CH 9 Retirment

Jim, who is age 39, converts a $74,500 Traditional IRA to a Roth IRA in 2017. Jim's adjusted basis in the Traditional IRA is $10,000. He also makes a contribution of $5,500 to a Roth IRA in 2017 for the tax year 2017. If Jim takes a $4,000 distribution from his Roth IRA in 2018 when the account is worth $100,000, how much total federal income tax, including penalties, is due as a result of the distribution assuming his 2018 federal income tax rate is 28 percent? A) $0. B) $224. C) $800. D) $1,120.

A

Nick, who is age 45, operates a landscaping business and is self-employed. He has an assistant, Louis, who has worked with him for five years. Nick is establishing a SEP for 2016 and is willing to make a contribution of 25 percent of Louis's salary to the SEP. If Nick earns $100,000 after paying Louis, his expenses, and the contribution to Louis's SEP, what is the most that he can contribute to the SEP for himself? A) $18,587. B) $20,000. C) $23,234. D) $25,000.

A

Roger converted all $100,000 in his traditional IRA to his Roth IRA on December 1, 2013. His Form 8606 from prior years shows that $20,000 of the amount converted is his basis. Roger included $80,000 ($100,000 - $20,000) in his gross income on his Form 1040 for the year. On April 5th, 2017, Roger made a regular contribution of $5,000 to a Roth IRA for the 2016 year. Roger took a $10,000 distribution from his Roth IRA on July 31st of 2017 to purchase a ticket for a trip on a cruise ship for his 61st birthday present to himself. How is the distribution taxed if the value of the account just before the distribution equals $120,000? A) The distribution is tax free and penalty free. B) The distribution is not subject to tax, but he will have to pay a penalty of $500. C) $1,250 of the distribution is taxable but there is no penalty. D) $1,250 of the distribution is taxable and there is a penalty of $500.

A

Which of the following statements is not correct about Form 8606? A) The form tracks basis for contributions and conversions to Roth IRAs. B) The form tracks in-plan Roth rollovers. C) The form is used for di stributions from Roth IRAs. D) The form tracks basis for nondeductible traditional IRAs.

A

A SEP is not a qualified plan and is not subject to all of the qualified plan rules. However, it is subject to many of the same rules. Which of the following are true statements? 1. SEPs and qualified plans have the same funding deadlines. 2. The contribution limit for SEPs and qualified plans (defined contribution) is $54,000 for the year 2017. 3. SEPs and qualified plans have the same ERISA protection from creditors. 4. SEPs and qualified plans have different nondiscriminatory and top-heavy rules. A) 1 only. B) 1 and 2. C) 2 and 4. D) 1, 2, 3, and 4.

B

David took a lump-sum distribution from his employer's qualified plan at age 56 when he terminated his service. He rolled over his distribution using a direct rollover to an IRA. Assuming David has met 10-year forward averaging requirements, which of the following is/are correct regarding tax treatment of the transaction? 1. If at age 59 he distributes the IRA, he benefits from 10-year forward averaging. 2. If he rolls the entire IRA to a new employer's qualified plan, he may be eligible for forward averaging treatment in the future. 3. If he rolls over a portion of the IRA to a new employer's qualified plan, he may preserve any eligibility for forward averaging on that portion that was rolled over. 4. If David immediately withdraws the entire amount from his IRA, he may benefit from 10-year forward averaging. A) 2 only. B) 2 and 3. C) 2, 3, and 4. D) 1, 2, 3, and 4.

B

Kathy (age 55) is single, recently divorced, and has received the following items of income this year: Pension annuity income from QDRO $21,000 Interest and dividends $5,000 Alimony $1,000 W-2 Income $1,200 What is the most that Kathy can contribute to a Roth IRA for 2017? A) $1,200. B) $2,200. C) $5,500. D) $6,500.

B

Which of the following people can make a deductible contribution to a traditional IRA for 2017? Person AGI Covered by Qualified Plan Marital Status 1. Dianne $90,000 Yes Married 2. Joy $50,000 Yes Single 3. Kim $280,000 No Married 4. Loretta $75,000 Yes Single A) None. B) 1, 2, and 3. C) 1, 2, and 4. D) 1, 2, 3, and 4.

B

Which of the following statements is/are correct regarding SEP contributions made by an employer? 1. Contributions are subject to FICA and FUTA. 2. Contributions are currently excludable from employee-participant's gross income. 3. Contributions are capped at $18,000 for 2017. A) 1 only. B) 2 only. C) 1 and 2. D) 1, 2, and 3.

B

Jack and Jill, both age 43, are married, made $20,000 each, and file a joint tax return. Jill has made a $5,500 contribution to her Traditional IRA account and has made a contribution of $2,000 to a Coverdell Education Savings Account for 2017. What is the most that can be contributed to a Roth IRA for Jack for 2017? A) $0. B) $2,000. C) $5,500. D) $11,000.

C

Mr. Reid was very active and loved to go skiing. Unfortunately, he was prone to skiing though the trees and did not believe in helmets. In March of 2017, he skied into a large pine tree that abruptly ended his life. At that time, his Roth IRA contained regular contributions of $10,000, first made in 2015, a conversion contribution of $40,000 that was made in 2014, and earnings of $10,000. He never made any distributions from his IRA. When he established this Roth IRA (his first) in 2014, he named each of his two children, Bill and Phil, as equal beneficiaries. Each child will receive one-half of each type of contribution and one-half of the earnings. Which of the following is true regarding a distribution after Mr. Reid dies? A) If Bill immediately takes out all $30,000 from the Roth IRA, the entire distribution will be characterized as ordinary income. B) If Phil immediately takes out all $30,000 from the Roth IRA, the entire distribution will not be taxable because it is a qualified distribution from a Roth IRA. C) If Bill immediately takes out all $30,000 from the Roth IRA, $5,000 of the distribution will be characterized as ordinary income, but he will not have to pay a penalty. D) If Phil immediately takes out all $30,000 from the Roth IRA, he will have a penalty of $2,500, in addition to paying income tax on the earnings.

C

Robin and Robbie, both age 45, are married and filed a joint return for 2017. Robbie earned a salary of $90,000 in 2017 and is covered by his employer's 401(k) plan. Robbie and Robin earned interest of $30,000 in 2017 from a joint savings account. Robin is not employed, and the couple had no other income. On April 15, 2018, Robbie contributed $5,500 to an IRA for himself and $5,500 to an IRA for Robin. The maximum allowable IRA deduction on the 2017 joint return is: A) $0. B) $4,500. C) $5,500. D) $11,000.

C

The early distribution penalty of 10 percent does not apply to IRA distributions: 1. Made after attainment of the age of 55 and separated from service. 2. Made for the purpose of paying qualified higher education costs. 3. Paid to a designated beneficiary after the death of the account owner who had not begun receiving minimum distributions. A) 1 only. B) 1 and 3. C) 2 and 3. D) 1, 2, and 3.

C

What is the first year in which a single taxpayer, age 54 in 2017, could receive a qualified distribution from a Roth IRA if he made his first $3,500 contribution to the Roth IRA on April 1, 2018, for the tax year 2017? A) 2020. B) 2021. C) 2022. D) 2023.

C

Which of the following cannot be held in an IRA account as an investment? A) A U.S. gold coin. B) Option contracts (calls). C) Variable life insurance. D) Municipal bonds.

C

Which statements are generally correct regarding penalties associated with IRA accounts? 1. Distributions made prior to 59½ are subject to the 10% premature distribution penalty. 2. There is a 50% excise tax on a required minimum distribution not made by April 1 of the year following the year in which age 70½ is attained. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

C

Ah and Ha, both age 33, are married, not covered by a qualified plan, and file a joint tax return. They have AGI of $164,000. Ah's mother contributed $2,000 to a Coverdell Education Savings Account for each of their two children. What is the most that Ah and Ha can contribute in total together to a Traditional IRA for 2017? A) $0. B) $1,000. C) $5,500. D) $11,000.

D

Amy, divorced and age 55, received taxable alimony of $50,000 in 2017. In addition, she received $1,800 in earnings from a part-time job. Amy is not covered by a qualified plan. What was the maximum deductible IRA contribution that Amy could have made for 2017? A) $1,800. B) $2,800. C) $5,500. D) $6,500.

D

Delores, age 62, single, and retired, receives a defined benefit pension annuity of $1,200 per month from Bertancinni Corporation. She is currently working part time for Deanna's Interior Design and will be paid $18,000 this year (2017). Deanna's Interior has a 401(k) plan, but Delores has made no contribution to the plan and neither will Deanna this year. Can Delores contribute to a traditional IRA or a Roth IRA for the year and what is the maximum contribution? A) $5,500 to a traditional IRA or $5,500 to a Roth IRA. B) $0 to a traditional IRA or $5,500 to a Roth IRA. C) $6,500 to a traditional IRA or $0 to a Roth IRA. D) $6,500 to a traditional IRA or $6,500 to a Roth IRA.

D

For 2017, what is the maximum amount that can be contributed to a SEP? A) $10,000. B) $18,000. C) $18,000. D) $54,000.

D

For the year 2017, Katy (age 35) and Stefen (age 38), a married couple, reported the following items of income: Katy Stefen Total Wages $50,000 - $50,000 Dividend Income $2,000 $1,200 $3,200 Cash won from lottery $500 $500 $52,000 $1,700 $53,700 Katy is covered by a qualified plan. Stefen does not work, he makes wine and drinks all day. Assuming a joint return was filed for 2017, what is the maximum tax deductible amount that they can contribute to their IRAs? A) $2,500. B) $5,500. C) $7,500. D) $11,000.

D

Mary, age 50, has an IRA with an account balance of $165,000. Mary has recently been diagnosed with an unusual disease that will require treatment costing $50,000, which she will have to pay personally. Mary's AGI will be $100,000 this year. Which of the following statements are true? 1. Mary can immediately borrow up to $50,000 from her account and repay within five years. 2. Mary can distribute $50,000 subject to income tax but not subject to the 10% penalty because it will be used to pay medical expenses. A) 1 only. B) 2 only. C) Both 1 and 2. D) Neither 1 nor 2.

D

Phillip, who is currently age 52, made his only contribution to his Roth IRA in 2017 in the amount of $5,500. If he were to receive a total distribution of $11,000 from his Roth IRA in the year 2022 to purchase a new car, how would he be taxed? A) Since Phillip waited five years, the distribution will be classified as a "qualified distribution" and will therefore not be taxable or subject to the 10% early distribution penalty. B) Since Phillip waited five years, the distribution will be classified as a "qualified distribution" and will therefore not be taxable but will be subject to the 10% early distribution penalty. C) Although Phillip waited five years, the distribution will not be classified as a "qualified distribution" and will therefore be taxable and will be subject to the 10% early distribution penalty. D) Although Phillip waited five years, the distribution will not be classified as a "qualified distribution" and will therefore be taxable to the extent of earnings and will be subject to the 10% early distribution penalty on the amount that is taxable.

D

or 2017, what is the maximum amount that can be contributed to a SEP? A) $10,000. B) $18,000. C) $18,000. D) $54,000.

D