Question 1

Hamden is entitled to receive monthly payments of $6,000 over his life from his employer's qualified pension plan.The payments begin January 1,2014.He contributed $286,000 to the plan prior to his retirement at age 62.Using the simplified method,what amount of the payments will be excluded from Hamden's taxable income for 2014?

Accepted Answer

Under the simplified method, the exclusion amount is calculated by dividing the employee's total contributions by a factor based on the age at which the payments begin. For age 62, the factor is 260. Therefore, $286,000 / 260 = $1,100 per month is excluded. For 12 months, $1,100 x 12 = $13,200 is excluded from taxable income.

Question 2

What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?
a.A single person,age 41,who is not an active participant in an employer-sponsored retirement plan with AGI of $97,000.
b.A married couple,ages 33 and 34,neither of whom is an active participant in an employer-sponsored retirement plan.One spouse has W-2 income of $57,000 and the other spouse did not work.
c.A married couple,ages 44 and 48.One spouse is covered under an employer-sponsored retirement plan and the other is not.The covered spouse has W-2 income of $125,000 and the non-covered spouse has W-2 income of $32,000.

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Question 3

Retirement plans can be categorized into employer-sponsored plans and individual-based plans.What is the distinction? Give examples of plans in both categories.

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Question 4

Exam Company provides a SIMPLE plan for its employees.Under the plan,employees can contribute up to 6% of their salary and Exam Corporation will match the employee's contribution up to 3% of the employee's salary.Ben,age 44,is an employee of Exam Corporation and elects to contribute the maximum amount of his $95,000 salary to the SIMPLE plan.What is the total contribution made to Ben's SIMPLE account? When does Ben's contribution vest? When does the contribution by Exam Company vest? What is the amount contributed to Ben's account if Ben's salary is $210,000?

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Question 5

What is a good rule of thumb you should use when thinking about the taxability of retirement plan distributions?

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Question 6

What is an annuity contract? Who are the parties to an annuity contract?

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Question 7

Felix is age 74 and his wife is age 73.He purchased a single life annuity contract that will pay him $80,000 per year for life.The expected return on the contract is

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Question 8

In the case of defined-contribution plans,in 2014 what are the maximum contribution limits by an employee under the age of 50 to a qualified pension plan,a 401(k)plan,a Keogh plan,SEP,and SIMPLE plan?

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Question 9

What are some of the significant tax benefits for both employees and employers associated with a qualified pension plan?

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Question 10

Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment is

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Question 11

Quentin and Janelle would like to establish a Coverdell Education Savings Account (CESA)for their daughter,age 5,and their nephew (the son of Quentin's brother),age 8.Their AGI is $145,000.Quentin's brother has already contributed $1,500 to a CESA for his son.
a.What is the maximum amount Quentin and Janelle can contribute to a CESA for their daughter and their nephew?
b.If their AGI were $208,000,what is the maximum amount they can contribute to a CESA for their daughter and their nephew?

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Question 12

Pierre retired in 2014 at age 62.During the year he received distributions of $27,000 from his IRA.He made nondeductible contributions of $60,000 to the IRA in prior years and has never received a nontaxable distribution.As of December 31,2014,the value of his IRA was $450,000.Calculate the taxable portion of Pierre's distribution.

Accepted Answer

To calculate the taxable portion of Pierre's distribution, we need to use the IRS Formula for IRA Distributions. 
The formula is: 
(Total IRA balance / Expected remaining years of life) x (1 - nontaxable contributions / Total IRA balance)
 
Total IRA balance = $450,000
Expected remaining years of life = based on the IRS Single Life Expectancy Table, Pierre's life expectancy at age 62 is 20.2 years.
Nontaxable contributions = $60,000

Using these values in the formula, we get:
(450,000 / 20.2) x (1 - 60,000 / 450,000) = $23,604

Therefore, the taxable portion of Pierre's distribution is $23,604. The correct answer is D.

Question 13

Harriett 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 maximum deductible IRA contribution she can make for her own account in 2014?

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Question 14

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

Accepted Answer

Distributions used to pay for qualified higher education expenses of the beneficiary are tax-free up to $2,000 per year. The other options are incorrect.

Question 15

Hyman is age 34,single,and has AGI of $130,000.He would like to contribute to a Coverdell Education Savings Account (CESA)for his niece,Danielle.Danielle's father has already contributed $500 to a CESA in 2014.What is the maximum CESA contribution Hyman can make for Danielle in 2014?

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Question 16

Augustus is single and age 51.He had AGI of $39,000 in tax year 2014 and is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2014?

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Question 17

Max retired in 2014 at age 62.During the year he received distributions of $12,000 from his IRA.He made nondeductible contributions of $30,000 to the IRA in prior years and has never received a nontaxable distribution.As of December 31,2014,the value of his IRA was $250,000.Calculate the nontaxable portion of Max's distribution.

Accepted Answer

The nontaxable portion of Max's distribution is calculated as follows:Nontaxable portion = (Nondeductible contributions / (Nondeductible contributions + Taxable earnings)) x Distribution amountNontaxable portion = ($30,000 / ($30,000 + $220,000)) x $12,000Nontaxable portion = $1,374

Question 18

What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?
a.A single person,age 51,who is an active participant in an employer-sponsored retirement plan with AGI of $37,000.
b.A single person,age 59,who is an active participant in an employer-sponsored retirement plan with AGI of $66,000.
c.A single person,age 26,who is an active participant in an employer-sponsored retirement plan with AGI of $62,000.

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Question 19

A pension or profit-sharing plan must not discriminate in favor of highly compensated employees.What employees meet the definition of "highly compensated" for purposes of these plans?

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Question 20

Damian is age 79.He purchased a single life annuity contract that will pay him $4,000 per month for life.The expected return on the contract is:

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