Fed Taxes - Retirement Plans

On February 20, 2020, Michael prepares his 2019 calendar year tax return, showing $70,000 net profit from his first year in business (amount carried from Schedule C to Form 1040). He wants to establish a money purchase qualified plan and contribute the maximum deductible amount. He has no employees. The most Michael can contribute to his qualified plan for 2019 is: a) $0 b) $56,000 c) $18,500 d) $19,000

a) $0

Roger is an employee at James River Roofing. His employer told him that he is eligible to participate in the SEP IRA starting in 2019. What is the maximum amount Roger can contribute to his SEP IRA for 2019? a) $0 b) $6,000 c) 25% of his compensation d) $56,000

a) $0

What is the maximum amount of 2019 compensation an employer may consider when determining qualified plan contributions and benefits for an employee? a) $280,000 b) $183,000 c) $120,000 d) $19,000

a) $280,000

What is the maximum catch-up contribution for a 403(b) plan? a) $6,000 b) $3,000 c) $1,500 d) $1,000

a) $6,000

Peter is a sole proprietor with $100,000 net profit on his Schedule C. He took a deduction for self-employment tax on Form 1040 of $7,650. What is the most he can contribute to his own account if the contribution rate for his SEP plan for employees is 10%? Note: Round his contribution rate 6 decimal places. a) $8,395 b) $9,235 c) $10,000 d) $9,091

a) $8,395

Samantha owns 2% of Creative Corporation stock. Creative paid her an annual salary of $100,000 in 2019 and each of the three prior years. In 2019, she receives an additional bonus of $40,000 for her achievements on a design project for a major client. Her 2019 total compensation from Creative is $145,000. Is Samantha a highly compensated employee for purposes of Creative's 2019 qualified retirement plan contributions? a) No, because she did not exceed the threshold in the preceding year. b) No, because she does not have enough income in the current year. c) Yes, because her income exceeds $120,000 in 2019. d) Yes, because her average earnings for the past two years exceed $120,000.

a) No, because she did not exceed the threshold in the preceding year.

Which of the listed retirement plans is available to a self-employed individual? a) SEP b) 403(b) c) 457(b) d) All of the above

a) SEP

Jill has a SEP IRA for her employees. She bases contributions on a written allocation formula. In prior years, her contributions were 25% of employee compensation. In 20X1, her company had its most profitable year ever. She took a large distribution to fund a private investment and doesn't have enough to contribute to the plan. What are her options for making the 20X1 contribution? a) She can skip the contribution in 20X1 b) She can contribute 25% for highly compensated employees and 10% for everybody else. c) She can exclude contributions for any employees that she terminates in 20X1 before the contribution is made. d) She must contribute 25% because she has a written allocation formula.

a) She can skip the contribution in 20X1

Which of the following retirement plans does not have a salary reduction (elective deferral) component to it? a) Simplified Employee Pension Plan (SEP) b) SIMPLE IRA Plan c) SIMPLE 401(k) Plan d) Qualified 401(k) Plan

a) Simplified Employee Pension Plan (SEP)

Which of the following is NOT a participation requirement for employees under a SEP IRA plan? a) The employee works at least 100 hours during the year b) The employee has reached age 21 c) The employee has worked for the employer in at least 3 of the last 5 years d) The employee has received at least $600 in compensation

a) The employee works at least 100 hours during the year

Maria qualifies to participate in her employer's 403(b) plan. She has a second job and participates in a 401(k) that employer. Her 2019 401(k) contribution is $17,000. What is the most she can contribute to her 403(b) for 2019? a) $0 b) $2,000 c) $7,000 d) $19,000

b) $2,000

Who can an employer exclude from covering under a SEP IRA, provided all other requirments are met? a) Employees who are not covered by a union agreement b) A nonresident alien employee with no US source income. c) Employees over the age of 65. d) Employees who earn less than $10,000

b) A nonresident alien employee with no US source income.

Which of the following can establish their own 403(b) plan? a) An employee in the public school system. b) A tax-exempt organization established under Section 501(c)(3). c) A veteran of the US Military. d) Any taxpayer with earned income.

b) A tax-exempt organization established under Section 501(c)(3).

Jeff, age 30, began participating in a SIMPLE retirement account this year. After one year he needed some money and took an early distribution. Which of the following is true? a) He is subject to a 10% penalty on the early distribution. b) He is subject to a 25% penalty on the early distribution. c) He may roll the amount into an IRA and avoid the penalty on the distribution. d) He will not owe a penalty if the distribution is due to switching jobs.

b) He is subject to a 25% penalty on the early distribution.

All of the following are reporting requirements of a qualified retirement plan EXCEPT: a) submit Form 5500 - Annual Return of Employee Benefit Plan b) information on certain contributions, conversions, and distributions to retirement plans reported on Form 8606 c) distributions from the plan are reported on Form 1099-R d) participants must receive period statements of their account benefits

b) information on certain contributions, conversions, and distributions to retirement plans reported on Form 8606

Lucy, age 24, is a public school teacher. She wants to take advantage of elective deferrals into her 403(b) retirement plan. What is the maximum amount she can contribute for 2019? a) $6,000 b) $11,000 c) $19,000 d) $21,000

c) $19,000

The 2019 basic limit on elective deferrals in 401(k) plans (excluding SIMPLE plans) for participants under age 50 is: a) $13,000. b) $16,000. c) $19,000. d) $25,000.

c) $19,000.

Carmine is a self-employed consultant who has one employee, Devin, who earned $48,000 in 20X1. Devin contributed the maximum amount to his SIMPLE 401(k) plan under which an employee can choose to make salary contributions of up to 15% of pay. Carmine made a 3% matching contribution. Which of the following correctly represents the amount that Carmine will deduct for compensation and benefits paid to Devin in 20X1? a) $48,000 wages and $6,000 retirement plan contribution b) $48,000 wages c) $48,000 wages and $1,440 retirement plan contribution d) $48,000 wages and $7,440 retirement plan contribution

c) $48,000 wages and $1,440 retirement plan contribution

Jessica turns 50 on December 31, 2019. What is the maximum catch-up contribution allowable for 2019 into her 401(k) plan? a) $1,000 b) $3,000 c) $6,000 d) She is not old enough to make a catch-up contribution

c) $6,000

Amy, a self-employed consultant, contributes more to her profit-sharing plan than she can deduct for the year. Amy can carry over and deduct the excess in later years combined with her normal contributions. Her contribution in later years is limited to which of the following? a) 15% of the participating employee compensation. b) 10% of the participating employee compensation. c) 25% of the participating employee compensation. d) None of the above.

c) 25% of the participating employee compensation.

Who is a highly compensated employee for purposes of employer retirement plan calculations? a) A greater than 2% shareholder. b) Any employee that receives compensation of $100,000 or more. c) An employee that owns more than 5% interest in the business at any time during the year, regardless of compensation amount. d) Any employee in the top 20% of compensation for the company.

c) An employee that owns more than 5% interest in the business at any time during the year, regardless of compensation amount.

Salary reduction contributions to a SIMPLE IRA are subject to which of the following? a) FICA taxes only b) FUTA taxes only c) Both FICA and FUTA taxes d) Neither FICA nor FUTA taxes

c) Both FICA and FUTA taxes

Joaquin is a small business owner who maintains a SEP for his employees: Jan, a 42-year-old part-timer who has worked for Joaquin in this business since 2008. She works 15 hours per week. She earned $13,500 in 2019. Malik, a 72-year old seasonal worker who works from September through December. He has worked for Joaquin in this business since 2012 and earned $6,000 in 2019. Monica is 21 years old and works 10 hours per week, all year. She has worked for Joaquin since June 2016 and earned $4,800 in 2019. Joaquin's business had net taxable income in 2019 of $62,300. All employees and Joaquin are U.S. citizens and none of them are union members. Which of the individuals listed below can be excluded from coverage under the SEP in 2019? a) Jan b) Malik c) Monica d) Joaquin

c) Monica

Which of the following statements about contributions to a SIMPLE IRA is true? a) A SIMPLE IRA is an employer contribution only plan b) Catch-up contributions are prohibited in a SIMPLE IRA c) The employer must contribute either a matching contribution up to 3% or a 2% non-elective contribution d) All employees who receive more than $1,000 in compensation are eligible to participate.

c) The employer must contribute either a matching contribution up to 3% or a 2% non-elective contribution

The tax on early distributions is imposed on distributions made from a qualified retirement plan made before the recipient reaches age 59 1/2. An exception to the tax on early distributions applies: a) if the recipient was temporarily disabled at the time of the distribution. b) to distributions made for medical expenses to the extent they do not exceed 7.5% of the recipient's adjusted gross income. c) to distributions made after separation from service after the year the recipient reached age 55 (age 50 for qualified public safety officials). d) to distributions made due to a court ordered liquidation or settlement.

c) to distributions made after separation from service after the year the recipient reached age 55 (age 50 for qualified public safety officials).

Deb, age 45, is self-employed and has no other employees. Her net earnings, after the deduction for one-half of self-employment tax but before deducting any contributions she makes to her own SIMPLE, are $15,000. What is the most that can be contributed to Deb's SIMPLE for 2019 (employer and employee contributions)? a) $3,750 b) $15,000 c) $13,000 d) $13,450

d) $13,450

Lenore, who is 43 years old, opened a SIMPLE IRA on January 19, 20X1. On September 22, 20X2, she withdrew the entire $10,000 value of the account. The distribution does not meet any early withdrawal exceptions to the additional tax on early distributions. How much additional tax (penalty) is this distribution subject to? a) $600 b) $1,000 c) $1,500 d) $2,500

d) $2,500

How many years of service does an employee need to be eligible for an additional $3,000 contribution into a 403(b) plan? a) 3 b) 5 c) 10 d) 15

d) 15

Chad needs to take out a loan from his retirement plan. Which of the following accounts may permit Chad to borrow money from his account balance? a) Simplified Employee Pension b) Simple IRA c) Roth IRA d) 401(k)

d) 401(k)

Which of the following is compensation used to determine employer retirement plan allocations? a) Wages and salaries b) Fees for professional services c) Tips d) Include all of these amounts in compensation

d) Include all of these amounts in compensation

PLC Company has a SIMPLE IRA which offers a 3% matching contribution. Which of the following scenarios regarding the employer matching contribution is correct? a) Neil's annual compensation is $300,000. Neil contributes $7,500 for the year. PLC can contribute $9,000 b) Neil's annual compensation is $50,000. Neil contributes the salary reduction maximum of $12,500. PLC may not contribute because Neil reached the maximum contribution for the plan. c) Neil's annual compensation is $280,000. Due to Neil's income, neither Neil nor PLC may contribute on Neil's behalf. d) Neil's annual compensation is $75,000. Neil contributes $10,000. PLC can contribute $2,250.

d) Neil's annual compensation is $75,000. Neil contributes $10,000. PLC can contribute $2,250.

Mike is self-employed. His business files schedule C. He is a calendar year taxpayer. If he wants to set up a SEP plan for his business for the year 2019, he must do so by (including extensions): a) December 31, 2019 b) January 31, 2020 c) April 15, 2020 d) October 15, 2020

d) October 15, 2020

Which of the following is not true about a SEP IRA? a) Contributions are 100% immediately vested to the employee. b) Employees cannot contribute to a SEP IRA c) The employer can allow employees under age 21 to participate. d) The employer can contribute up to 100% of compensation up to the annual limit.

d) The employer can contribute up to 100% of compensation up to the annual limit.

What are the requirements to establish a SEP IRA? a) The employer must execute a formal written agreement to provide benefits to all eligible employees. b) Each eligible employee must receive certain information about the SEP. c) A SEP-IRA must be set up for each eligible employee. d) These are all requirements

d) These are all requirements

Generally, the deadline to file Form 5500, Annual Return/Report of Employee Benefit Plan is the a) fifteenth day of the fourth month after the end of the plan year b) fifteenth day of the fifth month after the end of the plan year c) fifteenth day of the seventh month after the end of the plan year d) last day of the seventh month after the end of the plan year

d) last day of the seventh month after the end of the plan year