tax1- ch13

When an employee receives an early distribution from an employer-sponsored defined contribution retirement plan, he can avoid the __________percent penalty by electing to ______ _______the distribution into an individually managed retirement plan.

10; roll over (deposit)

The nondeductible penalty for an early distribution is ____percent of the amount of the distribution. The nondeductible penalty for failing to receive a required minimum distribution is ________percent of the required minimum distribution.

10;50

Steve retired at the beginning of 2020. He worked for a company with a defined benefit plan. The plan provides for retirement benefits at a rate of 3% of the last three years' average compensation for every year of service. Steve had worked for this company for 30 years when he retired. His average salary for the last three years was $700,000. The maximum benefit Steve can receive from his retirement plan in 2020 is $ . (Enter your answer as a number.)

230000

Wicker Rockers, Inc. is planning to offer a defined contribution plan for its employees. The company would like to incorporate a "cliff" vesting schedule for the employer contributions into the plan. What is the minimum vesting period the company can choose for a "cliff" vesting schedule?

3 years

Which of the following types of defined contribution plans will most likely involve an employer matching the employee contributions to some degree? Multiple choice question. 401(k) plans

401(k) plans

Lauren contributed $7,200 before-tax to her 401(k). If Lauren has a 24 percent marginal rate, her after-tax cost of the contribution is $ .

5472

In order to avoid a penalty for early distributions of a defined contribution plan, an employee can NOT take a withdrawal from the account before he meets which of the following age requirements? (Check all that apply.)

55 years, if he has separated from employment 59 1/2 years of age

In 2020, for taxpayers under age 50 at year-end, the sum of the employee and employer contributions to an employee's defined contribution account(s) is limited to the lesser of (1) $ ________ or (2) ______ percent of the employee's compensation for the year. Furthermore, the employee contributions to a 401(k) are limited to $________. (Enter your answers as numbers.)

57,000; 100; 19500

Qualified distributions from Roth 401(k) accounts are those made after the account has been open for ______ taxable years and the employee is at least ______ years of age.

5: 59 1/2

Kyle invested in a Roth 401(k) seven years ago when he was 39 years old. He terminated employment with his company this year and received a lump-sum distribution of his Roth 401(k). Kyle's contributions to the Roth account total $32,000 and accumulated earnings on the account total $18,000. He has decided NOT to roll over the funds into another retirement account. How much tax and penalty will Kyle owe on the distribution if he has a 24% marginal tax rate.

6120

Which of the following statements is correct regarding IRA contributions for married taxpayers who file a joint tax return?

A non-earning spouse's deductible contribution is limited to total earned income of both spouses reduced by contributions to the other spouse's IRAs.

An individually managed retirement plan with tax advantages similar to an employer provided defined contribution plan is known as a(n):

IRA

Qualified distributions from which of the following types of accounts will NOT increase AGI?

Roth 401(k)

True or false: An important consideration for an employee trying to decide whether or not to participate in a nonqualified deferred compensation plan is whether the employee can financially afford to forgo the income currently in order to put it in the plan.

True

Which of the following issues are characteristic of defined benefit plans? (Check all that apply.)

a significant amount of work is required to keep track of employee benefits and calculate required contributions; funding costs are typically more significant for defined benefit plans than other types of plans

Contributions to a traditional 401(k) are made with _______-tax dollars, while contributions to a Roth 401(k) are made with ________-tax dollars. Qualified distributions from a Roth 401(k) are________ (taxable/nontaxable). (Enter only one word per blank.)

before, after, nontaxable

Contributions to traditional defined contribution plans can be made with _______-tax dollars, which reduces the overall cost because of the tax _______on the contribution.

before; savings

Mike just started working for a company that maintains a defined benefit retirement plan. If Mike terminates his employment within the first two years, he forfeits his retirement. If he stays for three years, he will be entitled to receive all of the funds provided to him in the account. What type of vesting schedule is used at Mike's company?

cliff

For the employee, nonqualified deferred compensation plans receive the same tax treatment as traditional defined _______ plans.

contribution

In order to lower administrative costs associated with employee retirements plans and switch the investment risk of investments to the employee, many employers are switching to defined _______ plans

contribution

The employee bears the investment risk and funding responsibility in a defined _______ plan.

contribution

What type of retirement plan typically requires a significant amount of work to track employee benefits and to compute required contributions; is structured where the employer bears the investment risk; and combines the funds, rather than having each employee with a separate accounts.

defined benefit plan

Qualified retirement plans can NOT ________ against non-executives.

discriminate

Which of the following is the same between between nonqualified deferred compensation plans (NQDC) and qualified retirement plans?

employee contributions to the plans are tax deductible (i.e. paid with before-tax dollars)

For defined contribution plans, the employee is immediately vested in the (employee/employer) contributions and any earnings on those contributions. The remaining funds may become vested over time. The most restrictive schedule for this process is either a -year "cliff" or a -year graded schedule. (Enter only one word per blank.)

employee; three; six

Which of the following choices describe characteristics of a Roth 401(k)? (Check all that apply.)

employers can not contribute matching funds to an employees Roth account; contributions to the account are made with after-tax dollars

Which of the following choices is a benefit to the employers of offering a nonqualified deferred compensation plan to the employees?

employers may benefit if they are able to earn a better rate of return on the deferred compensation than the rate of return they are required to pay employees participating in the plan

If only one spouse is an active participant in an employer sponsored retirement plan, the non-participating spouse can maximize his or her allowed IRA deduction by choosing the married filing separately status.

false

True or false: Individuals participating in a defined contribution plan who are at least 50 years of age by the end of the year have contribution limits that are lower than individuals less than 50 years old.

false

Assuming a taxpayer has sufficient earned income to contribute the maximum allowed to a traditional IRA, the deductible IRA contribution may be phased-out based on ________ status and modified _______ _________ income. (Enter only one word per blank.)

filing, adjusted gross

Mike just started working for a company that maintains a defined benefit retirement plan. If Mike terminates his employment within the first two years, he forfeits his retirement. If he stays for three years, he will be entitled to receive 20% of the funds provided to him in the account. If he is employed with the company for 6 years, he will be entitled to receive 80% of the funds. What type of vesting schedule is used at Mike's company?

graded

The traditional 401(k) plans will generate (higher/lower) after-tax rates of return than the Roth 401(k) plans when taxpayers' marginal tax rates decrease from the time of the contribution to the time of the distribution. Listen to the complete question

higher

Defined benefit plans typically have (higher/lower) funding costs than defined contribution plans, and the investment risk is assumed by the (employee/employer).

higher; employer

One nice feature of an account such as a 401(k) is that many employers will _____ the employee contributions at a stated percentage of the contribution.

match

The formula for determining how much of a distribution from a traditional IRA consisting of nondeductible and deductible contributions is nontaxable is ______.

nondeductible contributions ÷ total account balance at the time of distribution

Upon retirement, all distributions from defined benefit plans are taxable as .

ordinary income

Qualified _____plans come in two forms. A defined _______ plan specifies the amount the employee will receive at retirement, while a defined ________ plan outlines the maximum annual amount that can be paid into the plan.

retirement; benefit; contribution

Which type(s) of 401(k) will provide the taxpayer with nontaxable qualified distributions during his retirement years?

roth

If an employee takes an early distribution from an employer's qualified retirement plan, how can she avoid the 10 percent penalty that will be assessed on the withdrawal?

she can elect to roll over or deposit the amount withdrawn into an individually managed retirement plan

What is the tax and penalty effects of nonqualified distributions of Roth 401(k) accounts?

the account earnings are fully taxable and subject to the 10 percent penalty, but the account contributions are nontaxable

How are distributions from defined benefit plans treated for tax purposes?

the distributions are taxable as ordinary income

When a taxpayer makes nondeductible IRA contributions, ______.

the earnings grow tax-free until a distribution is received. Upon distribution, only the earnings are taxable, not the contributions

Which of the following characteristics describe defined contribution plans? (Check all that apply.)

the employee bears the investment risk and funding responsibility; employers must maintain separate accounts for each employee participating in the plan; employees may contribute more to the plan than the employer contributes

Which of the following is a characteristic of employers of offering a nonqualified deferred compensation plan to the employees?

the employer does not have to fund the obligation in the current year since payment is deferred to a future year

Which of the following statements is INCORRECT regarding nonqualified deferred compensation plans?

the expense/deduction is treated the same for financial accounting purposes as it is for tax purposes

Which of the following statements is INCORRECT regarding defined benefit plans for 2020?

the level of benefits is a function of how well the funds were invested and the market growth over the employee's working years

When an employee has a Roth 401(k) with an employer match, how are the employer's matching funds applied?

the matching funds must be put in a traditional 401(k) for the employee because employers can not make contributions to a Roth 401(k)

In order to avoid a penalty for failure to receive a minimum distribution from a defined contribution plan in 2021, a taxpayer must take her first minimum distribution for the later of which of the following years? (Check all that apply.)

the year after she reaches 72 years of age; the year after she retires if she is 74 when she is 74 when she retires

How are distributions from nonqualified deferred compensation plans taxed to the employee?

they are taxed as ordinary income

Which type(s) of 401(k) will incur a 10% penalty on the entire distribution if the money is withdrawn early?

traditional

Taxpayers who meet certain eligibility requirements can contribute to _______ IRAs and/or ______IRAs. (Enter only one word per blank.)

traditional, Roth

The process of becoming legally entitled to retirement benefits is known as _______. The most restrictive schedule for this process for defined benefit plans is either a _______-year "cliff" or a ______-year graded schedule.

vesting; five; seven

When deciding whether or not to participate in a nonqualified deferred compensation plan, which of the factors below does NOT need to impact the employee's decision?

whether the cost of the plan is deductible on the employer's tax return