Question 1

Which of the following is true about H.R.10 (Keogh) plans?

Accepted Answer

While an H.R. 10 plan must be established before the end of the tax year, contributions may be made up to the due date for the tax return (including extensions).

Question 2

Tyler (age 50) and Connie (age 48) are a married couple. Tyler is covered under a qualified retirement plan at his job and earned $175,000 in 2015. Connie is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $30,000. What is their maximum for AGI deduction for contributions to a traditional IRA?

Accepted Answer

Because their AGI exceeds $193,000, neither Tyler nor Connie may make tax deductible contributions to a traditional IRA.

Question 3

During 2015, Marcia, who is single and is covered under a pension plan at work, contributes $5,500 into a Roth IRA. If her AGI is $65,000, which of the following is true?

Accepted Answer

A contribution to a Roth IRA is not tax deductible in any circumstances.

Question 4

Which of the following statements regarding Coverdell Education Savings Accounts is incorrect, disregarding any AGI limits?

Accepted Answer

Distributions can be used for elementary and secondary school expenses.

Question 5

Tucker (age 52) and Elizabeth (age 48) are a married couple. Tucker is covered under a qualified retirement plan at his job and earned $90,000 in 2015. Elizabeth is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $25,000. What is the maximum amount of tax deductible contributions may be made to a traditional IRA?

Accepted Answer

Elizabeth may contribute and deduct $5,500 to a traditional IRA because their AGI is less than $183,000. However, Tucker may not make a deductible contribution because he is covered under a qualified plan and their AGI exceeds $118,000.

Question 6

Tyne is a 48-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $64,000 in 2015. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

Tyne is not an active participant in an employer-sponsored qualified retirement plan and therefore may deduct the full $5,500 limit.

Question 7

Tia is a 52-year-old an unmarried taxpayer who is an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $65,000 in 2015.
a. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a traditional IRA?
b. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a Roth IRA?

Accepted Answer

The answer of Tia is a 52-year-old an unmarried taxpayer...

Question 8

H (age 50) and W (age 48) are married but only W is employed. She is not covered by a retirement plan at work. She earns $75,000 during the year and they have combined AGI of $78,000 before any IRA contribution. In 2015, the maximum amount together they may contribute to tax deductible IRAs is

Accepted Answer

Since neither is in a retirement plan at work, they may each contribute $5,500 (a nonworking spouse may contribute $5,500 per year). Since H is age 50, he may contribute an additional $1,000. [($5,500 × 2) + $1,000] = $12,000.

Question 9

Ruby Corporation grants stock options to Iris on February 1, 2014. The options do not have a readily ascertainable value. The option price is $100, and the FMV of the Ruby stock is also $100 on the grant date. The option allows Iris to purchase 200 shares of Ruby stock. Iris exercises the option on August 1, 2015, when the stock's FMV is $150. Iris sells the stock on December 5, 2016 for $400. Determine the amount and character (i.e. ordinary, LTCG or STCG) of income recognized by Iris and the deduction allowed Ruby Corporation in 2014, 2015 and 2016 under the following assumptions:
a. The stock option is an incentive stock option.
b. The stock option is a nonqualified stock option.

Accepted Answer

The answer of Ruby Corporation grants stock options to Iris...

Question 10

Raul and Jenna are married and are both working. They are both over age 50. Jenna participates in her employer's Sec. 401(k) plan and makes the maximum contribution and enjoys a company matching contribution. Raul's employer does not maintain a retirement plan so he would like to save as much as possible in a tax-advantaged manner for retirement. They expect to report $187,000 of AGI for 2015.
a. What is the maximum amount that Raul can contribute to a traditional IRA and how much can he deduct?
b. What is the maximum amount that Raul can contribute to a Roth IRA and how much can he deduct?
c. How could Raul contribute to both the traditional IRA and Roth IRA to maximize current and future tax savings?

Accepted Answer

The answer of Raul and Jenna are married and are...

Question 11

Which of the following statements is incorrect regarding the SEP IRA?

Accepted Answer

Only employers can make contributions to a SEP IRA.

Question 12

Which statement is correct regarding SIMPLE retirement plans?

Accepted Answer

SIMPLE plans are the only qualified plans not subject to anti-discrimination rules. They are limited to employers with 100 or less employees, employees can contribute and employer contributions are immediately vested.

Question 13

Daniel has accepted a new job and is reviewing the retirement plan information. He has a choice of participating in the company's conventional Sec. 401(k) plan or a Roth 401(k) plan. Explain the difference between the two plans in terms of employee contributions and retirement distributions from the plan.

Accepted Answer

The answer of Daniel has accepted a new job and...

Question 14

All of the following are true with regard to a Roth IRA except

Accepted Answer

Contributions to a Roth IRA can be made after the owner has reached age 70 1/2.

Question 15

Which of the following statements regarding Health Savings Accounts is incorrect?

Accepted Answer

In order to establish a Health Savings Account, the individual must be covered by a high-deductible health plan and not be covered under any other health plan that is not a high-deductible plan.

Question 16

Hannah is a 52-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $64,000 in 2015. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

Hannah is not an active participant in an employer-sponsored qualified retirement plan and therefore may deduct the full $5,500 limit plus $1,000 because she is over 50 years old.

Question 17

Feng, a single 40 year old lawyer, is covered by a qualified retirement at work. His salary is $109,000, and his total AGI is $125,000. The maximum contribution he can make to a Roth IRA in 2015 is

Accepted Answer

$5,500 - ($5,500 × ($125,000 - 116,000)/15,000). Participation in a retirement plan at work is not relevant to a Roth. Only AGI is relevant.

Question 18

Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin? Assume the individual opened the account before age 60.

Accepted Answer

Withdrawals from a Roth IRA after age 59 1/2 are tax-free, assuming the first Roth contribution was made at least five years earlier.

Question 19

Jack takes a $7,000 distribution from his Health Savings Account. $2,000 is used to pay for X-rays and dental surgery. The other $5,000 to make a down payment on a new car. What are the tax consequences to Jack?

Accepted Answer

The answer of Jack takes a $7,000 distribution from his...

Question 20

Tanya is considering whether to rollover her traditional IRA to a Roth IRA. Factors important to consider include all of the following except

Accepted Answer

There is no longer a $100,000 AGI limitation, but all of the other factors are important to the decision.

Quiz 9: Employee Expenses and Deferred Compensation