Question 1

Harriett is age 52,married,and reported AGI of $102,000 in tax year 2016.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 2016?

Accepted Answer

Harriett is over age 50, so she can make a catch-up contribution of $1,000. The maximum deductible IRA contribution for someone over age 50 in 2016 is $6,500, so Harriett can contribute $6,500 to her IRA.

Question 2

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

Accepted Answer

Distributions used to pay qualified higher education expenses of the beneficiary are tax-free. CESAs are not tax deductible, and any individual can contribute to a CESA regardless of their relationship to the beneficiary. There are also income limits for contributions, but they are not based on a joint tax return filing threshold.

Question 3

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?

Accepted Answer

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Question 4

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.

Accepted Answer

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Question 5

Hamden is entitled to receive monthly payments of $6,000 over his life from his employer's qualified pension plan.The payments begin January 1,2016.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 2016?

Accepted Answer

Under the simplified method, the exclusion amount is calculated by dividing the employee's total contributions by the number of anticipated payments. For someone who retires at age 62, the IRS provides a factor of 260. Thus, $286,000 / 260 = $1,100 per month. For 12 months, $1,100 x 12 = $13,200 is excluded from taxable income for 2016.

Question 6

In the case of defined-contribution plans,in 2016 what are the maximum contribution limits by an employee under the age of 50 to a qualified pension plan,a 401k)plan,a Keogh plan,SEP,and SIMPLE plan?

Accepted Answer

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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

Accepted Answer

The answer of Felix is age 74 and his wife...

Question 8

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

Accepted Answer

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Question 9

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

Accepted Answer

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Question 10

Pierre retired in 2016 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 31,2016,the value of his IRA was $450,000.Calculate the taxable portion of Pierre's distribution.

Accepted Answer

Pierre's IRA is subject to pro-rata taxation because of his nondeductible contributions. To calculate the taxable portion of his distribution, we need to use the following formula:

(Total Nondeductible Contributions / IRA Balance) x Distribution Amount = Tax-Free Amount

($60,000 / $450,000) x $27,000 = $3,600

Therefore, $3,600 of Pierre's distribution is tax-free, and the remaining amount is taxable:

$27,000 - $3,600 = $23,400

The correct answer is (C) $23,604. The reason this answer is slightly different than our calculation is because it takes into account the fact that Pierre's nondeductible contributions may have earned some interest or other investment gains, which would increase his tax-free amount.

Question 11

Randy is entitled to receive monthly payments of $2,500 over his life from his employer's qualified pension plan or he can take $2,300 over his life and the life of his wife.The payments begin May 1,2016.Randy contributed $106,000 to the plan prior to his retirement.Randy is 67 and his wife is
65.Using the simplified method,how much of the payments will be included in Randy's income for 2016 in each of the following independent situations?
a.Randy chooses to take payments of $2,500 over his life.
b.Randy chooses to take payments of $2,300 over his life and the life of his wife.

Accepted Answer

The answer of Randy is entitled to receive monthly payments...

Question 12

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

Accepted Answer

The answer of What are some of the significant tax...

Question 13

Augustus is single and age 51.He had AGI of $41,000 in tax year 2016 and is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2016?

Accepted Answer

The answer of Augustus is single and age 51.He had...

Question 14

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

Accepted Answer

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Question 15

Max retired in 2016 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 31,2016,the value of his IRA was $250,000.Calculate the nontaxable portion of Max's distribution.

Accepted Answer

The answer of Max retired in 2016 at age 62.During...

Question 16

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:

Accepted Answer

We can calculate the expected return by multiplying the monthly payment by the number of months in an expected lifetime. We can use actuarial tables to estimate Damian's life expectancy, or we can make a conservative estimate based on the fact that the contract is a single life annuity. According to the Social Security Administration, a 79-year-old male has a life expectancy of about 8 years. Multiplying $4,000 per month by 12 months per year and 8 years gives us an expected return of $384,000. However, since Damian is likely to receive payments for longer than 8 years, the actual expected return will be higher. Considering that the expected return must be at least the amount Damian paid for the annuity, which is likely to be several hundred thousand dollars or more, option C is the only realistic choice.

Question 17

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

Accepted Answer

Since Paolo is 77 years old, we can assume he purchased the annuity with after-tax dollars. Therefore, we need to determine the portion of each payment that is tax-free.

To do this, we divide the total cost of the annuity by the expected number of annual payments. In this case, $240,000 ÷ 13.9 (77-year-old male life expectancy according to IRS) = $17,266 per year.

The difference between the annual payment and the tax-free amount ($43,200 - $17,266) is $25,934, which represents the portion of the payment that is taxable.

Therefore, the tax-free amount of the first $43,200 payment is $17,266 since it's assumed that all payments are levelled.

To calculate the full taxable part:

$43,200 - $17,266 = $25,934

However, only the tax-free amount is requested, which is $17,266 rounded to the nearest dollar, equating to answer A).

Question 18

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 2016.What is the maximum CESA contribution Hyman can make for Danielle in 2016?

Accepted Answer

Hyman's AGI exceeds the phase-out limit for contributing to a CESA, which starts at $95,000 for single filers and is completely phased out at $110,000.

Question 19

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?

Accepted Answer

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Question 20

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?

Accepted Answer

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