Question 1

Wilson and Joan, both in their 30s, file a joint income tax return for 2015. Wilson's wages are $15,000 and Joan's wages are $23,000 for the year. Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not.
a.​
What is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?
b.​
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If Joan's wages are $88,000 for 2015, instead of $23,000, and their adjusted gross income is $103,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?

Accepted Answer

The answer of Wilson and Joan, both in their 30s,...

Question 2

What is the maximum amount a 55-year-old taxpayer and a 48-year-old spouse can put into a Traditional or Roth IRA for 2015, assuming they earn $85,000 in total and are not participants in pension plans?

Accepted Answer

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Question 3

What is the difference between the tax treatment of contributions and distributions from a traditional IRA and a Roth IRA?

Accepted Answer

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Question 4

Rob and Julie, both in their 30s, file a joint income tax return for 2015. Rob's wages are $25,000 and Julie's wages are $33,000 for the year. Their total adjusted gross income is $58,000, and Julie is covered by a qualified pension plan at work but Rob is not.
a.What is the maximum amount that Rob and Julie may each contribute to their Roth IRAs?
b.​
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If Julie's wages are $110,000 for 2015, instead of $33,000, and their adjusted gross income is $135,000, (1) what is the maximum amount that Rob and Julie may each deduct for contributions to their individual retirement accounts, and (2) what is the maximum amount they could each contribute to Roth IRAs instead?

Accepted Answer

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Question 5

Choose the incorrect answer. Money removed from a traditional IRA is taxable as ordinary income and subject to a 10 percent penalty except for taxpayers who are:

Accepted Answer

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Question 6

Jim lives in California. What is Jim's deadline for making a contribution to traditional IRA or a Roth IRA for 2015?

Accepted Answer

The deadline for making a contribution to an IRA for the previous tax year (2015) is April 18, 2016, due to the Emancipation Day holiday in Washington D.C. falling on April 15, 2016. This applies to all taxpayers, regardless of which state they reside in.

Question 7

Under the SEP plan provisions, deductible contributions to a qualified retirement plan on behalf of an employee whose net earned income is $20,000 are limited to:

Accepted Answer

The limit for deductible contributions to a SEP plan on behalf of an employee is 25% of their net earned income, up to a maximum of $57,000 in 2020. Therefore, for an employee with a net earned income of $20,000, the maximum deductible contribution would be $5,000 (25% of $20,000 is $5,000).

Question 8

Steven is 27 years old and has a total AGI of $110,000 in 2015. He contracts pneumonia in 2015 and incurs a medical bill that totals $7,500. He withdraws $7,500 from his traditional IRA to pay the bill. Which of the following is true?

Accepted Answer

The IRS allows penalty-free withdrawals from a traditional IRA for medical expenses that exceed 10% of the individual's AGI. Since Steven's medical expenses do not exceed 10% of his AGI, he is subject to penalties.

Question 9

What is the maximum amount a 30-year-old taxpayer and a 35-year-old spouse can put into a Traditional or Roth IRA for 2015, assuming they earn $50,000 in total and are not covered by pension plans?

Accepted Answer

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Question 10

Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2015. What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP) for the year?

Accepted Answer

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Question 11

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. He is an active participant in his employer's pension plan. What is the maximum amount Donald can contribute to a Roth IRA?

Accepted Answer

For 2023, the maximum contribution to a Roth IRA for individuals under 50 is $6,500. Since Donald's income is below the phase-out range for married filing jointly, he can contribute the full amount.

Question 12

Christine is a self-employed graphics artist who has net earned income of $160,000 from her business. Christine has a defined contribution SEP Plan and plans to contribute the amount that provides the maximum deduction allowable. How much can Christine contribute?

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Question 13

Which of the following statements is correct?

Accepted Answer

The statement in option B is correct. Contributions to SEP plans by self-employed taxpayers are generally limited to the lesser of 25 percent of their net self-employment income or $53,000 for the year 2016. Option A contains an incorrect limit of 15 percent of net earned income or $45,000, which is the limit for profit-sharing plans. Option C also contains an incorrect limit of 15 percent of net earned income or $45,000, and pertains to 401(k) plans, not SEP plans. Option D lists the contribution limits for 401(k) plans, not SEPs.

Question 14

John is a single 40-year-old landscape architect earning $125,000 a year and is not covered by a pension plan at work. How much can he put into a Traditional IRA in 2015?

Accepted Answer

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Question 15

Contributions by a self-employed individual to a SEP plan for 2015 are limited to the lesser of a percent of net earned income or:

Accepted Answer

For the year 2015, the contribution limit for a self-employed individual to a SEP plan is 25% of their net earned income or $53,000, whichever is less. Option D states this limit correctly. Options A, B, and C are either incorrect or outdated limits. Therefore, D is the best choice.

Question 16

Ben is a 19-year-old single software inventor earning $200,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2015?

Accepted Answer

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Question 17

Which of the following taxpayers qualifies for the maximum individual retirement account deduction for 2015?

Accepted Answer

Married taxpayers, neither of whom is covered by a qualified retirement plan, with total adjusted gross income, all earned, of $85,000 qualifies for the maximum individual retirement account deduction in 2015, which is $5,500 or $6,500 if age 50 or over. The other options either have income limitations or are covered by a qualified retirement plan, which affects the deduction amount.

Question 18

Jeremy, age 38, has $25,000 in a traditional IRA account and is considering taking the money out to buy himself a new car. What will be the tax consequences to Jeremy if he withdraws the $25,000 from his IRA in 2015 for this purpose? Explain.

Accepted Answer

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Question 19

Debbie is 63 years old and retired in 2013. She receives Social Security payments of $12,000 a year and interest income of $30,000. She wishes to put the maximum allowed into an IRA. How much can she contribute to her IRA?

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Question 20

Jody is a physician (not covered by a retirement plan) with a salary of $40,000 from the hospital where she is employed. She supports her husband, Andre, who sells art work and has no earned income. Both are in their twenties. What is the maximum total amount that Jody and Andre may contribute to their IRAs and deduct for the 2015 tax year?

Accepted Answer

Jody can contribute up to $5,500 to her IRA for the 2015 tax year, since she is under 50 years old. Since she has no retirement plan offered through her employer, her contribution is fully deductible. Andre can also contribute up to $5,500 to a traditional IRA, which is not deductible since he has no earned income. Combined, they can contribute up to $11,000 to their IRAs and deduct the full amount.

Quiz 4: Business Income and Expenses, Part II