Question 1

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

Accepted Answer

The saver's credit is designed to incentivize low to moderate income taxpayers to contribute to qualified retirement plans. Therefore, a low AGI taxpayer who contributes to her employer's 401(k) plan is the most likely to qualify for the saver's credit. The other options do not meet the criteria for the credit.

Question 2

Amy is single. During 2014, 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?

Accepted Answer

The maximum saver's credit for individuals with an AGI of $12,000 or less is 50% of the contribution, up to a maximum credit of $1,000. Therefore, Amy may claim a saver's credit of $1,250, but since the maximum credit is $1,000, she may only claim that amount.

Question 3

Kim (50 years of age) is considering whether to participate in her company's Roth 401(k) or traditional 401(k). This year, she plans to invest either $4,000 in a Roth 401(k) or $5,000 in a traditional 401(k). Kim plans on leaving the contribution in the retirement account for 20 years when she will receive a distribution of the entire balance in the account. Her employer does not have a matching program for employee contributions to retirement accounts. Assume Kim can earn a 6 percent before tax return in either account and that she anticipates that in 20 years her tax rate will be 30%.
1) What would be Kim's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k) account? 2) What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k) account?

Accepted Answer

The answer of Kim (50 years of age) is considering...

Question 4

Heidi invested $4,000 in her Roth 401(k) on January 1, 2006. This was her only contribution to the account. On July 1, 2014, 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 invested $4,000 in her Roth 401(k)...

Question 5

Sean (age 74 at end of 2013) retired five years ago. The balance in his 401(k) account on December 31, 2013 was $1,700,000 and the balance in his account on December 31, 2014 was $1,800,000. Using the IRS tables below, what is Sean's required minimum distribution for 2014? $$\begin{array} { | c | c | l | } 
\hline \begin{array} { c } 
\text { Age of } \
\text { Participant }
\end{array} & \begin{array} { c } 
\text { Distribution } \
\text { Period }
\end{array} & { \begin{array} { c } 
\text { Applicable } \
\text { Percentage }
\end{array} } \
\hline 70 & 27.4 & 3.65 \% \
\hline 71 & 26.5 & 3.77 \% \
\hline 72 & 25.6 & 3.91 \% \
\hline 73 & 24.7 & 4.05 \% \
\hline 74 & 23.8 & 4.20 \% \
\hline 75 & 22.9 & 4.37 \% \
\hline
\end{array}$$

Accepted Answer

The answer of Sean (age 74 at end of 2013)...

Question 6

Sean (age 74 at end of 2014) retired five years ago. The balance in his 401(k) account on December 31, 2013 was $1,700,000 and the balance in his account on December 31, 2014 was $1,750,000. In 2013, Sean received a distribution of $50,000 from his 401(k) account. Assuming Sean's marginal tax rate is 25 percent, what amount of the $50,000 distribution will Sean have left after paying income tax on the distribution and paying any minimum distribution penalties (use the IRS table below in determining the minimum distribution penalty, if any). $$\begin{array} { | c | c | l | } 
\hline \begin{array} { c } 
\text { Age of } \
\text { Participant }
\end{array} & \begin{array} { c } 
\text { Distribution } \
\text { Period }
\end{array} &{ \begin{array} { c } 
\text { Applicable } \
\text { Percentage }
\end{array} } \
\hline 70 & 27.4 & 3.65 \% \
\hline 71 & 26.5 & 3.77 \% \
\hline 72 & 25.6 & 3.91 \% \
\hline 73 & 24.7 & 4.05 \% \
\hline 74 & 23.8 & 4.20 \% \
\hline 75 & 22.9 & 4.37 \% \
\hline
\end{array}$$

Accepted Answer

The answer of Sean (age 74 at end of 2014)...

Question 7

In 2014, Ryan contributes 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 in 2014 is 35 percent will he earn a higher after tax rate of return from the Roth 401(k) or the traditional 401(k)? Explain.

Accepted Answer

The answer of In 2014, Ryan contributes 10 percent of...

Question 8

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 5-year cliff schedule. Joan worked 4½ 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 9

Kathy is 48 years of age and self-employed. During the year 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)?

Accepted Answer

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

Question 10

In 2014, 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 2014 contributions to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.

Accepted Answer

The answer of In 2014, Christina made a one-time contribution...

Question 11

Kathy is 48 years of age and self-employed. During the year she reported $400,000 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)?

Accepted Answer

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

Question 12

Henry has been working for Cars Corp. for 40 years and 4 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. Henry's vested benefit percentage is 80 percent (40 years × 2 percent for each full year). Henry retired on January 1, 2014 Henry received annual salaries of $520,000, $540,000, and $560,000 for 2011, 2012, and 2013, respectively. What is the maximum benefit Henry can receive under the plan in 2014?

Accepted Answer

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

Question 13

Kathy is 60 years of age and self-employed. During the year 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)?

Accepted Answer

The answer of Kathy is 60 years of age and...

Question 14

Amy is single. During 2014, 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?

Accepted Answer

The maximum saver's credit for individuals with an adjusted gross income of $12,000 or less in 2014 is 50% of the amount contributed to a qualified retirement account, up to a maximum credit of $1,000 for single filers. Since Amy contributed $1,500 to a Roth IRA, 50% of that is $750, which is the maximum saver's credit she can claim.

Question 15

On March 30, 2014, Rodger (age 56) was let go 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, 2014, Rodger (age 56)...

Question 16

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 5-year cliff schedule. Joan worked 5½ 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?

Accepted Answer

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

Question 17

Georgeanne has been employed by SEC Corp. for the last 2½ 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....

Question 18

Kathy is 60 years of age and self-employed. During the year she reported $400,000 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)?

Accepted Answer

The answer of Kathy is 60 years of age and...

Question 19

Amy files as a head of household. She determined her 2014 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 2014?

Accepted Answer

The answer of Amy files as a head of household....

Question 20

What is the maximum saver's credit available to any taxpayer in 2014?

Accepted Answer

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

Quiz 13: Retirement Savings and Deferred Compensation

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

Amy is single. During 2014, 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?

Kathy is 48 years of age and self-employed. During the year 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) ?

Kathy is 48 years of age and self-employed. During the year she reported $400,000 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) ?

Kathy is 60 years of age and self-employed. During the year 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) ?

Amy is single. During 2014, 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?

Kathy is 60 years of age and self-employed. During the year she reported $400,000 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 2014 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 2014?

What is the maximum saver's credit available to any taxpayer in 2014?