Deck 11: Retirement and Other Tax-Deferred Plans and Annuities

Question 1

Under a qualified profit-sharing plan,contributions must be made at least annually whether or not the employer has positive net income for the year.

Answer 1

False

Question 2

If only one spouse is employed,and that spouse is not covered under an employer-sponsored retirement plan,then the non-working spouse can make a deductible contribution to his or her own IRA.

Answer 2

True

Question 3

Annually,up to $2,000 per beneficiary can be contributed to a Coverdell Education Savings Account.

Answer 3

True

Question 4

An annuity is a series of payments made pursuant to a contract.

Question 5

Distributions from a qualified pension plan may be fully taxable,nontaxable,or a combination of both.

Question 6

Contributions to a qualified pension plan can be deducted immediately by an employer.

Question 7

Defined-benefit plans provide for a stream of definitely determinable benefits.

Question 8

If a retirement plan is funded with dollars that have not been taxed,the distributions will not be taxed.

Question 9

Retirement accounts include traditional IRAs,Roth IRAs,Keoghs,and Coverdell Education Savings Accounts.

Question 10

With a Roth IRA,contributions are deductible,the account grows tax-free,and distributions are not taxable.

Question 11

Contributions to a Coverdell Education Savings Account are not subject to AGI phaseout rules.

Question 12

Contributions to a Coverdell Education Savings Account can only be made by the parents or grandparents of a child under the age of 18.

Question 13

If a taxpayer funded some contributions to a qualified pension plan with previously-taxed dollars,then some of the distributions from that plan during retirement will be nontaxable.

Question 14

In order to obtain and retain qualified status,a pension or profit-sharing plan must not discriminate in favor of highly compensated employees.

Question 15

If an individual (or spouse)is an active participant in an employer-sponsored retirement plan,he or she cannot make a deductible IRA contribution.

Question 16

All tax-deferred pension plans have an accumulation period and a distribution period.

Question 17

There are two types of IRAs: a traditional IRA and a Roth IRA.

Question 18

SIMPLE plans are not subject to the nondiscrimination rules for other qualified plans.

Question 19

A participant has an adjusted basis of zero in any nondeductible contributions to a traditional IRA.

Question 20

Employers with 200 or fewer employees who do not have a qualified pension or profit-sharing plan can establish a SIMPLE retirement plan for their employees.

Question 21

For all annuity contracts,to determine the expected return,use the IRS tables for either a single life or a dual life annuity.

Question 22

Generally,tax-deferred retirement plans are not required to make distributions to beneficiaries.

Question 23

A distribution from a retirement plan is conceptually similar to a withdrawal from a savings account.

Question 24

For taxpayers under age 50,contributions can be made to a Roth IRA in an amount equal to the lower of $5,500 or 100% of compensation,plus the amount of contributions for the year to other IRAs.

Question 25

Annual contributions to a Keogh plan cannot exceed the greater of $52,000 or 100% of compensation.

Question 26

Distributions from a Coverdell Education Savings Account are tax-free to the beneficiary if they are used for his or her qualified education expenses.

Question 27

If a taxpayer pays for an annuity contract with after-tax dollars,all payments received under the contract will be tax-free until the original cost is recovered.

Question 28

Individuals age 50 or older can make greater annual contributions to an IRA.

Question 29

Distributions from a Coverdell Education Savings Account are tax-free to the beneficiary if they are used for his or her qualified education expenses.

Question 30

Defined-contribution plans establish the amount of retirement benefits an employee will receive in retirement.

Question 31

Pension plan distributions are reported to taxpayers on a Form 1099-P.

Question 32

Individuals who make contributions to a Coverdell Education Savings Account must have AGI of $175,000 or less.

Question 33

The expected return on an annuity contract that will last for a specified amount of time is determined with reference to the life expectancy tables published by the IRS.

Question 34

Roth IRA withdrawals are deemed to first come from contributions followed by earnings.

Question 35

SIMPLE and SEP plans are subject to the same nondiscrimination rules that apply to other retirement plans.

Question 36

The proportion of an annuity payment from a qualified pension plan that is determined to have come from employee contributions is taxed at ordinary income rates.

Question 37

Tax-deferred plans are only available for purposes of saving for retirement.

Question 38

To calculate the taxable amount of an annuity payment,the taxpayer must determine the expected return under the contract.

Question 39

Individuals who are active participants in an employer-sponsored retirement plan may make a deductible contribution to a traditional IRA in certain circumstances.

Question 40

A stream of payments can be called an annuity.

Question 41

Benjamin and Ester file a joint return and have AGI of $165,000.Both are active participants in their employer's pension plan.They have one child,Emily,who is age 8.Emily's grandparents contributed $1,000 to a Coverdell Education Savings Account for Emily in 2014.What is the maximum permitted Coverdell Education Savings Account contribution that Benjamin and Ester can make in 2014?

A) $0.
B) $1,000.
C) $2,000.
D) $5,500.

Question 42

Which of the following is true regarding an SEP?

A) Cannot discriminate in favor of highly compensated employees.
B) Deductible contributions cannot exceed the lower of 15% of the employee's compensation or $52,000.
C) Self-employed individuals cannot create and contribute to an SEP.
D) The plan must cover all employees who have reached the age of 18,who have worked for the employer for at least two of the preceding five years,and who received at least $550 in compensation.

Question 43

Which of the following statements is incorrect?

A) Individual-based retirement plans include a Roth IRA.
B) Distributions from a pension plan may be made in a lump sum or may be spread out in payments over many years.
C) Tax-deferred plans can be created for purposes other than retirement.
D) If a pension plan is funded with contributions that have not been taxed,the distributions will not be taxed.

Question 44

Which of the following statements is correct?

A) In part,Congress established pension plan rules to encourage individuals to save for retirement.
B) Retirement plans are generally not tax-free,only tax-deferred.
C) Individuals or companies usually establish a pension plan with a trustee.
D) All of the statements are correct.

Question 45

What are some tax consequences related to a qualified pension plan?

A) Employer contributions are deductible when made.
B) Earnings on the contributions are taxable to the employee as they are earned.
C) Employees are not taxed until distributions are received from the plan.
D) Only Employer contributions are deductible when made and Employees are not taxed until distributions are received from the plan.

Question 46

Valerie and Marty are both age 51 and file a joint return.They have one child who is age 17.They have combined AGI in 2014 of $180,000.What is their maximum permitted contribution to a Coverdell Education Savings Account for 2014 assuming no other persons make contributions?

A) $0.
B) $2,000.
C) $5,500.
D) $6,500.

Question 47

In order to obtain and retain qualified status,a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:

A) Employees who own more than 5% of the corporation's stock.
B) Employees who received over $85,000 compensation in the previous year.
C) Employees who were in the top 25% of employees based on compensation.
D) None of these.

Question 48

Venkat is age 32,single,and reported AGI of $66,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2014?

A) $0.
B) $2,200.
C) $3,300.
D) $5,500.

Question 49

Which of the following statements is incorrect?

A) Qualified pension plans may be contributory or noncontributory.
B) An employer can require employees to make contributions as long as the plan is non-discriminatory.
C) A profit-sharing plan does not qualify as a pension plan because the amount of profit in a year cannot be known in advance.
D) With a defined-contribution plan,the amount of total retirement benefits is unknown.

Question 50

Which of the following statements regarding a Coverdell Education Savings Account (CESA)is incorrect?

A) In order to be tax-free,distributions must be used exclusively to pay the qualified education expenses of the beneficiary.
B) Any person can contribute to a CESA,even if he or she is not related to the beneficiary.
C) A person can contribute to only one CESA during each tax year.
D) Contributions to a CESA are not tax-deductible.

Question 51

In 2014,a 52-year-old participant in a 401(k)plan may contribute a maximum of:

A) $6,500.
B) $14,500.
C) $17,500.
D) $23,000.

Question 52

Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2014.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2014?

A) $0.
B) $3,300.
C) $14,700.
D) $18,000.

Question 53

Omar is single,age 46,and reported AGI of $124,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum Roth IRA contribution he can make in 2014?

A) $0.
B) $1,833.
C) $3,667.
D) $5,500.

Question 54

Pension plans must meet complex rules to retain their tax-advantaged status.These rules include all of the following except:

A) The plan must not discriminate in favor of highly compensated employees.
B) Employee and employer contributions must fully vest within five years.
C) The plan must adequately cover rank-and-file employees.
D) The plan must be established for the exclusive benefit of employees and their beneficiaries.

Question 55

Jill is single,age 27,and reported AGI of $62,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the maximum deductible Roth IRA contribution she can make in 2014?

A) $0.
B) $1,100.
C) $4,400.
D) $5,500.

Question 56

Escobar and Rose are both age 36 and file a joint return.Neither is covered under an employer plan.Escobar earned $121,000 of compensation in 2014.Rose worked part-time and earned $1,200.What is the maximum deductible IRA contribution they can make in 2014?

A) $0.
B) $5,500.
C) $6,700.
D) $11,000.

Question 57

Which of the following statements is incorrect?

A) An annuity is a series of payments pursuant to a contract.
B) A payment to a beneficiary from a pension plan is called a distribution.
C) Contributions to a pension plan can only be made by the beneficiary.
D) With a qualified pension plan,earnings on plan assets are not taxed in the year earned.

Question 58

Xavier is a self-employed plumber.His earnings from self-employment,before the Keogh deduction but after deducting half of the self-employment tax,are $80,000.What is his deductible Keogh contribution for 2014?

A) $16,000.
B) $20,000.
C) $52,000.
D) $64,000.

Question 59

Charlotte is age 52,married,and reported AGI of $100,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the disallowed portion of her deductible IRA contribution in 2014?

A) $1,000.
B) $1,100.
C) $1,300.
D) $5,200.

Question 60

Kaysia participates in a SIMPLE plan provided by her employer.In 2014,she contributes 6% of her $40,000 salary,and her employer contributes 3% to the plan.What amount of the contributions will be vested in her account at the end of 2014?

A) $0.
B) $1,200.
C) $2,400.
D) $3,600.

Question 61

Regarding a Coverdell Education Savings Account:

A) Distributions are tax-free to the beneficiary if they are used for his or her qualified education expenses.
B) Qualified education expenses include required tuition,fees,books,supplies,and equipment at an eligible educational institution.
C) Qualified expenses must be reduced by scholarships or other tax-free income.
D) All of these.

Question 62

Which of the following is not an employer-sponsored retirement plan?

A) Roth IRA.
B) SIMPLE.
C) 401(k).
D) Qualified pension plan.

Question 63

Damian is age 77.He paid $600,000 for a single life annuity contract that will pay him $72,000 per year for life.The tax-free amount of the first $72,000 payment is

A) $18,429.
B) $28,302.
C) $49,587.
D) $53,571.

Question 64

For 2014,the maximum annual contribution to a Simplified Employee Pension (SEP)plan for an employee under the age of 50 is:

A) $5,000
B) $12,000
C) $17,500
D) $52,000

Question 65

Kasey is 72 years old.She purchased a single life annuity contract that will pay her $10,000 per year for 15 years.The expected return under the contract is:

A) $10,000.
B) $150,000.
C) $219,000.
D) $384,000.

Question 66

Habiba is age 74 and married.Her husband is age 73.She purchased a single life annuity contract that will pay her $20,000 per year for life.The expected return on the contract is

A) $264,000.
B) $278,000.
C) $282,000.
D) $476,000.

Question 67

Shauntae is 75 years old.He purchased a single life annuity contract that will pay him $3,000 per month for 10 years.The expected return under the contract is:

A) $30,000.
B) $360,000.
C) $450,000.
D) $482,400.

Question 68

Which of the following statements is incorrect?

A) Tax-deferred plans have an accumulation period and a distribution period.
B) Normally,if a retirement plan is funded with dollars that have already been taxed,the distributions will be taxed.
C) During the accumulation period of a qualified retirement plan,no taxes are due on the earnings from the plan investments.
D) Contributions to retirement plans are often limited in amount.

Question 69

Patrick is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan or he can take $1,300 monthly over his life and the life of his wife.The payments begin January 1,2014.He contributed $85,250 to the plan prior to his retirement.Patrick is 64 and his wife is 62.Using the simplified method,how much of the payments will be included in Patrick's taxable income for 2014 if he chooses to take $1,300 monthly over his life and the life of his wife?

A) $1,300.
B) $3,300.
C) $12,300.
D) $15,600.

Question 70

What are the tax consequence(s)related to a qualified pension plan?

A) Employer contributions are deductible when made.
B) Earnings on the contributions are taxable as they are earned.
C) Employees are not taxed until distributions are received from the plan.
D) Only Employer contributions are deductible when made and Employees are not taxed until distributions are received from the plan.

Question 71

Zena must start making distributions from her traditional IRA beginning April 1,2014.At the end of 2013,the plan had a balance of $220,000 and Zena was 71 years old.What minimum amount must Zena take as a distribution from the IRA beginning April 1,2014?

A) $8,302.
B) $8,594.
C) $13,497.
D) $14,379.

Question 72

Regarding withdrawals from a Roth IRA:

A) There are minimum withdrawal requirements for a Roth IRA.
B) Roth IRA withdrawals are taxable if made after the five-tax-year period beginning with the first tax year in which a Roth contribution was made.
C) Roth withdrawals are deemed to first come from contributions followed by earnings.
D) Withdrawals that fail to meet the five-year holding period requirement are not taxable to the extent they do not exceed earnings.

Question 73

Max retired in 2014 at age 62.During the year he received distributions of $9,000 from his IRA.He made nondeductible contributions of $20,000 to the IRA in prior years and has never received a nontaxable distribution.As of December 31,2014,the value of his IRA was $150,000.Calculate the taxable portion of Max's distribution.

A) $0.
B) $1,132.
C) $7,868.
D) $9,000.

Question 74

In 2014,the maximum annual contribution to a SIMPLE pension plan for an employee under the age of 50 is:

A) $5,000
B) $12,000
C) $17,500
D) $52,000

Question 75

At the end of 2012,Erin was 74 years old and her traditional IRA had a balance of $300,000.She properly withdrew $12,605 from her IRA in 2013,the first year she took a withdrawal.In 2013,her IRA assets earned $37,500.What amount must Erin take as a distribution from her IRA in 2014?

A) $14,768.
B) $14,187.
C) $13,651.
D) Some other amount.

Question 76

If the proceeds of a pension plan are being distributed and the original beneficiary dies:

A) The person who inherits the plan assets can elect to be treated as the original beneficiary if that person is the spouse of the original beneficiary.
B) The person who inherits the plan assets can elect to be treated as the original beneficiary if that person is unrelated to the original beneficiary.
C) The person who inherits the plan assets will receive the remaining plan assets tax-free.
D) The balance of the pension plan assets must be distributed in the year of death.

Question 77

Regarding a full or partial rollover of assets from one retirement plan to another retirement plan:

A) Rollovers are normally taxable to the beneficiary.
B) Rollovers are permitted only in unusual circumstances.
C) A tax-free rollover can be made from a traditional IRA to another traditional IRA.
D) A tax-free rollover can be made from a traditional IRA to a Roth IRA.

Question 78

Damian is age 77.He purchased a single life annuity contract that will pay him $6,000 per month for life.The expected return on the contract is:

A) $67,200.
B) $806,400.
C) $871,200.
D) $1,526,400.

Question 79

Godfrey is age 77.He paid $240,000 for a single life annuity contract that will pay him $28,800 per year for life.The taxable amount of the first $28,800 payment is

A) $7,371.
B) $8,965.
C) $17,479.
D) $21,429.

Question 80

Distributions from a traditional IRA:

A) Are fully taxable if the IRA was entirely funded with deductible contributions.
B) Are always fully taxable.
C) Are always nontaxable.
D) Are fully taxable if the IRA was entirely funded with nondeductible contributions.