Question 1

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 2016. 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

Since Tucker is covered under a qualified retirement plan, he can only make a tax deductible contribution to a traditional IRA if his modified adjusted gross income (MAGI) is below $98,000 for 2016. The couple's MAGI is $115,000 ($90,000 + $30,000 - $5,000 for personal exemptions). Therefore, Tucker cannot make any tax deductible contributions to a traditional IRA. However, Elizabeth can make a tax deductible contribution of up to $5,500 since she is not covered under a qualified retirement plan and their MAGI is below the limit of $118,000 for 2016.

Question 2

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 2016, the maximum amount together they may contribute to tax deductible IRAs is

Accepted Answer

The answer of H (age 50) and W (age 48)...

Question 3

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 2016.
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 4

Tessa is a self-employed CPA whose 2016 net earnings from her business (before the H.R. 10 plan contribution but after the deduction for one-half of self-employment taxes) is $400,000. What is the maximum contribution that Tessa can make on her behalf to her H.R. 10 (Keogh) plan in 2016?

Accepted Answer

The maximum contribution that Tessa can make on her behalf to her H.R.10 (Keogh) plan in 2016 is $53,000. This is calculated as follows: Tessa can contribute up to 20% of her net earnings from self-employment, which is $80,000 ($400,000 x 20%). However, this contribution is subject to a limit of $53,000, which is the maximum contribution that can be made to a Keogh plan in 2016. Therefore, choice D is the correct answer.

Question 5

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 2016. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

As Tyne is not an active participant in an employer-sponsored qualified retirement plan, she can fully deduct the contribution to a Traditional IRA regardless of her income level. The maximum contribution for 2016 is $5,500 for taxpayers under the age of 50. Therefore, Tyne may contribute up to $5,500 to a tax deductible IRA in 2016.

Question 6

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 2016. 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

The answer of Tyler (age 50) and Connie (age 48)...

Question 7

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

Accepted Answer

This statement is incorrect. Distributions from a Coverdell Education Savings Account can be used for elementary, secondary, and higher education expenses.

Question 8

Ruby Corporation grants stock options to Iris on February 1, 2015. 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, 2016, when the stock's FMV is $150. Iris sells the stock on December 5, 2017 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 2015, 2016 and 2017 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 9

Angie starts a new job and becomes covered under the employer's health insurance plan which has an annual deductible of $2,400. Angie contributes the maximum amount into a Health Savings Account. Which of the following statements regarding Angie's Health Savings Account is correct?

Accepted Answer

A)She was covered under the HDHP for 6 months so HCA contributions up to $1,200 are deductible,and they are deductible for AGI.

Question 10

Feng, a single 40 year old lawyer, is covered by a qualified retirement at work. His salary is $110,000, and his total AGI is $126,000. The maximum contribution he can make to a Roth IRA in 2016 is

Accepted Answer

Since Feng is covered by a qualified retirement plan at work and his income is above certain limits, he is not eligible to make a deductible contribution to a traditional IRA. However, he can make a contribution to a Roth IRA with some limitations. In 2016, the maximum contribution to a Roth IRA for someone over age 50 is $6,500, but since Feng is under 50, the limit is $5,500 (IRS Publication 590-A). However, Feng's income is above the phase-out range for making a full contribution to a Roth IRA. The phase-out range for a single taxpayer in 2016 is $117,000-$132,000 (IRS Publication 590-A). Since Feng's AGI is $126,000, he can only make a partial contribution. To calculate the partial contribution, we use the formula from IRS Publication 590-A: Partial contribution = [contribution limit - (AGI - phase-out start)/$1,000 × (contribution limit – $0)] So, the partial contribution for Feng would be: Partial contribution = [$5,500 - ($126,000 - $117,000)/$1,000 × ($5,500 - $0)] = [$5,500 - $9 × $5,500] = $30,250 The closest multiple of $50 to $30,250 is $30,200, so Feng's maximum Roth IRA contribution for 2016 is $2,200 (IRS Publication 590-A).

Question 11

During 2016, 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

Since Marcia is covered under a pension plan at work and her AGI is $65,000, none of her contribution to the Roth IRA is deductible.

Question 12

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 2016. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

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

Question 13

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

Accepted Answer

The answer of Which of the following is true about...

Question 14

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

As long as the Roth IRA has been opened for at least five years, all qualified distributions from a Roth IRA are tax-free, regardless of whether the distribution is from contributions or earnings. In this case, the individual is over age 59.5, so the distribution is qualified.

Question 15

Frank is a self-employed CPA whose 2016 net earnings from his trade or business (before the H.R. 10 plan contribution but after the deduction for one-half of self-employment taxes) is $240,000. What is the maximum contribution that Frank can make on his behalf to his H.R. 10 (Keogh) plan in 2016?

Accepted Answer

The answer of Frank is a self-employed CPA whose 2016...

Question 16

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

Accepted Answer

The answer of Which of the following statements is incorrect...

Question 17

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

Accepted Answer

Contributions to Roth IRAs do not have to cease after the owner has reached age 70 1/2, unlike traditional IRAs where contributions must cease at this age.

Question 18

Which statement is correct regarding SIMPLE retirement plans?

Accepted Answer

The answer of Which statement is correct regarding SIMPLE retirement...

Question 19

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

All of the factors listed are important to consider when deciding whether to rollover a traditional IRA to a Roth IRA except whether the current year's AGI will exceed $100,000. This limit applies only to individuals who wish to make a direct contribution to a Roth IRA, not to those who are considering a rollover. Tanya should consider her current marginal tax rate, expected tax rate after retirement, and her age when deciding whether to do a rollover.

Question 20

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

Accepted Answer

Not all taxpayers are eligible to establish a health savings account. Only those who have a high deductible health plan are eligible.

Quiz 24: Employee Expenses and Deferred Compensation