Question 1

Henry has been working for Cars Corp.for 40 years and 4 months.Cars Corp.provides a defined benefit plan for its employees.Under the plan,employees receive 2 percent of the average of their three highest annual salaries for each full year of service.Cars Corp.uses a five year cliff vesting schedule.Henry retired on January 1,2017 Henry received annual salaries of $520,000,$540,000,and $560,000 for 2014,2015,and 2016,respectively.What is the maximum benefit Henry can receive under the plan in 2017?

Accepted Answer

The answer of Henry has been working for Cars Corp.for...

Question 2

Kathy is 48 years of age and self-employed.During 2017,she reported $100,000 of revenues and $40,000 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 2017? (Round your final answer to the nearest whole number)

Accepted Answer

Kathy can contribute up to 20% of her net self-employment income ($60,000) as an employer contribution, which is $12,000. Additionally, she can make an employee contribution of $18,000 plus a $6,000 catch-up contribution because she is over 50, totaling $24,000. The total maximum contribution is $12,000 + $24,000 = $36,000, but the maximum allowed by law is $54,000, so she can contribute $29,152.

Question 3

Amy is single.During 2017,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?

Accepted Answer

The maximum saver's credit for an individual with an adjusted gross income of $12,000 and a contribution of $2,500 to a Roth IRA is 20% of $2,000, which is the maximum contribution limit for the saver's credit calculation. Therefore, the maximum saver's credit Amy may claim for the year is $400 ($2,000 x 20%).

Question 4

Which of the following taxpayers is most likely to qualify for the saver's credit?

Accepted Answer

The saver's credit is a tax credit available to eligible taxpayers who contribute to a qualified retirement plan, such as an employer-sponsored 401(k) plan or an individual retirement account (IRA). The credit is based on the taxpayer's filing status, adjusted gross income (AGI), and contribution amount. Specifically, for the 2020 tax year, the credit ranges from 10% to 50% of the first $2,000 of eligible contribution, depending on the taxpayer's AGI and filing status. To qualify for the credit, taxpayers must be at least 18 years old, not a full-time student, and not claimed as a dependent on another taxpayer's return. Therefore, option B, a low AGI taxpayer who contributes to her employer's 401(k) plan, is most likely to qualify for the saver's credit. Option A, a low AGI taxpayer who does not contribute to any qualified retirement plan, cannot claim the credit because there is no contribution. Option C, a high AGI self-employed taxpayer, may not qualify for the credit because he may have made too much money to claim it. Option D, a high AGI employee who does not contribute to any qualified retirement plan, cannot claim the credit because there is no contribution.

Question 5

What is the maximum saver's credit available to any taxpayer in 2017?

Accepted Answer

The answer of What is the maximum saver's credit available...

Question 6

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1,2009.This was her only contribution to the account.On July 1,2017,when the account balance was $6,000,she received a nonqualified distribution of $4,500.What is the taxable portion of the distribution and what amount of early distribution penalty will Heidi be required to pay on the distribution?

Accepted Answer

The answer of Heidi (age 57)invested $4,000 in her Roth...

Question 7

Sean (age 74 at end of 2017)retired five years ago.The balance in his 401(k)account on December 31,2016 was $1,700,000 and the balance in his account on December 31,2017 was $1,800,000.Using the IRS tables below,what is Sean's required minimum distribution for 2017?
 $$\begin{array} { c c c } 
\text { Age of Participarit } & \text { Distribution Period } & \text { Applicable Percentage } \
70 & 27.4 & 3.65 \% \
71 & 26.5 & 3.77 \% \
72 & 25.6 & 3.91 \% \
73 & 24.7 & 4.05 \% \
74 & 23.8 & 4.20 \% \
75 & 22.9 & 4.37 \%
\end{array}$$

Accepted Answer

The answer of Sean (age 74 at end of 2017)retired...

Question 8

Kathy is 48 years of age and self-employed.During the year 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)?

Accepted Answer

The answer of Kathy is 48 years of age and...

Question 9

Georgeanne has been employed by SEC Corp.for the last 2½ 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)?

Accepted Answer

The answer of Georgeanne has been employed by SEC Corp.for...

Question 10

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?

Accepted Answer

The answer of On March 30,Rodger (age 56)was laid off...

Question 11

Kim (50 years of age)is considering whether to participate in her company's Roth 401(k)or traditional 401(k).This year,she plans to invest either $4,000 in a Roth 401(k)or $5,000 in a traditional 401(k).Kim plans on leaving the contribution in the retirement account for 20 years when she will receive a distribution of the entire balance in the account.Her employer does not have a matching program for employee contributions to retirement accounts.Assume Kim can earn a 6 percent before tax return in either account and that she anticipates that in 20 years her tax rate will be 30%.(Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)
1)What would be Kim's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k)account?
2)What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k)account?

Accepted Answer

The answer of Kim (50 years of age)is considering whether...

Question 12

Amy files as a head of household.She determined her 2017 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 2017?

Accepted Answer

Amy's adjusted gross income exceeds the income limit for claiming the saver's credit for head of household filers in 2017, which was $50,250. Therefore, she is not eligible for the credit.

Question 13

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 5 decimal places and the future value and final answers to the nearest whole number)

Accepted Answer

The answer of This year,Ryan contributed 10 percent of his...

Question 14

Christina made a one-time contribution of $12,000 to her 401(k)account,and she received a matching contribution from her employer in the amount of $4,000.Christina expects to earn a 6-percent before-tax rate of return on her account balance.Assuming Christina withdraws the entire balance in 25 years when she retires,what is Christina's after-tax accumulation from the $12,000 contribution to her 401(k)account? Assume her marginal tax rate at retirement is 35 percent.(Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Accepted Answer

The answer of Christina made a one-time contribution of $12,000...

Question 15

Joan recently started her career with PDEK Accounting,LLP which provides a defined benefit plan for all employees.Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service.Plan benefits vest under a 5-year cliff schedule.Joan worked 4½ years at PDEK before leaving for another opportunity.She received an annual salary of $49,000,$52,000,$58,000 and $65,000 for years one through four,respectively.Joan earned $35,000 of her $70,000 annual salary in year five.What is the vested benefit Joan is entitled to receive from PDEK for her retirement?

Accepted Answer

The answer of Joan recently started her career with PDEK...

Question 16

Amy is single.During 2017,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?

Accepted Answer

The maximum saver's credit for a single filer with an AGI of $12,000 and contributing $1,500 to a Roth IRA is 50% of the contribution, or $750. However, if Amy had an AGI below $18,000, she may also qualify for the retirement savings contribution credit, which could provide an additional credit up to $1,000.

Question 17

Kathy is 60 years of age and self-employed.During 2017,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 2017? (Round your final answer to the nearest whole number)

Accepted Answer

The maximum amount Kathy can contribute to an individual 401(k) for 2017 is $60,000. This includes a $18,000 salary deferral contribution and a 20% profit-sharing contribution based on her net self-employment income of $400,000 ($500,000 - $100,000). The total contribution limit cannot exceed $54,000 plus an additional $6,000 catch-up contribution since she is over age 50. Therefore, the maximum amount she can contribute is $60,000.

Question 18

Kathy is 60 years of age and self-employed.During 2017,she reported $100,000 of revenues and $40,000 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 2017? (Round your final answer to the nearest whole number)

Accepted Answer

For 2017, the maximum contribution to an individual 401(k) for someone aged 50 or older is $60,000. However, contributions are limited by the self-employment income. Kathy's net self-employment income is $60,000 ($100,000 revenues - $40,000 expenses). The maximum contribution is the lesser of $60,000 or the sum of the elective deferral limit ($18,000) plus 20% of net self-employment income ($12,000), plus a catch-up contribution of $6,000, totaling $35,152.

Question 19

Joan recently started her career with PDEK Accounting,LLP which provides a defined benefit plan for all employees.Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service.Plan benefits vest under a 5-year cliff schedule.Joan worked 5½ years at PDEK before leaving for another opportunity.She received an annual salary of $49,000,$52,000,$58,000,$65,000,and $75,000 for years one through five respectively.Joan earned $40,000 of her $80,000 annual salary in year six.What is the vested benefit Joan is entitled to receive from PDEK for her retirement? Exhibit 13-1 in the text

Accepted Answer

The answer of Joan recently started her career with PDEK...

Question 20

Sean (age 74 at end of 2017)retired five years ago.The balance in his 401(k)account on December 31,2016 was $1,700,000 and the balance in his account on December 31,2017 was $1,750,000.In 2017,Sean received a distribution of $50,000 from his 401(k)account.Assuming Sean's marginal tax rate is 25 percent,what amount of the $50,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the IRS table below in determining the minimum distribution penalty,if any).
 $$\begin{array} { c c c } 
\text { Age of Participarit } & \text { Distribution Period } & \text { Applicable Percentage } \
70 & 27.4 & 3.65 \% \
71 & 26.5 & 3.77 \% \
72 & 25.6 & 3.91 \% \
73 & 24.7 & 4.05 \% \
74 & 23.8 & 4.20 \% \
75 & 22.9 & 4.37 \%
\end{array}$$

Accepted Answer

The answer of Sean (age 74 at end of 2017)retired...

Quiz 13: Retirement Savings and Deferred Compensation

Amy is single.During 2017,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?

Which of the following taxpayers is most likely to qualify for the saver's credit?

What is the maximum saver's credit available to any taxpayer in 2017?

Kathy is 48 years of age and self-employed.During the year 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) ?

Amy files as a head of household.She determined her 2017 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 2017?

Amy is single.During 2017,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?