Retirement Planning Final Chapters 9 - 13

This year Molly turns 72. Her life expectancy is 27.4 years and her Roth IRA balance at the end of last year was $500,000. At the end of this year her account balance will be $525,000 and her life expectancy will be 26.5 years. What is her minimum distribution requirement for the current year?

$0 Roth IRAs are exempt from the RMD rules.

Joyce and Melvin have been married for 30 years. In the current year, they received $22,000 of Social Security benefits and had $12,000 of interest income. What portion of the Social Security benefit is taxable?

$0 The lesser of: 50% of $22,000 = $11,000 or 0.5 [$12,000 + $11,000 - $32,000] < 0 Since the answer calculated is less than $0, none of the Social Security benefits received by Joyce and Melvin are taxable.

In 2023, Lina and Kenny move from Texas to Georgia for Lina to accept a new job. Her employer reimburses her $10,000 for the moving expenses of which $1,500 was for pre-move house hunting expenses. How much of the reimbursed moving expenses are taxable to Lina?

$10,000 The full amount will be taxable to Lina. Effective for years after 2017, moving expenses are not deductible by taxpayers (unless active duty military). 2017 TCJA

Hasani died December 31, 2022, at age 50 leaving his wife Jamille and 4 children ages 4, 7, 15 and 17. His PIA is $2,500 per month. Assuming Jamille does not work how much approximately in total per month will she receive for 2023 for herself and kids (ignoring family maximums)?

$13,125 2023 Calculation Jamille is too young to collect as a widow. Widow benefits begin at age 60. Jamille will receive benefit for caring for each of the children under age 16. Each child under age 18 will also receive 75% of the calculated PIA as a payment to them. 3 children x (2,500 x 75%) = 5,625 for care 4 children benefits x ($2,500 x 75%) = 7,500. The 17 year old will receive payments until their 18th birthday or 19th if still in school. Add the two types of benefits together for a total of $13,125.

Jane is covered by a $90,000 group-term life insurance policy, her daughter is the sole beneficiary. Jane's employer pays the entire premium for the policy; the uniform annual premium is $0.60 per $1,000 per month of coverage. How much, if any, is W-2 taxable income to Jane resulting from the insurance?

$288 $50,000 of group-term life insurance is nontaxable. $90,000 - 50,000 = 40,000 × $0.60 per thousand × 12 = $288 taxable

Christine is single, 42, and is an active participant in her employer's qualified retirement plan. Her AGI is $77,000 and she makes the maximum traditional IRA contribution. What is her deductible IRA contribution?

$3,900 Use the phase out formula. AGI - bottom of the phase out range = ? / range of the phase out ($73,000 to $83,000 in 2023) = phase out. [($77,000 - $73,000) / $10,000] = .4 Deduction = $6,500 - ($6,500 x 40%) = $3,900

Tony Soprano, age 48, earns $550,000 annually as an employee for City Waste Management. His employer sponsors a SIMPLE IRA retirement plan and matches all employee contributions made to the plan dollar-for-dollar up to 3% of compensation. What is the maximum contribution (employer and employee) that can be made to Tony's SIMPLE IRA account in 2023?

$31,000 The maximum total contribution is $31,000 ($15,500 maximum employee contribution for 2023 + 3% employer match × $550,000, but limited to $15,500). An employer cannot match more than was contributed, it is a dollar for dollar match.

Dorothy, age 45, earns $125,000 per year and has group life insurance through her employer for 2x her salary. If the Table I for IRC Section 79 cost is $.15, how much taxable income must Dorothy impute for the year?

$360 125,000 × 2 = 250,000 250,000 - 50,000 = 200,000 200,000/1,000 × .15 × 12 = $360

Hasani died December 31, 2022, at age 50 leaving his wife Jamille, age 49, and 4 children ages 4, 7, 15 and 17. His PIA is $2,500 per month. If Jamille goes back to work in 2023 and makes $100,000 how much approximately will she receive for the care of the children (ignoring family maximums)?

$5,625 Jamille will receive a benefit for each child she cares for under age 16. Each child under age 18 (19 if in secondary school - ie high school) will also receive a benefit directly. For the care of the children, Jamille will receive 75% of Hasani's calculated PIA. 2,500 x 75% = 1,875 for each of the three children under 16 = $5,625

What is the maximum number of employees that a company with a health plan can have and not be subject to the COBRA rules?

19 A company with less than 20 employees is not subject to COBRA even if they have a health plan.

Which of the following are permitted investments in a 403(b) TSA (TDA) plan? I. An annuity contract from an insurance company. II. An international gold stock mutual fund. III. A self-directed brokerage account consisting solely of U.S. stocks, bonds and mutual funds.

I and II only. TSA (TDA) funds can only invest in annuity contracts (Statement I) and mutual funds (Statement II). No self-directed brokerage accounts are permitted.

Ricky receives stock options for 12,000 shares of XYZ Corporation with an exercise price of $10 when the stock is trading on the national exchange for $10 per share. The XYZ company plan is an Incentive Stock Option Plan. Which of the following statements are true regarding the options? 1. Ricky will be required to hold any ISOs for more than a year after exercise and more than two years from the grant date to have long-term capital gains. 2. 2,000 of the options are considered NQSOs.

I and II. To the extent the fair market value of the stock for which the ISO is exercisable for the first time during any calendar year exceeds $100,000, the excess is treated as a nonstatutory stock option; therefore, 2,000 of the options are NQSOs.

SEP-IRA plans are unique from defined contribution plans in which of the following areas: I. Length of permissible exclusion from coverage based upon service. II. Establishment date of the plan. III. Income requirements for participation. IV. Can be paired with another plan.

I, II and III only. Employees can be excluded up to 3 years or age 21, whichever is longer. Plans can be established and funded up to the date of filing the entity tax return, including extensions. Employee needs to earn only $750 to be included in the plan.

Which of the following plans permit employers to match employee elective deferral contributions or make nonelective contributions? I. 457(b) II. 401(k) III. 403(b)

I, II and III. All three plans permit employer matching and nonelective contributions. The 457 employer contribution goes against the annual limit, whereas employer contributions do not go against the annual limit for 401(k) and 403(b) plans.

Which of the following statements accurately reflects the tax consequences of contributions to and distributions from HSAs? I. Contributions by the employee are deductible for AGI. II. Distributions for medical expenses are tax-free. III. Contributions by the employer are excludable from income by the employee. IV. Earnings within the HSA are non-taxable.

I, II, III and IV.

What benefits are available to the survivors of a deceased worker who was currently insured but not fully insured at death? I. Lump sum death benefit of $255. II. Mother or father's spousal benefit for caring for a qualifying child under age 16. III. Income benefits to a child under age18. IV. Survivor benefit to spouse (assume not remarried) at age FRA.

I, II, and III. There are no survivor benefits to a surviving spouse with no qualifying child.

Which of the following statements are true in regards to Section 457 plans? I. Eligible plan sponsors include non-profit organizations, churches, and governmental entities. II. In-service distributions after age 59 1/2 are allowed in a 457 plan. III. Salary deferrals are subject to Social Security, Medicare, and Federal unemployment tax in the year of the deferral. IV. Assets of the plans for non-government entities are subject to the claims of the sponsor's general creditors.

II, III and IV only. Churches are not qualifying sponsors of 457 plans

Hasani died December 31, 2022, at age 50 leaving his wife Jamille and 4 children ages 4, 7, 15 and 17. His PIA is $2,500 per month. How many of these family members are entitled to receive his benefits (assuming direct deposits) in 2023?

5 1 for her and 4 to each child.

Which of the following factors may affect a retirement plan? I. Career earnings. II. Retirement life expectancy. III. Mortality. IV. Savings rate.

All of the above. All of the options may affect a retirement plan either positively or negatively. Reduced work life expectancy may provide an insufficient savings period while an increased retirement life expectancy increases capital needs for retirement. A low savings rate may create an inability to meet capital requirements. Increased inflation rates will reduce purchasing power. The career earnings will affect the retirement need and as mortality increases, less is needed at retirement.

Endorsement Split-dollar life insurance is:

An insurance arrangement in which the employer is the owner of the policy and is also the beneficiary to the extent of the premiums paid by the employer. The employer is the owner of an endorsement split-dollar policy and will be repaid the total of the premiums it has paid for the insurance.

A client reaches age 72 on February 1, 2023. The value of the account at the beginning of the current year was $53,000. His spouse, age 63, is the beneficiary of the IRA account. When must the client's first RMD be taken?

April 1, 2025 SECURE Act 2.0 revised Required Minimum Distributions to age 73 as a start date for anyone turning 72 after 12/31/22. Participants will have until April 1 following the year they turn 73 to begin their RMDs. The client turns age 72 in 2023. The client is required to begin RMD at age 73 in 2024*. *The first year distributions must begin by April 1 of the next year, which is April 1, 2025.

Which one of the following statements is NOT true for a defined benefit plan?

Arbitrary annual contributions. Defined benefit plans favor older participants. It also requires PBGC coverage as mandated by law and needs to be actuarially calculated. The maximum benefit listed is correct, but annual contributions cannot be made on an arbitrary basis.

All of the following statements regarding Social Security are correct except: A. The worker who takes early retirement benefits will receive a reduced benefit. B. Workers entitled to retirement benefits can currently take early retirement benefits as early as age 59 ½. C. To qualify for retirement benefits, a worker must be fully insured, which means that a worker has earned a certain number of quarters of coverage under the Social Security system. D. Earning a designated amount of money, regardless of when it was earned during the year, will credit the worker with a quarter of coverage for that year.

As early as age 62 not 59½.

XYZ has a noncontributory qualified profit sharing plan with 300 employees in total, 200 who are nonexcludable (50 HC and 150 NHC). The plan covers 75 NHC and 35 HC. The NHC receive an average of 4% benefit and the HC receive 5.8%. Which of the following statements is (are) correct? 1. The XYZ company plan meets the ratio percentage test. 2. The XYZ company plan fails the average benefits test. 3. The plan must and does meet the ADP test.

Both 1 and 2. The plan does not have to meet the ADP test because it is a noncontributory plan. The ADP test would apply if there were a non safe harbor 401(k) plan. The plan meets the ratio percentage test and fails the average benefits test. Ratio percentage test (75/150) divided by (35/50) equals 71.4% PASSES Average benefits percentage test: 4% / 5.8% = 68.97% FAILS

Match the following statement with the type of retirement plan that it most completely describes: " A defined benefit plan that has the appearance of a defined contribution plan" is a...

Cash balance plan. Cash balance plan. Answers "A" and "C" are incorrect since they are not defined benefit plans. Answer "B" - Money purchase plan is a "pension plan" but it does not provide employees with a defined benefit, only a defined contribution. Answer "D" - Cash balance plan provides a defined benefit (returns are guaranteed by the employer) and the employee receives an "account" to see how much they have.

Lois and Ken Clark are age 32. They want to retire at age 62. They have calculated they will need a lump sum of $4,300,000 to provide the inflation-adjusted income stream they desire. Current investment assets are projected to grow to $3,100,000 by age 62. They project they will earn 6% after-tax on their investments and inflation will average 4% over the next 30 years. They would like to fund their retirement in level annual payments. They assume their retirement will last 26 years. Using the capitalization utilization method, what annual end-of-year savings will the Clarks need to deposit during their pre-retirement years?

$15,179 Amount needed to fund retirement is $4,300,000 which is given in the question. The inflation adjustment has already been made. Current assets will comprise $3,100,000 of the amount needed. $4,300,000 less $3,100,000 leaves a shortfall of $1,200,000. To accumulate $1,200,000 at 6% after-tax over 30 years, they will need to deposit $15,179 at the end of each year. Ignore all the other information which is just "filler." N=30 (62-32) i=6 PV=0 PMT=? FV=1,200,000

Brandon's employer gave him restricted stock worth $100,000 (5,000 shares at $20 per share) on January 1st of the current year. Five years later, when all restrictions are lifted, the stock will be trading at $40 per share. Which of the following accurately describes the tax consequences for Brandon in 5 years?

$200,000 W-2 income. The stock is taxable when it vests and is treated as W-2 income. Since there is a five year vesting schedule, it will be entirely W-2 income a that time. Brandon could have filed an 83(b) election upon the granting of the stock and converted the $20 of appreciation per share into capital gains.

Danielle has worked for the City of Buffalo for the last 20 years. She has deferred $22,500 into her 457(b) plan for 2023. She will attain her normal retirement age under the City's 457(b) plan in 2024. Danielle has prior unused deferral amount of $45,000 as of December 31, 2022. How much can Danielle contribute as her three-year catch-up contribution in 2023?

$22,500 Since the plan's normal retirement age for Danielle is 2024, Danielle would be allowed to defer an additional $22,500 in 2023. This is within the three years of the plan's normal retirement age and Danielle has sufficient prior unused deferral. The three year catch up allows a participant for 3 years prior to the normal retirement age (as specified in the plan) to contribute the lesser of: the elective deferral limit, $22,500 in 2023. the basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions)

Jack and Jill, both age 43, are married, made $20,000 each, and file a joint tax return. Jill has made a $6,500 contribution to her Traditional IRA account and has made a contribution of $2,000 to a Coverdell Education Savings Account for 2023. What is the most that can be contributed to a Roth IRA for Jack for 2023?

$6,500 The maximum combined contribution to Traditional and Roth IRAs is $6,500 per person (who has not attained age 50) for 2023. Therefore, Jack and Jill would have a total of $13,000 to allocate between Traditional and Roth IRAs. Jill has already contributed the maximum amount; however, Jack could still contribute $6,500 for himself. The Coverdell Education Savings Account (formerly known as an Education IRA) is not included in the $6,500 limit.

Kevin, a 55-year-old corporate executive, wants advice as to when he can retire. His current salary is $240,000 and he receives an annual bonus of $300,000; he also has annual stock options and restricted stock awards valued at $100,000. His employer contributes to a cash balance pension plan and matches his contributions to a 401(k). Kevin owns a whole life insurance policy with a $500,000 death benefit and is considering the purchase of a term policy with a $2,000,000 death benefit. He and his wife, Anne, also age 55, believe they can live on an after-tax income of $180,000. Assume a federal income tax rate of 35%. Kevin's non-qualified stock options are as follows: 2,000 shares, strike price $34 5,000 shares, strike price $30 Current stock price: $65 Kevin's tax bracket: 42% (federal and state) Kevin has decided to exercise the above stock option awards which will expire in the next 2 years. Assuming he exercises them today, what is his tax liability (CFP® Certification Examination, released 8/2012)?

$99,540 Non-qualified stock options are taxed on the "bargain element" (difference between the market price and the strike price) as ordinary income when exercised. (Market Price - strike price) × Number of Shares × Tax Rate = Tax Therefore, on the first NQ grant of 2,000 shares the tax is: ($65-34) × 2,000 shares = $62,000 in ordinary income. At 42% tax rate the tax is $62,000 × .42 = $26,040.00 And On the second NQ grant of 5,000 shares the tax is: ($65-30) × 5,000 = $175,000 in ordinary income. At 42% tax rate the tax is $175,000 × .42 = $73,500.00 Total tax therefore is $26,040.00 + $73,500.00 = $99,540.00

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 (due date of return plus extensions). 2. The contribution limit for SEPs and qualified plans (defined contribution) is $66,000 for the year 2023. 3. SEPs and qualified plans have the same ERISA protection from creditors. 4. SEPs and qualified plans have different nondiscriminatory and top-heavy rules.

1 and 2 SEPs and qualified plans can be funded as late as the due date of the return plus extensions. The maximum contribution for an individual to a SEP is $66,000 for 2023 ($330,000 maximum compensation × 25%, limited to $66,000). Thus, statements 1 and 2 are correct. Qualified plans are protected under ERISA. IRAs and SEPs do not share this protection. Both types of plans have the same nondiscriminatory and top-heavy rules.

Which of the following is/are correct regarding SIMPLE plans? 1. A SIMPLE plan does not require annual testing. 2. A SIMPLE IRA must follow a 3-year cliff vesting schedule if the plan is top-heavy. 3. 25% early withdrawal 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 401(k) plan is $22,500 for 2023 and $30,000 for 2023 for an employee who has attained the age of 50.

1 and 3 Statement 1 is correct. Statement 2 is incorrect. A SIMPLE plan is not subject to vesting rules, and contributions are always a 100% vested. Statement 3 is correct. The early withdrawal penalty is 25% for distributions taken within the first two years of participation Statement 4 is incorrect. The maximum deferral to a SIMPLE plan is $15,500 for 2023. Employees who have attained age 50 by the end of the tax year will also be eligible for a catch-up adjustment ($3,500 for 2023).

ABC has an Employee Stock Purchase Plan (ESPP). Which statements regarding an ESPP are correct? 1. The price may be as low as 85% of the stock value. 2. When an employee sells stock at a gain in a qualifying disposition, all of the gain will be capital gain. 3. There is an annual limit of $25,000 per employee.

1 and 3 Statement 2 is incorrect because only the gain in excess of the W-2 income will be capital gain.

Mark receives incentive stock options (ISOs) with an exercise price equal to the FMV at the date of the grant of $12. Mark exercises these options four years from the date of the grant when the FMV of the stock is $22. Mark then sells the stock for $35 two years after exercising the options. Which of the following statements is (are) true? 1. At the date of grant, Mark will have ordinary income equal to $12 per share. 2. At the date of exercise, Mark will have W-2 income of $10 per share. 3. At the date of sale, Mark will have long-term capital gain of $23 per share. 4. Mark's employer will not have a tax deduction related to the grant, exercise or sale of this ISO by Mark.

3 and 4. Statements 3 and 4 are correct. Since Mark held the underlying security 2 years from grant and one year from exercise before its sale, Mark will receive long-term capital gain treatment for the appreciation, and his employer will not have a deductible expense related to the ISO.

Which of the following statements accurately states the tax consequences for group health insurance premiums paid by an employer?

Deductible for employer and excluded from taxable income for employee.

Social Security benefits are based on the average of the three highest paid years for a covered worker.

False

Deepak made a contribution to his Roth IRA on April 15, 2021 for 2020. He was 58 years of age at the time and decided it was time he made his first contribution to a Roth IRA. Over the years he has contributed $30,000 between a small conversion (2021) and some contributions. On May 15, 2023 the entire account balance was $50,000 and he took out $45,000 to pay for his wedding and honeymoon. Which of the following statements is true?

He will include $15,000 in income but will not be subject to the 10% early withdrawal penalty. Roth distributions are tax free if they are made after 5 years and because of 1) Death, 2) Disability, 3) 59.5 years of age, and 4) First time home purchase. He does meet a qualifying reason because he is over 59.5 in 2023 if he was 58 in 2021. However, he did not meet the 5 year holding period. He only has about 4 years. His distribution does not received tax free treatment. The treatment for a non-qualifying distribution allows the distributions to be made from basis first, then conversions, then earnings. His basis will be tax free, leaving only the earnings as taxable income. Since he did not take the entire account balance he will only be subject to tax on the $15,000 of earning withdrawn. The 10% penalty does not apply to this distribution since he qualifies for the 59.5 exception to the penalty.

Which statements are correct regarding penalties associated with IRA accounts? I. Distributions made prior to 59½ are generally subject to the 10% premature distribution penalty. II. RMDs not taken in the required amount will have a 25% excise tax that can be reduced to 10% if taken in a timely manner

I and II are correct SECURE 2.0 Act revised the excise tax on Required Minimum Distribution from 50% to 25% and may be decreased to 10% if taken in a timely manner.

A premature distribution from a qualified retirement plan is allowed at age 52 without a 10% penalty tax when a participant: I. Becomes obligated for payment of plan benefits to an alternate payer under a qualified domestic relations order (QDRO). II. Separates from service and takes an accepted form of systematic payment. III. Remains with current employer but elects to take systematic payments over the life of the participant and spouse.

I and II only. Distributions under a QDRO are not taxable to the taxpayer actually making the disbursement from his/her account. IRC 72(t) allows Substantially Equal Payment Plans (SEPP) to escape the 10% penalty as long as the payments continue for the longer of 5 years or until age 59 1/2. No in-service withdrawals are exempted from the 10% early withdrawal penalty.

All of the following statements regarding Social Security are correct except: A. Many private insurance companies sell Medicare supplemental insurance polices. B. Medicare supplemental insurance policies help pay Medicare's coinsurance amounts and deductibles, as well as other out-of-pocket expenses for health care. C. If a worker applies for retirement or survivor's benefits before his or her 65th birthday, he or she must file a separate application for Medicare. D. Even if an individual continues to work after turning 65, he or she should sign up for Part A of Medicare.

If a worker applies for retirement or survivor's benefits before his or her 65th birthday, there is no need to file a separate application for Medicare.

Which of the following benefits provided by an employer to its employees is currently taxable to the employee?

Incidental personal use of a company car. Personal use of a company car is a taxable fringe benefit. All of the other employer fringe benefits listed may be excluded from the employee's gross income.

Which of the following is true regarding Monte Carlo Analysis?

It is a mathematical tool that utilizes a probabilistic distribution of returns and their effects on an individual's retirement plan. Monte Carlo Analysis is a mathematical tool that utilizes a probabilistic distribution of returns and their effects on an individual's retirement plan. Sensitivity Analysis is the changing of variable assumptions to determine the effects to the retirement plan. This is typically done by rotating a variable toward increased risk. For example, if inflation assumption is 3%, what would happen to the plan if it actually turns out to be 3.5% or 4%.

All of the following are reasons that an employer might favor a nonqualified plan over a qualified retirement plan except:

Nonqualified plans typically allow the employer an immediate income tax deduction. Nonqualified plans do not allow the employer to take an income tax deduction until the employee recognizes the income. All of the other statements are correct.

All of the following events qualify for 36 months of COBRA coverage EXCEPT: The group health plan terminates. Death of the employee. Employee reached Medicare age. Normal termination.

Normal termination.

Which of the following concerning the Social Security system is correct? A. Workers entitled to retirement benefits can currently take early retirement benefits as early as age 60. B. A worker who takes early retirement benefits will receive a reduced benefit because he or she will receive more monthly benefit payments as payments commence earlier than if the worker had waited and retired at full retirement age. C. Family members of an individual who is eligible for retirement or disability benefits include a spouse if the spouse is at least 60 years old or under 62 but caring for a child under age 16. D. Generally, individuals who are over the age of 62 and receive Social Security benefits automatically qualify for Medicare benefits.

The correct answer is B. Workers entitled to retirement benefits can currently take early retirement benefits beginning at age 62. Family members of an individual who is eligible for retirement or disability benefits include a spouse if the spouse is at least 62 years old or under 62 but caring for a child under age 16. Generally, individuals who are over age 65 and receive Social Security benefits automatically qualify for Medicare.

All of the following statements concerning the Social Security system are correct except: A. If a worker receives retirement benefits based on his or her own earnings record, the worker's retirement benefits will continue whether married or divorced. B. Widows and widowers, whether divorced or not, will continue to receive survivors benefits upon remarriage if the widow or widower is age 60 or older. C. By providing the name of a country or countries to be visited and the expected departure and return dates, the Social Security Administration will send special reporting instructions to the beneficiaries and arrange for delivery of checks while abroad. D. A special one-time payment of $1,050 may be made to a deceased worker's spouse or minor children upon death.

The correct answer is D. A special one-time payment of $255 may be made to a deceased worker's spouse or minor children upon death.

One of the requirements for SIMPLE plans is that they can only be established for companies who employ 100 or fewer employees.

True

Jim, who is age 39, converts a $72,000 Traditional IRA to a Roth IRA in 2021. Jim's adjusted basis in the Traditional IRA is $10,000. He also makes a contribution of $4,000 to a Roth IRA in 2022 for the tax year 2021. If Jim takes a $4,000 distribution from his Roth IRA in 2023, how much total federal income tax, including penalties, is due as a result of the distribution assuming his 2023 federal income tax rate is 22 percent?

$0 Any amount distributed from an individual's Roth IRA is treated as made in the following order (determined as of the end of a taxable year and exhausting each category before moving to the following category): - From regular contributions; - From conversion contributions, on a first-in-first-out basis; and - From earnings. All distributions from all of an individual's Roth IRAs made during a taxable year are aggregated. The 10 percent additional tax under IRC Section 72(t) applies to any distribution from a Roth IRA includible in gross income. The 10 percent additional tax under IRC Section 72(t) also applies to a nonqualified distribution, even if it is not then includible in gross income, to the extent it is allocable to a conversion contribution and if the distribution is made within the 5-taxable-year period beginning with the first day of the individual's taxable year in which the conversion contribution was made

Natalie is a secretary at JKL Law Firm. JKL provides her with free sodas at her discretion. Natalie estimates that she drinks $20 worth of sodas per month. How much must Natalie include in her annual gross income related to the sodas?

$0 The value of employer-provided deminimis fringe benefits may be excluded from an employee's gross income.

Charles, a single 29 year old, deferred 2% of his salary, or $2,000, into a 401(k) plan sponsored by his employer during 2023. What is the maximum deductible IRA contribution Charles can make during 2023?

$0. Charles cannot make a deductible IRA contribution for the year because he is an active participant in a qualified plan with an AGI of at least $100,000 ($2,000/2%), which exceeds the phase-out limits for a single person of $73,000 - $83,000 for 2023.

Eric, age 53, had the following items of income: Investment returns as a limited partner in a partnership of $1,200. Unemployment compensation of $350. Income from a law practice of $600. Deferred compensation from a former employer of $14,000. Alimony of $750 received from a divorce finalized in 2019. Wages of $1,000. What is the maximum contribution Eric can make to an IRA in 2023?

$1,600 Eric is limited to making an IRA contribution equal to the lesser of $6,500 (2023) (plus the $1,000 catch-up) or his earned income for the year. The following items, totaling $1,600, are considered earned income. Law Practice Income $600 Wages $1,000 The other items are not considered earned income. Individuals must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes. Compensation doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. NOTE: Alimony for divorces signed after 12/31/18 is neither taxable by the recipient or deductible by the payor (2017 TCJA).

Biks, Inc grants Janie 1 ISO on Jan 1, 20X1. The exercise price is $10. The market price on the exercise date (Jan 1, 20X3) is $25. Janie sold the stock on July 1, 20X3 for $200. What are the tax consequences when Janie sells the stock?

$15 W-2 income; $175 capital gain W-2 income - 25-10 = 15 ST Capital Gain = 200 - 25 = 175

Kim Cat, age 42, earns $350,000 annually as an employee for CTM, Inc. Her employer sponsors a SIMPLE 401(k) retirement plan and matches all employee contributions made to the plan dollar-for-dollar up to 3% of covered compensation. What is the maximum contribution (employer and employee) that can be made to Kim's SIMPLE 401(k) account in 2023?

$25,400 The maximum total contribution is $25,400. ($15,500 maximum employee contribution for 2023 + $9,900 employer match). The maximum employee contribution for 2023 is $15,500. The employer has chosen to make matching contributions up to 3% of compensation (the SIMPLE maximum). Therefore, the employer can make a contribution of up to $9,900 ($330,000 covered compensation for 2023, × 3%), if the plan is a SIMPLE 401(k).

Robert Sullivan, age 56, works for Dynex Corporation, and earns $345,000. Dynex Corp. provides a non-elective contribution to its SIMPLE IRA plan. Which one of the following is the maximum amount that could go into Robert's account this year? (The Section 401(a)(17) limit on includible compensation is $330,000 for 2023)

$25,600 The compensation limit applies to SIMPLE IRAs when non-elective contributions are made. $330,000 × 2% = $6,600 + $15,500 (max EE deferral) + $3,500 (age 50+ catch-up) = $25,600 Choice A is incorrect. It utilizes the correct calculation but does not include the catch-up of $3,500. Choices B and D are incorrect as they calculate the contribution amount using $345,000 × 2% SIMPLE elective contributions do not have a compensation limit. SIMPLE Non-elective contributions are limited to 2% of the covered compensation limit.

Carol and Jim Springer are married with three children. Jim works for ABC, Inc. as a phonetic spell-checker and is a participant in the ABC, Inc. profit sharing plan. In the current year, he earned $50,000 in salary and had some apartments he inherited a few years back which generated $29,000 in net income. They had $1,000 in interest and dividends from their mutual funds. Carol is a stay-at-home mom. Jim put $6,000 into his IRA in December of the current year. Carol will put $200 in her IRA on April 10 next year. How much were Jim and Carol able to deduct from their income tax for these IRA contributions this year?

$6,200 Their adjusted gross income is below the MFJ phaseout, so they are entitled to 100% deduction for both contributions. 2023 - IRA deduction phase out for active participant MFJ is $116,000 - $136,000 and spouse of active participant is $218,000 - $228,000.

Which of the following statements is/are correct regarding 403(b) plans? I. 403(b)s are eligible for rollover treatment to IRAs, qualified plans, and other 403(b)s. II. Investments in stocks, bonds, and money markets are available. III. Assets in a 403(b) plan are always 100% vested.

I only. Statement I is correct as 403(b) plans are permitted to be rolled over to IRAs, qualified plans, or other 403(b)s. Statement II is incorrect because 403(b) investments are limited to mutual funds and insurance annuities. Statement III is incorrect because, while employee elective deferrals are always 100% vested, employer contributions may be subject to a vesting schedule—typically ERISA limited vesting schedules (2-6 graded or 3-year cliff).

Robin and Robbie, both age 35, are married and filed a joint return for 2022. Robbie earned a salary of $132,000 in 2023 and defers $6,000 to his employer's 401(k) plan. Robbie and Robin earned interest of $15,000 in 2023 from a joint savings account. Robin is not employed, and the couple had no other income. On April 15, 2023, Robbie contributed $6,500 to an IRA for himself and $6,500 to an IRA for Robin. The maximum allowable IRA deduction on the 2023 joint return is:

$6,500 Anyone with earned income can contribute to an IRA, but the ability to deduct the IRA contribution depends on the individual's AGI and whether the individual is an active participant in a qualified plan. Since Robbie has a qualified plan, they cannot deduct the contribution for him due to his income of $141k ($132k - $6k + $15k) which exceeds the AGI phaseout of $116,000 - $136,000 for 2023. Robin, on the other hand, can deduct her contribution because she does not have a qualified plan and their joint income $147k ($132k + $15k) is less than the $218,000 to $228,000 phaseout for the spouse of an active participant. Therefore, Robin's deduction is $6,500. She can use Robbie's earned income as her own for the contribution as she is not employed.

Eric moved from Houston to New Orleans. His expenses for the move included $400 for truck rental, $100 for lodging, and $200 of pre-move house-hunting expenses. If Eric's employer reimbursed him $600, how much of the reimbursement is included in his gross income?

$600 Under TCJA moving expenses are no longer deductible and any amounts reimbursed by the employer are taxable as income to the EE.

Amy was divorced in 2017 and is currently age 55. She received alimony of $51,000 in 2023. 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 2023?

$7,500 The deductible IRA contribution limit is $6,500 for 2023. The additional catch-up amount, for over age 50, is $1,000 for 2023. Alimony counts as earned income for IRA purposes for divorces finalized prior to 12/31/18 (Pre TCJA). She is not covered by a qualified plan and therefore is not subject to AGI phaseouts. Therefore the total is $7,500 for 2023.

Amy, divorced in 2017 at age 53, received taxable alimony of $52,000 in 2023. In addition, she received $23,000 in earnings from a part-time job. Amy is not covered by a qualified plan. What is the maximum deductible IRA contribution that Amy can make for the year 2023?

$7,500 The deductible IRA contribution limit is $6,500 for 2023. The additional catch-up amount, for those over age 50, is $1,000 for 2023. Alimony is considered earned income for IRA purposes. She is not covered by a qualified plan and therefore is not subject to AGI phaseouts of $73,000-$83,000 for a single tax filer in 2023. The total that she can contribute for 2023 is $7,500. NOTE: Alimony for divorce agreements signed after 2018 is neither taxable by the recipient or deductible by the payor (2017 TCJA).

Biks, Inc grants Janie 1 NQSO on Jan 1, 20X1. The exercise price is $10. The market price on the exercise date (Jan 1, 20X3) is $25. Janie sold the stock on July 1, 20X3 for $100. What are the tax consequences when Janie sold the stock?

$75 of short term gain On Jan 1, 20x3 Mkt price - 25 Exercise Price - 10 Gain - 15 - w-2 income On July 1, 20x3 Market Price - 100 Basis - 25 Gain - 75 - short term

Isse Peking is the manager of Airline Highway Motel. Isse lives in Unit 12. He was given the option to live at the motel if he would also look after the night auditing (the value of his reviews is $400 per month) responsibilities. The value of the motel unit on a monthly basis is $800, but Unit 12 rents on a daily basis for $100 per day. How much, if any, does Isse have to include in his gross income for living on the premises of his employer?

$800 per month Isse is not required by the employer to live on the premises and therefore must include the value of the lodging in his gross income.

Donald and Daisy are married and file jointly. They are both age 42, both work, and their combined AGI is $126,000. This year (2023), Donald's profit sharing account earned over $5,000. Neither he nor the company made any contributions and there were no forfeitures. Daisy declined to participate in her company's defined benefit plan because she wants to contribute to, and manage, her own retirement money. (Her benefit at age 65 under the plan is $240 a month.) How much of their $13,000 IRA contribution can they deduct? Assume that $6,500 is contributed to each account

$9,750 Daisy is an active participant. She cannot opt out of a defined benefit plan. Use the phase out formula. AGI-bottom of the phase out range=? / range of the phase out (116,000 to 136,000 in 2023) = phase out. $126,000 - $116,000 = $10,000 $10,000/$20,000 = .50 or 50% 50% x $6,500 = $3,250 Donald is not active this year, he will follow the spousal phase out of $218,000 - $228,000. He is eligible for the full $6,500. They can deduce a total of $9,750

Which of the following are characteristics of a phantom stock plan? 1. Benefits are paid in cash. 2. There is no equity dilution from additional shares being issued.

1 and 2 The employee does not actually receive stock in a phantom plan. Instead, the employee receives credits for the stock and the benefits are later paid in cash.

Rick has an 18% nonqualified 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 employment 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.

2 and 3 Because this arrangement is a secular trust, there is no substantial risk of forfeiture. Thus, Statement 1 is false. Because the trust is not subject to the general creditors of the employer, this is straight compensation. Rick must treat the payments as constructively received, and the employer may deduct the payments as compensation immediately. The payments are subject to payroll tax since the compensation is earned.

Marguerite received nonqualified stock options (NQSOs) with an exercise price equal to the FMV at the date of the grant of $22. Marguerite exercises the options 3 years after the grant date when the FMV of the stock was $30. Marguerite then sells the stock 3 years after exercising for $35. Which of the following statements are true? A. At the date of the grant, Marguerite will have ordinary income of $22. B. At the date of exercise, Marguerite will have W-2 income of $8. C. At the date of sale, Marguerite will have long term capital gain of $5. D. Marguerite's employer will have a deductible expense in relation to this option of $22.

2 and 3 Statements 2 and 3 are correct. Marguerite would not have any taxable income at the date of grant provided the exercise price is equal to the fair market value of the stock. Marguerite's employer would receive a tax deduction equal to the amount of W-2 income Marguerite would be required to recognize, $8 of W-2 income, at the date of exercise. Marguerite's long term capital gain is $5, calculated as the sales price of $35, less the exercise price of $30.

Betty Sue, age 75, is a widow with no close relatives. She is very ill, unable to walk, and confined to a custodial nursing home. Which of the following programs is likely to pay benefits towards the cost of the nursing home? 1. Medicare may pay for up to 100 days of care after a 20-day deductible. 2. Medicaid may pay if the client has income and assets below state-mandated thresholds.

2 only Statement 1 is incorrect because Medicare covers all costs for the first 20 days of skilled nursing home care and cover the next 80 days with a deductible. Students should know from the Insurance course that Medicaid provides for low income persons.

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 $22,500 for 2023.

2 only Statement 2 is the only correct response. Statements 1 and 3 are incorrect. Employer contributions to a SEP are not subject to FICA and FUTA. The 401(k) elective deferral limit and the SARSEP deductible limits are $22,500 for 2023. The SEP limit is 25% of covered compensation up to $66,000 for 2023. Note: The maximum compensation that may be taken into account in 2023 for purposes of SEP contributions is $330,000. Therefore, the maximum amount that can be contributed to a SEP in 2023 is $66,000 (25% × $330,000, limited to $66,000).

A business valued at $3,000,000 has 3 partners. Each of the 3 partners buys a $500,000 life insurance policy on each of the other partners. Which of the following is true? 1. This is an example of an entity purchase plan. 2. This is an example of a cross purchase plan. 3. The policies are underfunded.

2 only This is a cross-purchase life insurance plan. Each person has a one-third interest. Therefore, when the first partner dies, the other two partners will each need to pay $500,000 for a total of $1,000,000 (1/3 of $3,000,000). Thus, the policies are not underfunded.

Which of the employee fringe benefits listed below, if provided by the employer, would be included in an employee's gross income? Business periodical subscriptions Season tickets to professional football games Free parking provided near its business (value of $90 per month) The use of an on-premises athletic facilities (value of $180 per month)

2 only Season tickets to professional football games Season tickets to professional football games are includible in the gross income of the employee receiving the tickets. All of the other fringe benefits are excludable. Occasional tickets to sporting events would be excludable.

Joe's full retirement age is 67. He is considering retiring early, at age 62. How much will his retirement benefit be reduced by, if he elects to receive social security retirement benefits at age 62?

30% 5/9 × 36 = 20% 5/12 × 24 = 10% 20% + 10% = 30%

Starfish Capital would like to offer their employees some additional benefits. The first step is for them to identify who their key employees are. Which of the following employees qualify as a key employee for 2023? 1. Doug, an officer of the company, who earns $145,000 per year and owns 3% the company. 2. Dan who earns $49,000 per year and owns 4% of the company. 3. Diane, a sales director who earns $295,000. 4. Dirk, a 10% owner of the company who earns $19,000 per year as a mail room attendant.

4 only. Only Dirk is a key employee. A key employee is anyone who is any one or more of the following (1) a greater than five percent owner, or (2) a greater than one percent owner with compensation in excess of $150,000, or (3) an officer with compensation in excess of $215,000 (2023). Diane is not listed as an officer of the company. Do not confuse title with position within the company. Officers typically include high-level management such as the CEO, treasurer and chief financial officer. The corporation may appoint other officers, which complicates the employee/officer distinction. Someone with the title "vice president" may be an officer or merely an ordinary employee with a title.

Which of the following is an example of a qualified retirement plan?

401(k) plan A 401(k) plan is a qualified plan. All of the others are not qualified retirement plans.

Which of the following accurately describes a 403(b) plan?

403(b) plan assets can be invested indirectly in stocks and bonds through annuities or mutual funds.

Match the following statement with the type of retirement plan which it most completely describes: "A plan with mandatory annual contributions where the employer bears the risk of providing a predetermined retirement benefit" is a...

Defined benefit plan The other plans are defined contribution plans, where the employees bear the investment risk.

Joe Liner works at a company that is considering options regarding its future legacy payments and it needs to find current tax deductions. One option the company is considering is funding a VEBA this year. Joe is uneasy but open to the idea because he has heard that more benefits may be funded in the VEBA. Which of the following are permitted under a VEBA? I. Life, sickness and accident benefits II. Retirement benefits III. Severance and supplemental unemployment IV. Job training V. Commuter benefits

I, III and IV only. Retirement benefits and commuter benefits cannot be included in a VEBA.

Your Uncle Ben began receiving required minimum distributions from his IRA several years ago and has died leaving a balance in his IRA. Uncle Ben is your Dad's youngest brother, but is 13 years your senior. He has named you as beneficiary (non-spouse beneficiary). Which of the following identifies your minimum distribution rule?

Distribution of the full account must be made within 10 years of Uncle Ben's death. SECURE Act 2019 changed the distribution rules following an account owner's death after 12/31/19. Only an Eligible Designated Beneficiary will be able to distribute based on their life expectancy. All Designated Beneficiaries will be required to distribute the full account balance within 10 years of the account owner's death. Answer A is incorrect because the distributions to the beneficiary are based on the beneficiary's life expectancy beginning in the year following death. Do point out that the distribution in the year of death is still based on the owner's life (pre-SECURE Act). Answer B is incorrect because the five-year rule is for non-designated beneficiaries (no listed beneficiary). Answer C is incorrect because a non-spouse beneficiary would not receive distributions based on the owner's life expectancy nor would a post-death non-spouse distribution be recalculated. (pre-SECURE Act) Answer E is incorrect because a lump sum is NOT the only choice. You can always receive money faster than required.

Kevin is age 62 and collecting Social Security benefits. In order to begin receiving Medicare Part A benefits, he must:

Do nothing, coverage starts immediately at age 65. Coverage starts automatically. If you receive retirement benefits early, there's no need to file a separate application.

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? I. SEPs and qualified plans have the same funding deadlines. II. The contribution limit for SEPs and qualified plans (defined contribution) is $66,000 for the year 2023. III. SEPs and qualified plans have the same ERISA protection from creditors. IV. SEPs and qualified plans have different nondiscriminatory and top-heavy rules.

I and II only. SEPs and qualified plans can be funded as late as the due date of the tax return plus extensions. The maximum contribution for an individual to a SEP is $66,000 for 2023 ($330,000 maximum compensation × 25%, limited to $66,000). Thus, statements I and II are correct. Qualified plans are protected under ERISA. IRAs and SEPs do not share this protection. Both types of plans have the same nondiscriminatory and top-heavy rules.

Which of the following fringe benefits would be included in taxable income? I. Season tickets to the professional baseball team ($2,000 value per year). II. Access to a local gym, not owned by the employer ($800 value per year). III. One-time use of the company dump truck to deliver sand to an employee's residence ($500 value). IV. A crystal plaque worth $150 as an achievement award.

I and II only. Season tickets are taxable. To be deductible/excludable, the gym must be on the employer's property or under the employer's control. De minimus use is not taxable. Awards cannot be cash, but a plaque is fine.

Which of the following is/are correct regarding SIMPLE plans? I. A SIMPLE plan does not require annual testing. II. A SIMPLE IRA must follow a 3-year cliff vesting schedule if the plan is top-heavy. III. A 25% early withdrawal penalty may apply to distributions taken within the first two years of participation in a SIMPLE plan. IV. The maximum elective deferral contribution to a SIMPLE 401(k) plan is $22,500 for 2023 and $30,000 in 2023 for an employee who has attained the age of 50 or older.

I and III only. Statement I is correct. Statement II is incorrect. A SIMPLE plan is not subject to vesting rules, and contributions are always a 100% vested. Statement 3 is correct. The early withdrawal penalty is 25% for distributions taken within the first two years of participation Statement IV is incorrect. The maximum deferral to a SIMPLE plan is $15,500 for 2023. Employees who have attained age 50 by the end of the tax year will also be eligible for a catch-up adjustment ($3,500 for 2023).

ABC has an Employee Stock Purchase Plan (ESPP). Which statements regarding an ESPP are correct? I. The price may be as low as 85% of the stock value. II. When an employee sells stock at a gain in a qualifying disposition, all of the gain will be capital gain. III. There is an annual limit of $25,000 per employee.

I and III only. Statement II is incorrect because only the gain in excess of the W-2 income will be capital gain.

Which of the following statements is/are correct regarding TSAs and 457 deferred compensation plans? I. Both plans require contracts between an employer and an employee. II. Participation in either a TSA or a 457 plan will cause an individual to be considered an "active participant" for purposes of phasing out the deductibility of Traditional IRA contributions. III. Both plans allow 10-year forward averaging tax treatment for lump-sum distributions. IV. Both plans must meet minimum distribution requirements that apply to qualified plans.

I and IV only. Statements I and IV are correct. Statement II is incorrect because a 457 plan is a deferred compensation arrangement that will not cause a participant to be considered an "active participant." Statement III is incorrect because 10-year forward averaging is not permitted from either plan.

Which of the following types of 457 plans permit employees to defer recognition of income without a risk of forfeiture? I. Public 457(b) plans. II. 457(f) plans. III. Private 457(b) plans.

I only. 457(f) plans and private 457(b) plans must be subject to a substantial risk of forfeiture.

Which of the following statements concerning rabbi trusts is (are) CORRECT? I. A rabbi trust is a trust established and sometimes funded by the employer that is subject to the claims of the employer's creditors, but any funds in the trust cannot generally be used by or revert back to the employer. II. A rabbi trust calls for an irrevocable contribution from the employer to finance benefits promised under a nonqualified plan, and funds held within the trust cannot be reached by the employer's creditors. III. A rabbi trust may not be held off-shore as a result of the American Jobs Creation Act of 2004. IV. The American Jobs Creation Act of 2004 prohibits "springing irrevocability" for a rabbi trust if there is a change of control or ownership.

I only. II describes a secular trust. III is incorrect because off-shore Rabbi trusts may still create and hold assets but there is no tax benefit for doing so. Realistically, these are no longer created because of the loss in preferential tax treatment. However, any off-shore Rabbi trust previously created is grandfathered so as long as there are no material changes to the plan it may maintain the pre-AJCA '04 treatment (the preferential tax deferral). IV is wrong because AJCA 2004 does allow springing irrevocability in these circumstances, but not for bankruptcy.

The early distribution penalty of 10% 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.

II and III only. The first statement is incorrect because it is an exception to the 10% penalty for qualified plan distributions, not for IRAs. The second and third statements are correct exceptions for and IRAs.

All of the following are considered Qualified Benefits for a cafeteria plan EXCEPT: I. Adoption Assistance II. Education Assistance III. Dependent Care Assistance IV. Athletic Facilities

II and IV only.

Which statements below accurately reflect characteristics of the Tax Sheltered Annuity (TSA)? I. Annuity payments from a TSA are taxed using the three-year rule. II. Employers may make matching contributions or contribute a fixed percentage. III. An employee under age 50, who contributed $9,000 to a 401(k) plan is limited to contributing a maximum of $13,500 to a salary reduction TSA. IV. At the TSA owner's death, the full amount of proceeds paid to beneficiaries is included in the gross estate of the decedent.

II, III and IV only. Total salary reductions for qualified 401(k) and TSA is limited to $22,500 per year in 2023. Contributions to 401(k)s and 403(b)s are aggregated such that they may not exceed the total annual limit. The TSA has make-up provisions that allow certain employees to make up contributions that could have been made in the past but were not. All assets in qualified plans are part of the gross estate of the account owner. Employers may make matching contributions or contribute a fixed percentage of an employee's compensation to a TSA.

Kent Reeder, age 52, works as the administrator and curator at the Museum of Antique Manuscripts, a not-for-profit organization in Metropolitan Center. He has worked there 18 years and began contributing to the 403(b) plan 12 years ago but skipped contributing last year. He earns $85,000 a year. He has asked you to maximize his contribution. Which of the following is/are TRUE? I. He may contribute $22,500 plus $7,500 for age 50+ catch-up, plus $3,000 long service catch-up. II. He may not contribute to the long-service catch-up this year due to omitting a contribution last year. III. He may contribute $22,500 plus $7,500 age 50+ catch-up. IV. He may not participate in both the long service catch-up and the age 50+ catch-up in the same year. V. He is not eligible for the long service catch-up.

III and V He is not eligible for the long service catch-up because the museum is not a HER (health, education, religious) organization. The maximum contribution limits for 2023 are $22,500 plus the age 50+ catch-up of $7,500

Jordan company, CP, sponsors a cash balance plan. It allows employees that meet the standard eligibility rules to enter the plan on the next available entrance date. The plan has four entrance dates: January 1st, April 1st, July 1st, and October 1st. Colin started working for CP on August 22nd last year. Colin turned 21 on February 13th this year. When will Colin enter the plan?

October 1st this year. The standard eligibility rules are age 21 and one year of service, defined as 1,000 hours of service within a 12-month period. Although he meets eligibility on August 22nd of this year, he does not enter the plan until the next available entrance date - October 1st this year

Medical Trials Inc. has a cafeteria plan. Full-time employees are permitted to select any combination of the benefits listed below, but the total value received by each employee must be $6,500 a year or less. 1. Group medical and hospitalization insurance for employee only, $3,600 a year. 2. Group medical and hospitalization insurance for employee's spouse and dependents, $1,200 additional a year. 3. Child-care payments, actual cost not to exceed $5,000. 4. Cash required to bring the total of benefits and cash to $6,500. 5. Universal variable life insurance $1,000. Which of the following statements is true? (All employees are full time)

Robin chooses 1 and 2 and $1,700 cash. Robin must include $1,700 in taxable income. Option D is correct because cash must be included in income. Option A is incorrect because the entire cash distribution will be taxable. Option B is incorrect because the universal variable life insurance premiums of $1,000 cannot be excluded from Matt's gross income. Option C is incorrect because child care payments are excludable benefits

Ginger is a 75 year old retired actress. Although she enjoyed a lucrative career, her decline in health has prevented her from working for the last few years. She is currently contemplating contributing to a Roth or Traditional IRA. Which of the following best describes her options?

She can't contribute to either a Traditional or Roth IRA. There is no mention of earned income and "her health has prevented her from working." Therefore, she can't contribute to either one. You cannot assume earned income, and in fact, this question indicates that she hasn't worked at all for several years. If she did have earned income then she would be able to contribute to a Traditional IRA or a Roth IRAs. SECURE Act 2019 has removed the Age restriction to contribute to an IRA, but earned income still necessary.

All of the following statements concerning Social Security beneficiaries are correct except: A. Monthly benefits can be paid to a disabled insured worker under age 65. B. Benefits can be paid to the divorced spouse of a retired or disabled worker entitled to benefits if age 62 or over and married to the worker for at least 10 years and 1 day. C. Benefits can be paid to the surviving spouse (including a surviving divorced spouse) of a deceased insured worker if the widow(er) is age 60 or over. D. Benefits can be paid to dependent parents of a deceased insured worker at age 59 or over.

The correct answer is D. Benefits can be paid to dependent parents of a deceased insured worker at age 59 or over. Benefits can be paid to the dependent parents of a deceased worker at age 62 or over.

Randal was just hired by Chastain, Inc., which sponsors a defined benefit plan. After speaking with the benefits coordinator, Randal is still confused regarding eligibility and coverage for the plan. Which of the following is correct?

The plan may not cover Randal due to his position in the company, even if Randal meets the eligibility requirements Choice a is not correct because the general eligibility is age 21, not 26. Choice c is not correct because a plan could cover part time employees. SECURE Act changed the rules to include part-time employees with at least 500 hours and 3 years of accrued years that start after 1/1/2021, making them eligible in 2024. Choice d is not correct because employees become part of a plan only as early as at the next available entrance date after meeting the eligibility requirements.

Which of the following cannot be held in an IRA account as an investment?

Variable life insurance Life insurance is not permitted in IRA accounts. All of the other choices are permissible.