Retirement and Estate Planning CH 8-12 end of chapter quizzes and class quizzes

Eric, who is single and 34 years old, has a salary of $140,000 from Florida State University and earns $100,000 in self-employment income. How much of Eric's income is subject to the additional Medicare tax? a. $40,000 b. $240,000 c. $140,000 d. $0

a. $40,000

Plans that require mandatory funding are generally funded by? a. employees b. employers c. both d. For PBGC insured plans, the employee and the employer

b. the employer plans that have mandatory funding are usually funded by the employer (IE. defined benefit, cash balance, target benefit, and money purchase pension plans)

Rick has an 18% non qualified deferred compensation plan that is funded annually by his employer. Payments are made to a separate trustee of a secular trust who was selected by Rick and his employer. The employer contributions are discontinued at Rick's death, disability, or employee termination. When Rick retires or terminates employment, he will receive the proceeds from the trust. Which of the following is/are correct regarding the deferred compensation plan? 1. The contributions are not currently taxable to Rick because they are subject to a substantial risk of forfeiture. 2. The contributions to the plan are currently subject to payroll taxes. 3. The employer can deduct the contributions to the plan at the time of the contribution. a. 3 only b. 1 and 3 c. 2 and 3 d. all of the statements

c. 2 and 3

Robin and Robbie, both age 45, are married and filed a joint return for 2018. Robbie earned a salary of 100k in 2018 and his employers 401k plan. Robbie and Robin earned interest of 30k in 2018 from a joint savings account. Robin is not employed, and the couple has no other income. On April 15, 2019, Robbie contributed $5,500 to an IRA for Robbin. The maximum allowable IRA deduction on the 2018 joint return is: a. $0 b. $4,500 c. $5,500 d. $11,000

c. 5,500

Brisco, now deceased, was married for 12 years. He had two dependent children aged 10 and 12, who cared for by their mother age 48. His mother, age 75, was his dependent and survived him. At the time of death, he was currently but not fully insured under social security. His dependents are entitle to all of the following benefits, except: a. a lump sum death benefit of $255 b. A children's benefit equal to 75% of Brisco's IPA c. A caretaker's benefit for the children's mother d. A parent's benefit

d. A parent's benefit

Which of the following plans is not permitted to offer a Roth account as part of the plan? a. Governmental 457(b) Plan b. 403(b) Plan c. Profit Sharing Plan with 401(k) d. Private 457(b) Plan

d. Private 457(b) Plan

A person receiving social security under the age of 65 can receive earned income up to a maximum threshold without reducing social security benefits by the earnings test. Which of the following count against the earnings threshold? a. dividends from stock b. rental income c. pensions and insurance annuities d. gambling winnings

d. gambling earnings

Philip, who is currently age 52, made his only contribution to his Roth Ira in 2018 in the amount of $5500. If he were to receive a total distribution of $11000 from his Roth IRA in the year 2023 to purchase a new car, how would he be taxed? (mc on page 521)

Although Phillip waited 5 years the distribution will not be classified as "qualified distributions" and therefore will be taxable to the extent on the earnings and will be subject to the 10% early distribution penalty on the amount that is taxable.

Seth and Morgan were just married, but Seth does not work. They are both 25 years old. Morgan supports Seth with funds from her trust fund, investment income of $12,000, and her part-time earnings of $7,000 this year. If Morgan contributes $5,500 in 2018 to her Roth IRA, how much can Seth contribute to his traditional IRA? a. $1,500 b. $0 c. $2,500 d. $5,500

a. $1,500

Jack and Jill are married and file their income tax return jointly. Jack is a senior engineer with a salary and bonus of $180,000. Jill is an HR executive earning $190,000. How much of their income is subject to the additional Medicare tax? a. $120,000 b. $0 c. $170,000 d. $70,000

a. $120,000

Baily owns and operates Ben's Red Truck Shop (BRT), which is a sole proprietorship. She has self-employment income of $150,000. How much self-employment tax does she owe for 2018? a. $19,939. b. $22,950 c. $22,194. d. $20,271.

a. $19,939.

Hiral is 62 years old, and his normal Social Security retirement age is 67. He plans on waiting to collect his benefits until he is 70 years old. If he waits until age 70, and his normal age retirement PIA is $2,000, how much can Hiral expect to receive as a monthly retirement benefit at age 70 (without regard to any COLA)? a. $2,480 b. $2,125 c. $2,000 d. $2,800

a. $2,480

Jacques, who is 52 years old, works for NYU and is a participant in NYU's tax-sheltered annuity (TSA) program. How much could he defer in the TSA in 2018 if he has a salary of $121,000? a. $24,500 b. $0 c. $18,500 d. $21,500

a. $24,500

Parker, age 51, earns $300,000 annually from Infinity, which sponsors a SIMPLE, and matches all employee deferrals 100% up to a 3% contribution. What is the maximum total contribution to Parker's account in 2018, including both employee and employer contributions? a. $24,500 b. $12,000 c. $18,250 d. $15,500

a. $24,500

All of the following statements are correct regarding tax sheltered annuities (403 (b) plans) except? 1. The non-age-based catch up provision is available to employees of all 501(c)3 organization employers that sponsor a TSA. 2. Active employers who take withdraws from TSAs prior to 59 1/2 are subject to a 10% penalty tax. 3. TSAs are available to all employees of 501c3 organizations who adopt such a plan 4. If an employee has had at least 15 years of service with an eligible employer, an additional catch up contribution may be allowed. a. 1 only b. 1 and 2 c. 1, 2, and 3 d. 2, 3, and 4

a. 1 only

Bob works for New Orleans Museum of Art, which sponsors a 403(b) plan. If Bob is 45 years old and has worked at the museum for the past 20 years, what is the maximum elective deferral for 2018? a. $18,500 b. $21,500 c. $24,500 d. $27,500

a. 18,500

Medicare Part A provides hospital coverage. Which of the following persons is not covered under Part A? a. A person 62 or older and receiving railroad retirement. b. disabled beneficiaries regardless of age that have received social security for two years. c. Chronic kidney patients who require dialysis or a rental transplant d. A person 65 or older entitled to a monthly social security check

a. A person 62 or older receiving railroad retirement.

Which of the following statements regarding determination letters for qualified plans is true? a. Employers must follow each and every aspect of their qualified plan document b. Employers who receive a favorable determination letter are protected from the IRS disqualifying their qualified plan c. Employers must request a determination letter from the IRS for all qualified plans. d. Employers must request a determination letter from the DOL for all qualified plans that are materially modified or materially amended.

a. Employers must follow each and every aspect of their qualified plan document

All the following types of income are considered earned income for a traditional IRA contribution except: a. K-1 income from an S corporation b. Self-employment income c. W-2 income d. Alimony resulting from a divorce agreement signed June 1, 2018.

a. K-1 income from an S corporation

Which of the following types of income is considered earned income for a traditional IRA contribution? a. Partnership income from a law firm b. Rental property income c. Dividend income d. Capital Gains

a. Partnership income from a law firm

Joe Bob recieves stock options (ISOs) with an exercise price of $18 when the stock is trading at $18. Joe Bob exercises these options two years after the date of the grant when the stock price is $39 per share. Which of the following statements are true? a. Upon exercise Joe Bob will have no regular income for tax purposes b. Joe Bob will have w-2 income of $21 per share upon exercise c. Joe Bob will have $18 of AMT income upon exercise. d. Joe Bob's adjusted basis for regular income tax will be $39 at exercise

a. Upon exercise Joe Bob will have no regular income for tax purposes.

Who generally makes elective deferrals to a 401k plan? a. employees only b. employers only c. both d. employees, employers, and forfeitures

a. employees only most of the time 401ks are composed of employee contributions and employer matching and non-elective deferrals but elective deferrals have to be come from the employee

Kim Car, age 42, earns $300k annually as an employee for CTM, Inc. Her employer sponsors a SIMPLE recruitment plan and matches all the employee contributions made to the plan dollar for dollar up to 3% of covered compensations. What is the maximum contributions (employee and employer) that can be made to Kim's SIMPLE account in 2018? a. $20,750 b. $21,500 c. $24,500 d. $25,000

b. $21,500

Which of the following is/are correct about SIMPLE plans? 1. A SIMPLE plan does not require annual testing. 2. A SIMPLE IRA much follow a 3 year cliff vesting schedule if the plan is top heavy. 3. A 25% early withdraw penalty may apply to distributions taken within the first two years of participation in a SIMPLE plan. 4. The maximum elective deferral contribution to a SIMPLE 401k plan is $18,500 for 2018 and $24,500 for 2018 for an employee who has attained the age of 50? a. 3 only b. 1 and 3 c. 1, 2, and 3 d. 2, 3, and 4

b. 1 and 3

Which of the following statements are correct regarding TSAs and 457(b) deferred compensation plans? 1.Both plans require contracts between an employer and an employee. 2. Participation in either a TSA or 457 plan will cause an individual to be considered an "active participant" for purposes pf phasing out of the deductibility of the Traditional IRA contributions. 3. Both plans allow 10 year forward averaging tax treatment for lump sum distributions 4. Both plans must meet minimum distribution requirements that apply to qualified plans. a. 1 only b. 1 and 4 c. 2, 3, and 4 d. 1, 2, and 4

b. 1 and 4

The target benefit pension plan and the money purchase pension plan provide some employee/participant investment diversification protections by limiting the investment amount in employer stock to less than or equal to: a. 5% b. 10% c. 20% d. 100%

b. 10% defined benefit, cash balance, target benefit, and money purchase pension plans limit contributions of stock to 10%

David took a lump sum distribution from his employer's qualified plan at the age of 56 when he terminated his service. He rolled over distributions using a direct rollover to an IRA. Assuming David has met his 10 year forward averaging requirements, which of the following is/are correct regarding tax treatment of this transaction? 1. If at the age of 59 he distributes the IRA, he benefits from 10 year forward averaging. 2. If he rolls over a portion of the IRA to a new employer's qualified plan, he may be eligible for forward average 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 the 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. 2 and 3

Brice, who is a senior at Midland High School, worked at PJs Coffee House from January to mid-February this year and earned $3,000. She was unemployed until December, when she was hired by Macy's. She earned $2,000 during December. How many quarters of coverage has Brice earned for Social Security during this year? a. 2 b. 3 c. 1 d. 4

b. 3

Generally, which of the following are contributory plans? a. 401k and money purchase pension plans b. 401k and thrift plans c. thrift plans and ESOPS d. money purchase pension plans and profit sharing plans

b. 401k and thrift plans employers generally contribute to money purchase pension plans, esops, and profit sharing plans.

What is the earliest age that an IRA catch-up contributions can be made? a. 59 1/2 b. 50 c. 55 d. 60

b. 50

Which of the following are acceptable reasons for an employer to terminate a qualified retirement plan? 1. The employer is not profitable and cannot afford to make plan contributions. 2. The employer wants to reduce the cost of retirement benefits. As a result, the employer terminates a defined benefit plan and replaces it with a 401(k) plan. a. Neither are correct b. Both 1 & 2 c. 2 only d. 1 only

b. Both 1 & 2

Which of the following are correct regarding SIMPLEs? a. An employer can maintain a SEP and a SIMPLE at the same time covering the same employees. b. Once deposited in a SIMPLE IRA, funds can be distributed by the participant. c. Employers must provide a matching contribution to employees covered by a SIMPLE. d. A SIMPLE is predominantly an employer contribution plan

b. Once deposited in a SIMPLE IRA, funds can be distributed by the participant.

Which of the following are generally contribute to defined benefit plans, profit sharing plans, and money purchase pension plans? a. employees only b. employers only c. both d. employees, employers, and forfeitures

b. employers only

All of the following statements concerning social security benefits are correct except: a. the maximum family benefit is determined through a formula based on the worker's PIA b. If a worker applies for retirement or survivors benefit before his 65th birthday, he must also file a separate application for medicare. c. people who are disabled or have permanent kidney failure can get medicare at any age d. the social security administration is concerned with beneficiaries' combined income. on the 1040 federal tax return, includes adjusted gross income and non taxable interest income.

b. if a worker applies for retirement or survivors benefit before his 65th birthday, he must also file a separate application for medicare.

Seth operates a small business with his wife Morgan. They have no other employees. They have $340,000 of assets in the plan. Which of the following forms must they file? a. Form 5500. b. Form 5500 SF. c. Form 5500 EZ. d. They do not have to file form 5500.

c. Form 5500 EZ.

Mary Jane received 1.000 shares NQSOs with an exercise price of $25 per share when the stock was $25 on the market. Two years from the date of grant Mary Jane exercises when the stock price is $102. At exercise, Mary Jane: a. Has w-2 income of $25,000 b. Has an AMT adjustment of $77,000 c. Has w-2 income of $77,000 d. Has an AMT adjustment pf $25,000

c. Has w-2 income of $77,000

Which statements are generally correct regarding penalties associated with IRA accounts? 1. Distributions made prior to 59 1/2 are subject to the 10% premature distributions penalty. 2. There is a 50% excise tax on required minimum distribution not made by April 1 of the year following the year in which age 70 1/2 is attained. a. 1 only b. 2 only c. Both 1 and 2 d. Neither 1 nor 2

c. both 1 and 2

All of the following are reasons that an employer might favor a non qualified plan over a qualified retirement plan except: a. there is more design flexibility with non qualified plans b. a non qualified plan typically has lower administrative costs c. non qualified plans typically allow the employer an immediate income tax deduction d. employers can generally exclude rank and file employees form a nonqualified plan.

c. non qualified plans typically allow the employer an immediate income tax deduction

Social security is funded through all of the following except: a. employee payroll tax b. employer payroll tax c. sales tax d. self- employment tax

c. sales tax

Dan owns and operates Schoepf's Sales Solutions (3S), a sole proprietorship. 3S sponsors a profit-sharing plan. Dan had net income of $250,000 and paid self-employment taxes of $22,000 (assumed) during the year. Assuming Dan is over the age of 50, what is the maximum amount that Dan can contribute to the profit sharing plan on his behalf for 2018? a. $55,000. b. $61,000. c. $47,800. d. $53,800.

c.$47,800

Harper, age 45, earns $300,000 annually from Atlas, which sponsors a SIMPLE, and the required non-elective contribution to all eligible employees. What is the maximum total contribution to Harper's account in 2018, including both employee and employer contributions? a. $24,500 b. $18,500 c. $12,000 d. $18,000

d. $18,000

Charles, a single 29-year-old CEO of a technology start-up company, earns a $2 million base salary with a $400,000 bonus. He is not a participant in any retirement plans at work. What is the maximum deductible IRA contribution Charles can make during 2018? a. 25% of his salary b. $220,000 c. $0 d. $5,500

d. $5,500

Amy, divorced and age 55, recieved taxable alimony of 50k in 2018. In addition, she recieved $1800 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 2018? a. $1800 b. $2800 c. $5500 d. $6500

d. $6500 remember the catch up allowance for IRAs start at the age of 50 for an addition thousand dollar contribution each year

What percent of United States workers are covered by Social Security? a. 85% b. 65% c. 75% d. 95%

d. 95%