Question 1

Benjamin and Ester file a joint return and have AGI of $165,000.Both are active participants in their employer's pension plan.They have one child,Emily,who is age 8.Emily's grandparents contributed $1,000 to a Coverdell Education Savings Account for Emily in 2014.What is the maximum permitted Coverdell Education Savings Account contribution that Benjamin and Ester can make in 2014?

Accepted Answer

The maximum permitted Coverdell Education Savings Account contribution for Benjamin and Ester is $2,000. This is because they are both active participants in their employer's pension plan and their AGI is over $165,000.

Question 2

Which of the following is true regarding an SEP?

Accepted Answer

SEP plans must not discriminate in favor of highly compensated employees, ensuring fair treatment for all eligible employees.

Question 3

Which of the following statements is incorrect?

Accepted Answer

If a pension plan is funded with contributions that have not been taxed, the distributions will be taxed as ordinary income when they are taken out of the plan.

Question 4

Which of the following statements is correct?

Accepted Answer

All of the statements are correct. 
A) Congress established pension plan rules to encourage individuals to save for retirement through tax incentives and other benefits.
B) Retirement plans are generally tax-deferred, meaning that contributions made by employees and employers are not taxed until funds are withdrawn at retirement.
C) Individuals or companies typically establish a pension plan with the help of a trustee, who is responsible for managing the plan's investments and ensuring compliance with legal requirements.

Question 5

What are some tax consequences related to a qualified pension plan?

Accepted Answer

Employer contributions are deductible when made, and employees are not taxed until distributions are received from the plan.

Question 6

Valerie and Marty are both age 51 and file a joint return.They have one child who is age 17.They have combined AGI in 2014 of $180,000.What is their maximum permitted contribution to a Coverdell Education Savings Account for 2014 assuming no other persons make contributions?

Accepted Answer

The maximum contribution allowed for a Coverdell Education Savings Account is $2,000 per year per child, and the contribution limit gradually decreases as the taxpayer’s modified adjusted gross income (MAGI) increases above certain thresholds. For 2014, married taxpayers filing jointly can make the full contribution if their MAGI is less than $190,000, and a partial contribution if it is between $190,000 and $220,000. Since Valerie and Marty’s MAGI is $180,000, they can make the full contribution of $2,000 for their child.

Question 7

In order to obtain and retain qualified status,a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:

Accepted Answer

B  Employees who own more than 5% of the corporation's stock and those who received over $85,000 in compensation in the previous year are considered highly compensated employees under IRS guidelines, and plans must not discriminate in their favor to maintain qualified status.

Question 8

Venkat is age 32,single,and reported AGI of $66,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2014?

Accepted Answer

Venkat is under age 50 and covered by an employer plan, so his maximum deductible IRA contribution is $2,200.

Question 9

Which of the following statements is incorrect?

Accepted Answer

This statement is incorrect because a profit-sharing plan can qualify as a pension plan if it meets certain requirements, such as including a formula for determining allocations to participant accounts.

Question 10

Which of the following statements regarding a Coverdell Education Savings Account (CESA)is incorrect?

Accepted Answer

A person can contribute to multiple CESAs in a tax year as long as the contribution limit is not exceeded. The contribution limit for each beneficiary for 2021 is $2,000.

Question 11

In 2014,a 52-year-old participant in a 401(k)plan may contribute a maximum of:

Accepted Answer

The maximum contribution limit for a 401(k) plan participant who is 50 years or older as of December 31, 2014, is $23,000. This is known as the catch-up contribution and is in addition to the regular contribution limit of $17,500 for individuals under 50 years old. Therefore, the correct answer is D.

Question 12

Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2014.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2014?

Accepted Answer

To determine the taxable portion of the pension payments using the simplified method, you divide the amount of the after-tax contributions by the expected return (the number of payments expected to be received).

In this case, Len contributed $71,500 to the plan, which is his after-tax contributions. To calculate the expected return, you would use the IRS Simplified Method Worksheet found in Publication 939.

Assuming a life expectancy of 18 years, the expected annual return is $11,388.89 ($1,500 x 12 months).

Dividing Len's after-tax contributions of $71,500 by the expected annual return of $11,388.89 gives a factor of 6.276.

To determine the taxable portion of the payments for 2014, you multiply the monthly payment of $1,500 by the factor of 6.276, giving an annual taxable amount of $14,700.

Question 13

Omar is single,age 46,and reported AGI of $124,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum Roth IRA contribution he can make in 2014?

Accepted Answer

The answer of Omar is single,age 46,and reported AGI of...

Question 14

Pension plans must meet complex rules to retain their tax-advantaged status.These rules include all of the following except:

Accepted Answer

The statement "employee and employer contributions must fully vest within five years" is incorrect. The actual requirement is that employer contributions must fully vest either immediately or according to a vesting schedule that does not exceed three to seven years, depending on the type of vesting schedule chosen by the employer. Employee contributions do not have to vest within a specific time frame.

Question 15

Jill is single,age 27,and reported AGI of $62,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the maximum deductible Roth IRA contribution she can make in 2014?

Accepted Answer

Jill's participation in her employer's pension plan affects the income limits for deductible contributions to a traditional IRA. Because she reported AGI of $62,000, she does not meet the income requirements for a deductible contribution. Additionally, as an active participant in a pension plan, she cannot make a deductible contribution to a traditional IRA. Therefore, she cannot make a deductible contribution to either a traditional or Roth IRA in 2014.

Question 16

Escobar and Rose are both age 36 and file a joint return.Neither is covered under an employer plan.Escobar earned $121,000 of compensation in 2014.Rose worked part-time and earned $1,200.What is the maximum deductible IRA contribution they can make in 2014?

Accepted Answer

Since neither Escobar nor Rose is covered by an employer plan, they can each contribute up to the maximum IRA limit for 2014, which is $5,500 per person. Therefore, together they can contribute a total of $11,000.

Question 17

Which of the following statements is incorrect?

Accepted Answer

Contributions to a pension plan can be made by the beneficiary, the employer, or both.

Question 18

Xavier is a self-employed plumber.His earnings from self-employment,before the Keogh deduction but after deducting half of the self-employment tax,are $80,000.What is his deductible Keogh contribution for 2014?

Accepted Answer

For 2014, the maximum deductible contribution to a Keogh plan is 20% of self-employment income after deducting half of the self-employment tax. Therefore, 20% of $80,000 is $16,000.

Question 19

Charlotte is age 52,married,and reported AGI of $100,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the disallowed portion of her deductible IRA contribution in 2014?

Accepted Answer

The phase-out range for a married taxpayer who is an active participant in an employer-sponsored retirement plan begins at $96,000 and ends at $116,000 in 2014. Charlotte's AGI of $100,000 falls within this range. Therefore, her maximum deductible IRA contribution is reduced by 50% of the excess over $96,000, which is $2,000 ($100,000 - $96,000 = $4,000 excess; $4,000 x 0.5 = $2,000). This reduces her maximum deductible IRA contribution from $5,500 to $3,500. Therefore, the disallowed portion of her deductible IRA contribution is $2,000 ($5,500 - $3,500 = $2,000).

Question 20

Kaysia participates in a SIMPLE plan provided by her employer.In 2014,she contributes 6% of her $40,000 salary,and her employer contributes 3% to the plan.What amount of the contributions will be vested in her account at the end of 2014?

Accepted Answer

Kaysia's contribution is 6% of $40,000, which is $2,400. Her employer contributes 3% of $40,000, which is $1,200. The total vested amount in her account at the end of 2014 is $2,400 + $1,200 = $3,600.

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

Which of the following is true regarding an SEP?

Which of the following statements is incorrect?

Which of the following statements is correct?

What are some tax consequences related to a qualified pension plan?

Valerie and Marty are both age 51 and file a joint return.They have one child who is age 17.They have combined AGI in 2014 of $180,000.What is their maximum permitted contribution to a Coverdell Education Savings Account for 2014 assuming no other persons make contributions?

In order to obtain and retain qualified status,a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:

Venkat is age 32,single,and reported AGI of $66,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2014?

Which of the following statements is incorrect?

Which of the following statements regarding a Coverdell Education Savings Account (CESA) is incorrect?

In 2014,a 52-year-old participant in a 401(k) plan may contribute a maximum of:

Omar is single,age 46,and reported AGI of $124,000 in tax year 2014.He is an active participant in his employer's pension plan.What is the maximum Roth IRA contribution he can make in 2014?

Pension plans must meet complex rules to retain their tax-advantaged status.These rules include all of the following except:

Jill is single,age 27,and reported AGI of $62,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the maximum deductible Roth IRA contribution she can make in 2014?

Escobar and Rose are both age 36 and file a joint return.Neither is covered under an employer plan.Escobar earned $121,000 of compensation in 2014.Rose worked part-time and earned $1,200.What is the maximum deductible IRA contribution they can make in 2014?

Which of the following statements is incorrect?

Xavier is a self-employed plumber.His earnings from self-employment,before the Keogh deduction but after deducting half of the self-employment tax,are $80,000.What is his deductible Keogh contribution for 2014?

Charlotte is age 52,married,and reported AGI of $100,000 in tax year 2014.She is an active participant in her employer's pension plan.What is the disallowed portion of her deductible IRA contribution in 2014?

Kaysia participates in a SIMPLE plan provided by her employer.In 2014,she contributes 6% of her $40,000 salary,and her employer contributes 3% to the plan.What amount of the contributions will be vested in her account at the end of 2014?