Chapter 5 Retirement and Estate Planning
Assuming the account holder is age 40, which of these withdrawals from a traditional IRA is subject to the 10% early withdrawal penalty? A) $10,000 donated directly to a qualified 501(c)(3) charity B) $10,000 to pay for a qualified first-time home purchase C) $10,000 to pay for college tuition for either the account holder or a dependent D) $10,000 to pay for medical expenses in excess of the 7.5% of AGI threshold
A) $10,000 donated directly to a qualified 501(c)(3) charity For tax purposes, the account holder must be at least age 70½ to make a qualified charitable distribution from an IRA. The other answer options are expressly exempt from the 10% early withdrawal penalty, regardless of the account holder's age.
Scott and Gayle, who are both age 45, are married and file a joint income tax return for the current year. Scott is a self-employed architect who earns $140,000 of Schedule C income and pays $19,782 in self-employment tax. Gayle is not employed outside the home. What is the maximum deductible IRA contribution Scott and Gayle can make, if any, for 2023? A) $13,000 B) $15,500 C) $6,500 D) $0
A) $13,000 Neither Scott nor Gayle is an active participant in an employer-sponsored retirement plan. Therefore, they can establish a traditional IRA for Scott and a spousal IRA for Gayle and contribute a deductible total of $13,000 ($6,500 each) to traditional IRAs for 2023.
Guy and Dotty, who are both age 42, are married and file a joint tax return. Their modified adjusted gross income (MAGI) for 2023 is $130,000. Dotty has already made a $6,500 contribution to her traditional IRA and has also made a $2,000 contribution to their son's Coverdell Education Savings Account this year. What is the maximum amount that may be contributed, if any, to a Roth IRA for Guy and Dotty this year given these facts? A)$6,500 B) $13,000 C)$2,000 D)$0
A) $6,500 For 2023, the maximum combined contribution to traditional and Roth IRAs (for an owner younger than age 50) is $6,500 per person annually. Dotty has already contributed the maximum amount for her traditional IRA, but they can make a further contribution of $6,500 to a Roth IRA for Guy. The $2,000 Coverdell contribution is never relevant to any retirement account contribution. Their AGI is below the Roth IRA phaseout range for a married couple ($218,000-$228,000) in 2023.
Martha has inherited a traditional IRA from her mother last year that contained no after-tax contributions. She would rather not take the required minimum distributions but instead roll the distributions over into her own IRA to save for her own retirement and avoid paying income tax. Which of the following statements is CORRECT? I. Martha should direct the IRA trustee to make an annual direct transfer to her own traditional IRA of the required minimum distributions so the distributions remain nontaxable. II. To minimize current taxation, Martha should execute a direct transfer of the entire IRA into an inherited IRA. A) II only B) I only C) Both I and II D) Neither I nor II
A) II only Only Statement II is correct. Martha inherited the IRA from her mother, not her husband. Only surviving spouses can move inherited retirement money into their own names. Required minimum distributions may not be rolled over. To decrease current taxation, Martha should execute a direct transfer to an inherited IRA. She will, however, be required to begin required minimum distributions from the inherited IRA.
In considering whether to convert a traditional IRA to the Roth IRA form, which of the following is a valid consideration? A) If the source of payment for taxes due upon conversion comes from an outside source, it generally is advantageous to convert. B) It is generally advantageous if the converted assets will remain in the Roth IRA for a relatively short time period before withdrawal. C) If the taxpayer files as married filing separately and thereby splits income, it generally makes sense to convert. D) If the taxpayer anticipates being in a lower tax bracket at date of distribution from the Roth IRA, it generally makes sense to convert.
A) If the source of payment for taxes due upon conversion comes from an outside source, it generally is advantageous to convert. The Roth IRA yields greater after-tax benefits than a traditional deductible IRA if the front-end tax due upon conversion is paid from funds outside the Roth IRA and an equivalent amount of funds is, thereby, available for investment.
Which of these is CORRECT about a Roth IRA? A) Withdrawals of earnings up to $10,000 from a Roth IRA for the purchase of a first home can be penalty free if the five-year holding period has been met. B) An individual can contribute $6,500 annually to a regular IRA and also an additional $6,500 annually to a Roth IRA in 2023. C) As with conventional IRAs, distributions from a Roth IRA must begin by April 1 of the year following the year the participant reaches age 73. D) If a nonqualifying distribution is made before age 59½, the principal is subject to the 10% penalty, but it is not considered to be taxable income.
A) Withdrawals of earnings up to $10,000 from a Roth IRA for the purchase of a first home can be penalty free if the five-year holding period has been met. Withdrawals of earnings from a Roth IRA are not penalized under these circumstances if the five-year holding period has been met.
Marian, age 62, converted $30,000 from a traditional IRA to a Roth IRA seven years ago. Last year she converted another traditional IRA with a fair market value of $35,000 to a Roth IRA. She makes no other IRA contributions. This year she took a $40,000 distribution from her Roth IRA. This distribution is treated as $30,000 from the seven year old conversion contribution and $10,000 from last year's conversion contribution, both of which were includable in her gross income when converted. As a result for this year, A) the $10,000 withdrawal from last year's conversion is not subject to the 10% penalty tax. B) $20,000 is includable in Marian's gross income. C) the $10,000 from last year's conversion is subject to the 10% penalty tax. D) $10,000 is includable in Marian's gross income.
A) the $10,000 withdrawal from last year's conversion is not subject to the 10% penalty tax. First, this is a qualified distribution because the Roth IRA owner has had a Roth IRA for more than five years and she is older than 59½. Thus, there will be no tax or penalty on this distribution. Also, the conversion amounts were already included in Marian's gross income when converted. Therefore, they will not be subject to income taxes again when the converted dollars are withdrawn. The distribution allocable to the $10,000 con version contribution made last year (less than five taxable years ago) starts out as being subject to the early distribution penalty because it was withdrawn less than five years after the conversion. However, it is not subject to the 10% penalty tax under Section 72(t) in this case because Marian is over age 59½, which is one of the exceptions to the 10% penalty. The withdrawal of the conversion amount from the first conversion is not subject to the 10% early withdrawal penalty because the conversion is more than five years old. Thus, if the owner would have been younger than age 59½, the withdrawal of that money would not have been subject to the early withdrawal penalty.
Gordon and Maribel each put $6,500 into their respective IRAs. Gordon's employer does not provide a qualified retirement plan. Maribel participates in a 401(k) plan at work. Their AGI is $221,000 in 2023, and they file jointly. How much of their IRA contributions will be deductible? A) $6,500 B) $4,550 C) $0 D) $13,000
B) $4,550 The IRA rules allow an IRA deduction for individuals who are not active participants but whose spouses are, in most cases. However, that option is phased out if the couple's AGI is between $218,000 and $228,000 in 2023. With a combined AGI of $221,000, Gordon would be able to deduct $228,000 − $221,000 = $7,000; ($7,000 ÷ $10,000) × $6,500 = $4,550.
In 2023 and following, distributions from IRAs must begin by April 1 of the year following the year in which an individual reaches age A) 75. B) 73. C) 59½. D) 65.
B) 73 Penalties are imposed upon distributions that commence before age 59½ or after April 1 following the year the account owner turns age 73 for 2023 and following, according to SECURE 2.0.
Which of the following individuals can make a deductible contribution to an IRA for 2023? Person Marital Status. AGI Covered by Pension Plan Jane. single. 61,000. yes Joe married. 100,000 no Betty. single 40,000 yes Mary Sue married 80,000 yes A) Betty and Mary Sue B) All of them can make a deductible contribution in 2023. C) Joe, Betty, and Mary Sue D) Jane and Joe
B) All of them can make a deductible contribution in 2023. Each of these individuals can make deductible contributions to an IRA for 2023.
Jane Paschal, age 45. has contributed $1,000 each year to a Roth IRA, beginning with an initial payment of $500 on December 31st five years ago. She wants to know when the soonest she could begin making qualified distributions. Which one of the following statements represent what you should tell her? A) After December 31st of last year, the five years will have elapsed, and the absolute earliest she could begin making qualified distributions would when she reaches age 59½. B) Any distribution she takes after January 1st this year, will meet the five-year requirement. C) Any distributions for medical expenses in excess of 7.5% would qualify as a tax-free distribution after satisfying the five-year holding period even if she has not attained age 59½. D) Qualified higher education expenses are one of the reasons a withdrawal may be a qualified distribution.
B) Any distribution she takes after January 1st this year, will meet the five-year requirement. The clock started on January 1st five years ago, so five years will have elapsed on January 1s this year (meaning after December 31st of last year). A Roth IRA owner is required to hold the account for a minimum of five years to qualify for tax-free distributions. In addition, the owner must be at least age 59½, dead, disabled, or withdrawing up to $10,000 of Roth IRA earnings for qualified first-time homebuyer expenses. Notice that higher education expenses are NOT a reason for a qualified distribution (even though they are an exception to the 10% EWP for IRAs, but not employer Roth accounts)
Which of the following is subject to the required minimum distribution (RMD) requirements after the account owner/plan participant dies? I. Traditional IRAs II. Roth IRAs III. Qualified plans A) I and II B) I, II, and III C) I only D) II and III
B) I, II, and III All of these retirement accounts are subject to RMD requirements after the account owner/plan participant dies. However, RMD requirements do not apply to Roth IRAs while the owner is alive.
Which of the following groups would NOT benefit from using Roth IRAs? A) Taxpayers who anticipate being in a higher tax bracket in their retirement years B) Low-income wage earners who need current deductions C) High-income wage earners who have exhausted the tax benefits of other tax-favored vehicles D) Low-income wage earners who are active participants in their employers' plans and are not eligible to make deductible IRA contributions
B) Low-income wage earners who need current deductions Roth IRAs offer no current deductions. Low-income wage earners needing current deductions are better served by traditional IRAs.
Gordon is the fiduciary for a traditional IRA. He has several different investments available to him to invest the IRA assets. All of the following investments are permitted investments for a traditional IRA except A) mutual funds. B) stock in Bottle, Inc., which is an S corporation. C) corporate bonds. D) a real estate investment trust (REIT).
B) Stock in Bottle, Inc., which is an S corporation. Traditional IRAs cannot own S corporation stock, as an IRA is not a permissible shareholder under the S corporation rules. All of the other choices are permitted investments.
Which of these statements is FALSE regarding the conversion of a traditional IRA to a Roth IRA? A) An amount in a traditional IRA may be transferred to a Roth IRA maintained by the same trustee. B) The IRA owner's modified adjusted gross income (MAGI) cannot exceed $100,000 in the year of the conversion. C) An amount distributed from a traditional IRA can be rolled over to a Roth IRA within 60 days of the distribution. D) An amount in a traditional IRA may be transferred in a trustee-to-trustee transfer from the trustee of the traditional IRA to the trustee of the Roth IRA.
B) The IRA owner's modified adjusted gross income (MAGI) cannot exceed $100,000 in the year of the conversion. There is no MAGI limit for a taxpayer in the year in which there is a conversion.
All of these are considerations for converting distributions from qualified plans or a traditional IRA to a Roth IRA except A) any portion of an IRA can be converted to a Roth IRA. B) the Roth IRA conversion is more appropriate when the income tax rate is lower at the time of distribution than at the time of conversion. C) the Roth IRA conversion becomes more appropriate the longer the period of distributions. D) one advantage of a conversion to the Roth IRA is that the Roth IRA will not be subject to required minimum distributions (RMD) during the life of the original owner.
B) the Roth IRA conversion is more appropriate when the income tax rate is lower at the time of distribution than at the time of conversion. The Roth IRA conversion is more appropriate when the income tax rate is the same or higher at the time of distribution than at the time of conversion.
Which of these reasons for an early distribution from an IRA is NOT an exception to the 10% penalty? A) Made on or after the account owner attains age 59½ B) A distribution made after age 55 and separation from service with an employer C) Early distributions made for qualifying medical expenses exceeding 7.5% of the account owner's AGI D) The plan owner becomes totally and permanently disabled
B)A distribution made after age 55 and separation from service with an employer A distribution made after age 55 and separation from service with an employer is not a qualified IRA early distribution penalty exception.
Which of the following constitutes an exception to the imposition of the 10% premature distribution penalty for distributions made from an IRA owned by an individual who is currently age 40? A) A distribution following separation from service at age 56 B) A distribution paid as a series of substantially equal payments over a five-year period C) A distribution in payment of qualified higher education expenses D) A distribution taken after demonstration of a financial hardship
C) A distribution in payment of qualified higher education expenses IRA distributions are exempt from the early distribution penalty if made in payment of qualified higher education expenses. The other distributions are either exempt only if made from a qualified plan or not exempt, regardless of the source. The exception for a distribution paid as a series of substantially equal payments must extend over the greater of five years or age 59½.
Sherry, who is currently age 50, made only one contribution to her Roth IRA in the amount of $5,000 six years ago. If she were to receive a total distribution of $6,500 from her Roth IRA this year to take a vacation, how would she be taxed? A) Because Sherry waited more than five years, the distribution will be classified as a qualified distribution and will not be taxable, but will be subject to the 10% early distribution penalty. B) Because Sherry waited at least five years, the distribution will be classified as a qualified distribution and will not be taxable or subject to the 10% early distribution penalty. C) Although Sherry waited more than five years, the distribution will not be classified as a qualified distribution, it will be taxable to the extent of earnings, and it will be subject to the 10% early distribution penalty on the taxable amount. D) Although Sherry waited at least five years, the distribution will not be classified as a qualified distribution and will be fully taxable and will be subject to the 10% early distribution penalty.
C) Although Sherry waited more than five years, the distribution will not be classified as a qualified distribution, it will be taxable to the extent of earnings, and it will be subject to the 10% early distribution penalty on the taxable amount. A distribution from a Roth IRA is not subject to taxation if it is a qualified distribution or to the extent that it is a return of the owner's contributions or conversions to the Roth IRA. A qualified distribution is one that meets both of the following tests: --The distribution was made after a five-year holding period. --The distribution was made for one of the following reasons: * Owner has attained age 59½ * Distribution was made to a beneficiary or the estate of the owner on or after the date of the owner's death * Distribution was attributable to the owner's disability * Distribution was for a first-time homebuyer expense purchase The 10% early withdrawal penalty only applies to a distribution from a Roth IRA that is includable in gross income. The 10% early withdrawal penalty also applies to a nonqualified distribution, even if it is not then includable in gross income, to the extent it is allocable to a conversion contribution made within the five-year period beginning with the first day of the individual's taxable year in which the conversion contribution was made.
Maria has a traditional IRA. She named her daughter, Faith, as beneficiary of the account. Faith was disabled in an accident five years ago. If Maria dies at age 75 (when Faith was 50), which of these statements is CORRECT? A)Because Faith is an eligible designated beneficiary (EDB), she is allowed to roll the IRA to her own name and circumstances. B)Faith can make new contributions to the inherited IRA after the money is transferred into the inherited account. Since she is disabled and has no earned income, the source of these new annual contributions would have to be spousal IRA contributions or money rolled into the inherited IRA from a retirement account Faith owned previously. C)Faith inherits the IRA as an eligible designated beneficiary. D)Faith cannot transfer the inherited funds to an inherited IRA via a direct trustee-to-trustee transfer and name her own beneficiary.
C) Faith inherits the IRA as an eligible designated beneficiary. The answer is Faith inherits the IRA as an eligible designated beneficiary (EDB) because she was disabled on the day Maria died. A non-spouse beneficiary, including a non-spouse EDB, may only use a trustee-to-trustee transfer of the decedent's balance from a deceased's qualified plan, Section 403(b) plan, governmental Section 457 plan, or IRA to her own inherited IRA. What no non-spouse beneficiary can ever do is "roll" inherited money into an inherited account. Transferring retirement money into an inherited account means the first institution is verifying that the money is coming from the account of a person now deceased. If the law allowed anyone to "roll" inherited money into the new inherited account, there would be a temptation for someone to put money into an inherited IRA that was not coming from the account of a deceased person. Why? Because distributions from an inherited account are always an exception to the 10% early withdrawal penalty (EWP). So why do we allow a spouse to "roll" inherited money into their own name? Because a married couple is legally considered one person. Thus, the retirement accounts for each spouse are really for that married couple's combined retirement and thus for that generation's retirement. Also, when a surviving spouse moves inherited money into their own name, any withdrawals from the spouse's own retirement account will not automatically be an exception to the 10% EWP. Next, even though Faith is an EDB (due to being disabled on the day Maria passed away), Faith cannot roll the inherited money into her own name and circumstances. First, she is not a spouse and thus, she cannot "roll" inherited retirement money at all. Second, only a spouse can move money into their own name (as opposed to into an inherited account) and their own circumstances (meaning they are taxed as the original owner instead of as a beneficiary. Finally, new contributions from earned income are never allowed to any inherited account for anyone (spouse or non-spouse) and retirement money that was originally in the beneficiary's own name can never be allowed into an inherited IRA. If these sorts of retirement money were allowed into a
Which of these statements regarding prohibited transactions by a fiduciary or an individual associated with traditional IRA accounts is CORRECT? A) If an individual borrows money against an IRA annuity contract, the individual must include in gross income the fair market value of the annuity contract as of the last day of the tax year. B) A 50% penalty will be assessed against an IRA owner who borrows money against their IRA. C) Generally, if an individual engages in a prohibited transaction with the individual's IRA account at any time during the year, it will not be treated as an IRA as of the first day of the year. D) Selling property to an IRA by a fiduciary or an individual owner of the IRA is not prohibited.
C) Generally, if an individual engages in a prohibited transaction with the individual's IRA account at any time during the year, it will not be treated as an IRA as of the first day of the year. if an individual engages in a prohibited transaction within their IRA at any time during the year, it will not be treated as an IRA as of the first day of the year. If an individual borrows money against an IRA annuity contract, the individual must include in gross income the fair market value of the annuity contract as of the first day of the tax year.
Which of these statements most accurately describes the tax treatment of contributions to and distributions from a Roth IRA? A) Contributions are made with pretax dollars. B) Distributions are not taxable if they are attributable to disability and the account has been established for at least three years. C) If the account has been open for at least five years and the account owner is age 59½, distributions are penalty free and income tax free. D) A withdrawal from the account will not be subject to tax if the account has been established for at least three years and the funds (up to $10,000) are being used for a first-time home purchase.
C) If the account has been open for at least five years and the account owner is age 59½, distributions are penalty free and income tax free. The answer is if the account has been open for at least five years and the account owner is age 59½, distributions are penalty free and income tax free. Contributions to a Roth IRA are made with after-tax dollars. Distributions from a Roth IRA are income tax and penalty free if the owner has maintained the account for at least five years and the distribution is attributed to one of the following: *Death *Disability *First-time home purchase ($10,000 lifetime maximum) *Attainment of age 59½
Under the IRA minimum distribution rules, if the IRA account owner dies before distribution payments begin, what occurs? A) If the beneficiary is a named individual who is not the spouse, the beneficiary must distribute the entire account over a period not exceeding five years. B) The funds revert to the government if no beneficiary is named. C) The beneficiary can begin receiving distributions. D) All of these occur. Explanation If no beneficiary is named, the funds revert to the account owner's estate and are distributed according to the will or the state's intestacy laws. The spouse has the option of rolling over the IRA to the beneficiary-spouse's own account, and a nonspouse beneficiary may use a direct trustee-to-trustee transfer of the IRA into an inherited IRA. A nonspouse named beneficiary is not required to distribute the entire IRA balance within five years.
C) The beneficiary can begin receiving distributions. Explanation If no beneficiary is named, the funds revert to the account owner's estate and are distributed according to the will or the state's intestacy laws. The spouse has the option of rolling over the IRA to the beneficiary-spouse's own account, and a nonspouse beneficiary may use a direct trustee-to-trustee transfer of the IRA into an inherited IRA. A nonspouse named beneficiary is not required to distribute the entire IRA balance within five years.
Which of the following statements regarding the tax effects of converting a traditional IRA to a Roth IRA is CORRECT? A) The 20% premature distribution penalty applies if the owner is less than age 59½. B) The 10% premature distribution penalty applies if the owner is less than age 59½. C) The converted amount is treated as a taxable distribution from the IRA to the extent the distribution does not represent a return of basis. D) The amount converted is not considered a taxable distribution from the IRA to the extent the distribution does not represent a return of basis.
C) The converted amount is treated as a taxable distribution from the IRA to the extent the distribution does not represent a return of basis. When a traditional IRA is converted to a Roth IRA, the converted amount is treated as a taxable distribution to the extent the distribution does not represent a return of basis and is included in the owner's gross income. A penalty does not apply for amounts converted from a traditional IRA to a Roth IRA, regardless of the owner's age. However, the amount that was taxable at the conversion will be subject to the 10% early distribution penalty if it is withdrawn within five years of the conversion and the withdrawal does not qualify for an exception to the 10% early withdrawal penalty. This rule protects against people converting to a Roth and then taking a distribution as a way of escaping the 10% early withdrawal penalty.
Myra, age 35, converted an $80,000 traditional IRA to a Roth IRA last year. Her adjusted basis in the traditional IRA is $20,000. She also made a contribution of $5,000 to the same Roth IRA last year. Myra is in a combined 30% marginal tax rate. If Myra takes a $4,000 distribution from her Roth IRA this year, how much total federal tax, including penalties, is due as a result of the distribution? A) $1,600 B) $400 C) $1,200 D) $0
D) $0 Although the distribution is not a qualified distribution, it will not be taxable income because it is treated as a distribution from the Roth IRA regular contributions first. Because the $4,000 distribution is not includible in gross income, nor does it relate to a conversion within the last five years, the distribution is not subject to regular income tax or the 10% early withdrawal penalty.
John and Mary, both age 48, are married and file a joint income tax return for the current year (2023). John is self-employed as an engineering consultant and reports $120,000 of Schedule C net income and pays $16,955 in self-employment tax. Mary is not employed outside the home. What is the maximum deductible IRA contribution John and Mary can make this year?
D) $13,000 Neither John nor Mary is an active participant in an employer-sponsored retirement plan, qualified retirement plan, SEP plan, SIMPLE, or Section 403(b) plan; therefore, they can contribute and deduct $13,000 ($6,500 each) to traditional IRAs for the current year (2023).
Stewart and Abby, both age 35, plan to contribute a total of $13,000 to their IRAs for this tax year. They both work outside the home, and they file a joint income tax return. Stewart is a teacher at the local high school and participates in a 403(b) plan. Abby's employer does not provide a retirement plan. They expect that their MAGI in 2023 will be $145,000. What amount, if any, can they deduct for their IRA contributions? A) $13,000 B) $0 C) $7,500 D) $6,500
D) $6,500 An individual is not denied a deduction for his IRA contribution simply because of the other spouse's active participation, unless the couple's combined AGI exceeds $228,000 (2023). Based on their AGI, Abby, who is not an active participant, will be able to deduct a contribution of up to $6,500 to an IRA. Since their combined AGI is too high for Stewart to make a deductible IRA contribution, he should consider contributing to a Roth IRA.
Which of these statements is FALSE about Roth 401(k) accounts? A) Even if a Roth 401(k) participant already has a Roth IRA account, a new five-year clock is required for the Roth 401(k). B) Unlike traditional Roth IRA accounts that have phaseouts based upon income, there are no income restrictions applicable to participation in a Roth 401(k). C) Roth 401(k) accounts allow larger contributions than Roth IRAs. D) Just as with any Roth IRA account, there are no required minimum distributions (RMDs) that must be made from a Roth 401(k) account.
D) Just as with any Roth IRA account, there are no required minimum distributions (RMDs) that must be made from a Roth 401(k) account. Roth 401(k) accounts, just as with traditional 401(k) accounts, have RMD rules that apply, meaning that distributions must start in the year the participant reaches age 72 (unless they are still working). This can be avoided by rolling the Roth 401(k) over into a Roth IRA since there are no RMDs with Roth IRAs for the original owner. There are RMDs for inherited Roth IRAs. There is a new clock that is started for a Roth 401(k) account, even if the participant already has a Roth IRA account. However, if a participant transfers the Roth 401(k) into a Roth IRA, then the Roth IRA clock will be the one that applies, not the Roth 401(k) clock.
Which of the following best describes the purpose of establishing a stretch IRA? A) To allow the owner to borrow money from the IRA without committing a prohibited transaction B) To enable the owner to take distributions before age 59½ without paying the 10% penalty C) To allow the owner to continue making contributions to a traditional IRA beyond age 72 D) To extend the period of tax-deferred earnings beyond the original owner's lifetime
D). To extend the period of tax-deferred earnings beyond the original owner's lifetime. A stretch IRA is used to stretch the period of tax-deferred earnings on the IRA beyond the lifetime of the original owner. The goal is to delay the distribution of assets from the IRA for as long as possible.
Which of these is considered an active participant for determining the deductibility of traditional IRA contributions this year? I. A participant in a defined benefit pension plan who has just satisfied the eligibility requirements and entered the plan in the past six months II. A participant in a traditional Section 401(k) plan who is currently not making elective deferrals but has $100 of forfeitures reallocated to their account this year III. A highly compensated employee with a $500,000 account balance in a profit-sharing plan for which the plan earnings this year are $35,000 but no employer contributions, employee contributions, or reallocated forfeitures were added this year IV. A self-employed professional with no employees maintaining a simplified employee pension (SEP) with a $10,000 account balance funded by a 20% contribution two years ago plus earnings
I AND II
