Ross works for Houston Corporation,which has a contributory defined contribution pension plan.The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary,while the employee contributes only 6 percent.Ross's monthly salary is $3,000.Which of the following statements best describes the benefits of the plan?
A)Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan.
B)While Ross is taxed on the employer's contributions to the plan,his own contributions are not taxed until he receives a distribution from the plan.
C)Ross may deduct his own contributions to the pension plan,and Ross reports income from the plan each year until he receives distributions from the plan.
D)The earnings on amounts contributed to the plan are not taxed to Ross until he retires or receives a distribution from the plan.

Question

Quizplus · Accepted Answer

The plan is a defined contribution plan, so the benefits received by Ross will depend on the performance of the investments in the plan. However, the earnings on amounts contributed to the plan are not taxed to Ross until he retires or receives a distribution from the plan. This provides tax-deferred growth for Ross's retirement savings. Ross will be taxed on the contributions and earnings when he receives a distribution from the plan. Houston receives a deduction for its contributions to the plan in the year that they are made, not when Ross receives a distribution from the plan. Ross cannot deduct his contributions to the pension plan from his taxable income.

Ross Works for Houston Corporation,which Has a Contributory Defined Contribution