Question 1

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

Accepted Answer

Distributions from a Coverdell Education Savings Account are tax-free to the beneficiary if they are used for his or her qualified education expenses, such as tuition, fees, books, and supplies. However, if the distributions are not used for qualified expenses, they will be subject to income tax and may also be subject to a 10% penalty.

Question 2

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

Accepted Answer

SIMPLE and SEP plans are not subject to the same rigorous nondiscrimination tests that apply to qualified plans like 401(k)s. They have simpler rules designed for smaller businesses.

Question 3

A stream of payments can be called an annuity.

Accepted Answer

An annuity refers to a stream of payments made at certain intervals, usually monthly, quarterly or annually. It can be made in the form of an insurance premium, retirement income or investment income.

Question 4

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

Accepted Answer

Distributions from a Coverdell Education Savings Account are tax-free to the beneficiary if they are used for his or her qualified education expenses, which include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, as well as expenses for room and board for students who are enrolled at least half-time. If the distributions are not used for qualified expenses, they may be subject to taxes and penalties.

Question 5

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

Accepted Answer

This is true. Individuals who are active participants in an employer-sponsored retirement plan may make a deductible contribution to a traditional IRA based on their income and other qualifying factors. However, there are limits and restrictions on the amount that can be deducted.

Question 6

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.

Accepted Answer

The answer of The proportion of an annuity payment from...

Question 7

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

Accepted Answer

This is correct, according to IRS rules, withdrawals from a Roth IRA are considered to come first from the contributions made, followed by any earnings that have accrued over time.

Question 8

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

Accepted Answer

Both a distribution from a retirement plan and a withdrawal from a savings account involve taking money out of a financial account for personal use. The main difference is that distributions from retirement plans may have tax implications and penalties if certain rules are not followed, whereas withdrawals from savings accounts generally do not have such restrictions.

Question 9

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

Accepted Answer

Tax-deferred plans, such as a traditional IRA or 401(k), are primarily used for saving for retirement, but there are certain exceptions where you can withdraw funds penalty-free for other purposes such as paying for qualified higher education expenses or a first-time home purchase. However, if you withdraw funds for non-qualified reasons, you will generally be subject to taxes and early withdrawal penalties.

Question 10

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

Accepted Answer

Tax-deferred retirement plans such as traditional IRAs, 401(k)s, and 403(b)s are required to make distributions to beneficiaries after the account owner's death. The rules regarding these distributions vary depending on the specific type of plan and the age of the account owner at the time of their death. In some cases, beneficiaries may be required to take distributions over a certain time period or may have the option to take the distributions in a lump sum.

Question 11

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

Accepted Answer

The AGI (Adjusted Gross Income) limit for making contributions to a Coverdell Education Savings Account is $110,000 for single filers and $220,000 for those filing jointly, not $175,000.

Question 12

Annual contributions to a Keogh plan cannot exceed the greater of $53,000 or 100% of compensation.

Accepted Answer

The annual contribution limit for a Keogh plan is the lesser of $66,000 (as of 2023) or 100% of compensation.

Question 13

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.

Accepted Answer

The expected return on an annuity contract is primarily determined by the terms of the contract itself, including the amount of the investment, the interest rate, and the payout options chosen, rather than IRS life expectancy tables. Life expectancy tables may be used in calculating certain aspects of annuities, especially when determining the amount of each payment for a life annuity, but they are not the direct basis for determining the expected return.

Question 14

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

Accepted Answer

The expected return on an annuity contract cannot be determined solely based on the IRS tables for single or dual life annuities. Other factors such as the initial investment amount, the payout schedule, and the length of the annuity period also need to be considered.

Question 15

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

Accepted Answer

The taxable amount of an annuity payment is determined by calculating the expected return under the contract. This calculation takes into account factors such as the taxpayer's age, the amount invested, and the length of the contract. Once the expected return is determined, the portion of each annuity payment that represents earnings is considered taxable income.

Question 16

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.

Accepted Answer

The answer of If a taxpayer pays for an annuity...

Question 17

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.

Accepted Answer

The contribution limit for a Roth IRA for taxpayers under age 50 is $6,000 for 2023, or 100% of earned income, whichever is less. The $5,500 limit was for previous years. Contributions to other IRAs count towards this limit, not in addition to it.

Question 18

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

Accepted Answer

Pension plan distributions are reported to taxpayers on a Form 1099-R, not a Form 1099-P.

Question 19

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

Accepted Answer

Defined-contribution plans do not establish the amount of retirement benefits, but rather specify the amount that the employer and/or employee will contribute to the plan. The actual retirement benefit is determined by the performance of the investments made with those contributions.

Question 20

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

Accepted Answer

Individuals age 50 or older can make catch-up contributions to an IRA that allow them to contribute more than the annual contribution limit for younger individuals. As of 2021, the catch-up contribution limit is $1,000 for traditional and Roth IRAs.

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

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

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

A stream of payments can be called an annuity.

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

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

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.

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

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

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

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

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

Annual contributions to a Keogh plan cannot exceed the greater of $53,000 or 100% of compensation.

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.

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

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

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.

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.

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

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

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