Fanny's employer has a qualified pension plan. The employer makes all payments into the plan; employees do not contribute to the plan. During the current year, the employer pays $4,000 into the plan on Fanny's behalf. The plan also earns $3,000 during the year on the balance in Fanny's retirement account. Which of the following statements is true?
I.Fanny is not taxed on the $4,000 in the current year.
II.Fanny is not taxed on the $3,000 in the current year.

Question

Fanny's employer has a qualified pension plan. The employer makes all payments into the plan; employees do not contribute to the plan. During the current year, the employer pays $4,000 into the plan on Fanny's behalf. The plan also earns $3,000 during the year on the balance in Fanny's retirement account. Which of the following statements is true?
I.Fanny is not taxed on the $4,000 in the current year.
II.Fanny is not taxed on the $3,000 in the current year.
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Quizplus · Accepted Answer

Fanny is not taxed on the $4,000 because it is a contribution made by the employer to the qualified pension plan on her behalf. This contribution is not included in her taxable income.

Similarly, Fanny is not taxed on the $3,000 earned by the plan during the year on the balance in her retirement account because it is considered investment income of the plan and not directly attributable to Fanny.

Fanny's Employer Has a Qualified Pension Plan