Ross works for Houston Corporation,which has a contributory defined contribution pension plan.The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary,while the employee contributes only 6 percent.Ross's monthly salary is $3,000.Which of the following statements best describes the benefits of the plan?
A)Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan.
B)While Ross is taxed on the employer's contributions to the plan,his own contributions are not taxed until he receives a distribution from the plan.
C)Ross may deduct his own contributions to the pension plan,and Ross reports income from the plan each year until he receives distributions from the plan.
D)The amounts contributed to the plan and the earnings on those contributions are not taxed to Ross until he retires or receives a distribution from the plan.

Question

Quizplus · Accepted Answer

The best choice is D because it accurately describes the tax benefits of a defined contribution pension plan. Contributions and earnings are not taxed until the employee retires or receives a distribution from the plan, which allows for tax-deferred growth over time. While the employer receives a deduction for contributions to the plan, this does not occur when Ross receives a distribution. Ross cannot deduct his own contributions to the plan, and income from the plan is not reported until distributions are received.

Ross Works for Houston Corporation,which Has a Contributory Defined Contribution