Question 1

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 five-year cliff schedule.Joan worked five and a half 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? Use Exhibit 13-1.

Accepted Answer

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

Question 2

Amy is single.During 2019,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?
A)$1,250.
B)$2,500.
C)$1,000.
D)$0.

Accepted Answer

The maximum saver's credit for a single filer with an adjusted gross income of $12,000 is 10%. Therefore, the maximum saver's credit Amy may claim is $250 ($2,500 x 10%). However, the maximum saver's credit that can be claimed is limited to $1,000. Therefore, Amy can claim a saver's credit of $250, but not the full $1,250, making choice C the correct answer.

Question 3

Katrina's executive compensation package allows her to participate in the company's nonqualified deferred compensation plan.In the current year,Katrina defers 15 percent of her $300,000 salary.Katrina's deemed investment choice will earn 8 percent annually on the deferred compensation until she takes a lump-sum distribution in 10 years.Katrina's current marginal tax rate is 30 percent and she expects her marginal tax rate to be 28 percent upon receipt on the deferred salary.What is her after-tax accumulation from the deferred salary in 10 years? (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)

Accepted Answer

The answer of Katrina's executive compensation package allows her to...

Question 4

Kathy is 60 years of age and self-employed.During 2019,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 2019? Assume she pays $27,192 in self-employment for 2019.(Round your final answer to the nearest whole number.)
A)$56,000.
B)$62,000.
C)$96,281.
D)$77,281.

Accepted Answer

Kathy can contribute both as an employee and as an employer to her individual 401(k).

As an employee:
For 2019, the elective deferral limit for an individual 401(k) is $19,000.

As an employer:
The employer contribution can be up to 20% of the net self-employment income (revenues - expenses) or 25% of the compensation (net self-employment income + elective deferral), whichever is less.

In this case, Kathy's net self-employment income is $400,000 ($500,000 revenues - $100,000 expenses) and her elective deferral is $19,000.

So her maximum employer contribution would be:

20% of $400,000 (net self-employment income) = $80,000
25% of ($400,000 + $19,000) = $104,750
The lesser of the two amounts is $80,000, so that's the maximum employer contribution she can make.

Combining the employer and employee contributions, Kathy can contribute up to $99,000 ($19,000 + $80,000) to her individual 401(k) for 2019. However, the total contribution cannot exceed 100% of her net self-employment income (revenues - expenses), which is $400,000 in this case.

So the actual maximum contribution Kathy can make to her individual 401(k) is $94,000 ($400,000 + $19,000 + $80,000).

Since Kathy paid $27,192 in self-employment tax, she can deduct the employer contribution of $80,000 from her net self-employment income, resulting in a taxable income of $392,808.

Therefore, Kathy can contribute up to $62,000 ($19,000 + $43,000) to her individual 401(k) for 2019.

The correct answer choice is B.

Question 5

In 2019,Tyson (age 52)earned $50,000 of salary.Assuming he does not participate in an employer-sponsored plan,what is the maximum deductible IRA contribution Tyson can make in 2019?

Accepted Answer

The answer of In 2019,Tyson (age 52)earned $50,000 of salary.Assuming...

Question 6

Kathy is 48 years of age and self-employed.During 2019 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)?
A)$56,000.
B)$62,000.
C)$77,281.
D)$83,281.

Accepted Answer

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

Question 7

Amy files as a head of household.She determined her 2019 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 2019?
A)$1,000.
B)$2,000.
C)$2,500.
D)$1,250.
E)$0.

Accepted Answer

For 2019, the saver's credit is not available to taxpayers with an adjusted gross income of $70,000 or more who file as head of household.

Question 8

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 9

Kathy is 60 years of age and self-employed.During 2019,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 2019? Assume she paid $8,478 of self-employment tax for 2019.(Round your final answer to the nearest whole number.)
A)$30,152.
B)$36,152.
C)$56,000.
D)$62,000.

Accepted Answer

Kathy can contribute up to $19,000 as an employee and 20% of her net self-employment income (after deducting half of the self-employment tax) as an employer. Her net income is $60,000 ($100,000 - $40,000), and half of her self-employment tax is $4,239. Thus, her net self-employment income is $55,761 ($60,000 - $4,239). 20% of $55,761 is $11,152. Adding the $19,000 employee contribution, the total is $30,152. However, since Kathy is 60, she can make a $6,000 catch-up contribution, bringing the total to $36,152.

Question 10

In 2019,Tyson (age 22)earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income).Assuming he does not participate in an employer-sponsored plan,what is the maximum deductible IRA contribution Tyson can make in 2019?

Accepted Answer

The answer of In 2019,Tyson (age 22)earned $3,500 from his...

Question 11

Kathy is 48 years of age and self-employed.During 2019,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 2019? Assume she paid $8,478 of self-employment tax for 2019.(Round your final answer to the nearest whole number.)
A)$11,152.
B)$30,152.
C)$36,152.
D)$56,000.

Accepted Answer

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

Question 12

Heidi (age 57)invested $4,000 in her Roth 401(k)on January 1,2011.This was her only contribution to the account.On July 1,2019,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 13

Georgeanne has been employed by SEC Corp.for the last two and a half 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 14

Amy is single.During 2019,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?
A)$750.
B)$1,000.
C)$1,500.
D)$0.

Accepted Answer

The maximum saver's credit is 50% of the amount contributed to a retirement account, up to a certain limit based on adjusted gross income. For 2019, the limit for a single filer with an AGI of $12,000 or less is $2,000. Therefore, Amy's credit would be 50% of her contribution, which is $750 (1,500 x 0.50).

Question 15

Henry has been working for Cars Corp.for 40 years and four 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 1,2019.Henry received annual salaries of $520,000,$540,000,and $560,000 for 2016,2017,and 2018,respectively.What is the maximum benefit Henry can receive under the plan in 2019?

Accepted Answer

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

Question 16

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 five 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 17

What is the maximum saver's credit available to any taxpayer in 2019?
A)$2,000.
B)$1,000.
C)$500.
D)It depends on the filing status of the taxpayer.

Accepted Answer

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

Question 18

Which of the following taxpayers is most likely to qualify for the saver's credit?
A)A low-AGI taxpayer who does not contribute to any qualified retirement plan.
B)A low-AGI taxpayer who contributes to her employer's 401(k)plan.
C)A high-AGI self-employed taxpayer.
D)A high-AGI employee who does not contribute to any qualified retirement plan.

Accepted Answer

The saver's credit is available to low- and moderate-income taxpayers who make contributions to a qualified retirement plan, such as a 401(k) plan. Therefore, option B is the most likely to qualify for the saver's credit compared to the other options given.

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 five-year cliff schedule.Joan worked four and a half 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 20

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 five 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...

Quiz 13: Retirement Savings and Deferred Compensation

Amy is single.During 2019,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?

In 2019,Tyson (age 52)earned $50,000 of salary.Assuming he does not participate in an employer-sponsored plan,what is the maximum deductible IRA contribution Tyson can make in 2019?

Kathy is 48 years of age and self-employed.During 2019 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 2019 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 2019?

In 2019,Tyson (age 22)earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income).Assuming he does not participate in an employer-sponsored plan,what is the maximum deductible IRA contribution Tyson can make in 2019?

Amy is single.During 2019,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?

What is the maximum saver's credit available to any taxpayer in 2019?

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