has worked for five full years for MWC and his vesting percentage is 60%. What is Dean's vested benefit (or annual retirement benefit he has earned so far)? A. $12,250. B. $42,000. C. $7,350. D. $0.
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C. $7,350.
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37. Dean has earned $70,000 annually for the past 4Ā½ 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 (or annual benefit he has earned so far)? A. $12,250. B. $42,000. C. $7,350. D. 0
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D. 0
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38. Which of the following best describes distributions from a defined benefit plan? A. Distributions from defined benefit plans are taxable as ordinary income. B.Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital. C. Distributions from defined benefit plans are taxable as capital gains. D.Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.
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A. Distributions from defined benefit plans are taxable as ordinary income.
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39. Which of the following is a true statement regarding saving for retirement? A In a given year, a taxpayer may participate in either an employer-sponsored defined benefit plan or . defined contribution plan but not both. B In a given year, a taxpayer who receives salary as an employee and also receives self-employment . income may participate in an employer-sponsored defined contribution plan or may contribute to a self employed retirement account but not both. C In a given year, a taxpayer may contribute to an IRA (either traditional or Roth) or contribute to a self. employment retirement account but not both. D. None of these is a true statement.
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D. None of these is a true statement.
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40. Which of the following describes a defined contribution plan? A. Provides guaranteed income on retirement to plan participants. B. Employers and employees generally may contribute to the plan. C. Generally set up to defer income for executives and highly compensated employees but not other employees. D. Retirement account set up to provide an individual a fixed amount of income on retirement.
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B. Employers and employees generally may contribute to the plan.
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41. Which of the following statements regarding defined contribution plans is false? A. Employers bear investment risk relating to the plan. B. Employees immediately vest in their contributions to the plan. C. Employers typically match employee contributions to the plan to some extent. DAn employer's vesting schedule is used for employers' contributions in determining the amount of the . plan benefits the employee is entitled to receive on retirement.
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A. Employers bear investment risk relating to the plan.
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42. Which of the following statements regarding contributions to defined contribution plans is true? A. Employer contributions to a defined contribution plan are not limited by the tax law. B. Employee contributions to a defined contribution plan are not limited by the tax law. CAn employee who is at least 60 years of age as of the end of the year may contribute more to a defined . contribution plan than an employee who has not reached age 60 by year end. D. The tax laws limit the sum of the employer and employee contributions to a defined contribution plan. .
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D. The tax laws limit the sum of the employer and employee contributions to a defined contribution plan.
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43. When employees contribute to a traditional 401(k) plan, they _____ allowed to deduct the contributions and they ______ taxed on distributions from the plan. A. are; are not B. are; are C. are not; are D. are not; are not
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B. are; are
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45. How is a traditional 401(k) account similar to a Roth 401(k) account? A. Employees contribute before-tax dollars to both types of accounts. B.Distributions from a traditional 401(k) account and a Roth 401(k) account are both subject to minimum distribution penalties. C. Both accounts can receive matching contributions from employers. D. Employers generally choose how funds in these accounts will be invested.
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B.Distributions from a traditional 401(k) account and a Roth 401(k) account are both subject to minimum distribution penalties.
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46. Which of the following best describes distributions from a traditional defined contribution plan? A. Distributions from defined contribution plans are fully taxable as ordinary income. B.Distributions from defined contribution plans are partially taxable as ordinary income and partially nontaxable as a return of capital. C. Distributions from defined contribution plans are fully taxable as capital gains. D.Distributions from defined contribution plans are partially taxable as capital gains and partially nontaxable as a return of capital.
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A. Distributions from defined contribution plans are fully taxable as ordinary income.
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47. Shauna received a distribution from her 401(k) account this year. In which of the following situations will Shauna be subject to an early distribution penalty? A. Shauna is 60 years of age but not yet retired when she receives the distribution. B. Shauna is 58 years of age but not yet retired when she receives the distribution. C. Shauna is 56 years of age and retired when she receives the distribution. D. Shauna is 69 years of age but not yet retired when she receives the distribution.
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B. Shauna is 58 years of age but not yet retired when she receives the distribution.
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48. Shauna received a $100,000 distribution from her 401(k) account this year. Assuming Shauna's marginal tax rate is 25%, what is the total amount of tax and penalty Shauna will be required to pay if she receives the distribution on her 59th birthday and she has not yet retired? A. $0. B. $10,000. C. $25,000. D. $35,000. E. None of these.
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D. $35,000.
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49. Riley participates in his employer's 401(k) plan. He retired in 2015 at age 75. When must Riley receive his distribution pertaining to 2015 to avoid minimum distribution penalties? A. April 1, 2015 B. April 1, 2016 C. December 31, 2015 D. December 31, 2016
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B. April 1, 2016
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50. Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2014 and he plans on retiring on July 1, 2016. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties? A. by April 1, 2014 B. by April 1, 2015 C. by April 1, 2016 D. by April 1, 2017
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D. by April 1, 2017
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51. Riley participates in his employer's 401(k) plan. He turns 69 years of age on February 15, 2015, and he plans on retiring on July 1, 2015. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties? (later of turning 70Ā½ or retiring) A. by April 1, 2015 B. by April 1, 2016 C. by April 1, 2017 D. by April 1, 2018
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C. by April 1, 2017
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52. Which of the following statements is true regarding taxpayers receiving distributions from traditional defined contribution plans? A A taxpayer who retires at age 71 in 2015 is required to pay a minimum distribution penalty if she does . not receive a distribution in 2015. B. The minimum distribution penalty is 30% of the amount required to have been distributed. CA taxpayer who receives a distribution from a retirement account before she is 55 years old is . subject to a 10% penalty on both the distributed and undistributed portions of her retirement account. D. Taxpayers are not allowed to deduct either early distribution penalties or minimum distribution penalties.
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D. Taxpayers are not allowed to deduct either early distribution penalties or minimum distribution penalties.
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60. During 2015, Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2015 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA? A. $0 (Full-time students are not allowed to participate in IRAs). (earned income vs 5500) B. $500. C. $4,500. D. $5,500.
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C. $4,500.
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61. Which of the following statements regarding traditional IRAs is true? (the lesser of earned income or 5500) A. Once a taxpayer reaches age 55 years of age she is allowed to contribute an additional $1,000 a year. B. Taxpayers with high income are not allowed to contribute to traditional IRAs. CTaxpayers who participate in an employer-sponsored retirement plan are allowed to deduct . contributions to a traditional IRA regardless of their AGI. D. A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.
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D. A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.
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62. Which of the following statements regarding IRAs is false? A Taxpayers who participate in an employer-sponsored retirement plan may be allowed to make . deductible contributions to a traditional IRA. BThe ability to make deductible contributions to a traditional IRA and nondeductible contributions to a . Roth IRA may be subject to phase-out based on AGI. C. A taxpayer may contribute to a traditional IRA in 2016 but deduct the contribution on her 2015 tax return. DTaxpayers who have made nondeductible contributions to a traditional IRA are taxed on the full . proceeds when they receive distributions from the IRA.
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DTaxpayers who have made nondeductible contributions to a traditional IRA are taxed on the full . proceeds when they receive distributions from the IRA.
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63. Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution? A. $3,000 income tax; $2,000 early distribution penalty. B. $3,000 income tax; $0 early distribution penalty. (Medical purposes are exempt) C. $0 income tax; $2,000 early distribution penalty. D. $0 income tax; $0 early distribution penalty.
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B. $3,000 income tax; $0 early distribution penalty. (Medical purposes are exempt)
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64. Jessica retired at the age of 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? A. $0. B. $5,000. C. $37,500. D. $45,000. E. $50,000.
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D. $45,000.
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65. Which of the following statements regarding Roth IRAs is false? A. Contributions to Roth IRAs are not deductible. B. Qualifying distributions from Roth IRAs are not taxable. C Whether or not they participate in an employer-sponsored retirement plan, taxpayers are allowed to . contribute to Roth IRAs as long as their AGI does not exceed certain thresholds. D. Taxpayers who are married and file separately are not allowed to contribute to Roth IRAs.
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D. Taxpayers who are married and file separately are not allowed to contribute to Roth IRAs.
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66. Which of the following statements regarding Roth IRAs distributions is true? A A distribution is not a qualifying distribution unless the distribution is at least two years after the . taxpayer has opened the Roth IRA. B A taxpayer receiving a distribution from a Roth IRA before reaching the age of 55 is generally not . subject to an early distribution penalty. C. A Roth IRA does not have minimum distribution requirements. D. The full amount of all nonqualifying distributions is subject to tax at the taxpayer's marginal tax rate.
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C. A Roth IRA does not have minimum distribution requirements.
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69. 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. What amount of the distribution is taxable and subject to early distribution penalty? (deduct any contributions you have made) A. $0. B. $5,000. C. $30,000. D. $50,000.
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C. $30,000.
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71. Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Tyson's marginal tax rate is 25%. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA. He retains $12,500 to pay tax on the distribution and he contributes $37,500 to a Roth IRA. What amount of income tax and penalty must Tyson pay on this series of transactions? A. $0 income tax; $0 penalty. B. $12,500 income tax; $1,250 penalty. C. $12,500 income tax; $3,000 penalty. D. $12,500 income tax; $5,000 penalty.
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B. $12,500 income tax; $1,250 penalty.
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72. Which of the following statements concerning traditional IRAs and Roth IRAs is true? AA taxpayer may contribute to a Roth IRA at any age but a taxpayer is not allowed to contribute to a . traditional IRA after reaching 70Ā½ years of age. B. The annual contribution limits for a traditional IRA and Roth IRA are the same. C. Taxpayers with high income are allowed to contribute to traditional IRAs but not to Roth IRAs. D. All of these are true statements.
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D. All of these are true statements.
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85. Which of the following taxpayers is most likely to qualify for the saver's credit? A. A low AGI taxpayer who does not contribute to any qualified retirement plan. B. A low AGI taxpayer who contributes to her employer's 401(k) plan. C. A high AGI self-employed taxpayer. D. A high AGI employee who does not contribute to any qualified retirement plan.
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B. A low AGI taxpayer who contributes to her employer's 401(k) plan.
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86. Amy is single. During 2015, she determined her adjusted gross income was $12,000. During the year, Amy also contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year? A. $1,250. B. $2,500. C. $1,000. D. $0.
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C. $1,000.
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87. Amy is single. During 2015, 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? (use the contribution up to 2000) A. $750. B. $1,000. C. $1,500. D. $0.
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A. $750.
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88. Amy files as a head of household. She determined her 2015 adjusted gross income was $70,000. During the year, she contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for 2015? A. $1,000. B. $2,000. C. $2,500. D. $1,250. E. $0.
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E. $0.
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89. What is the maximum saver's credit available to any taxpayer in 2015? A. $2,000. B. $1,000. C. $500. D. It depends on the filing status of the taxpayer.
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B. $1,000.