UFL Retirement Planning: Quizzes
Alpha partnership has 8 partners who have entered into a binding buy/sell agreement that requires any surviving partners to purchase the partnership interest of any partner to die. The partnership uses an entity approach to fund this arrangement. How many policies are required to satisfy this arrangement? 1. 8. 16. 64.
8 policies, or one for each partner, are required at the entity level.
A business valued at $4,000,000 has 4 partners. The partnership purchases a life insurance policy on each partner's interest. This is an example of: A buy-sell entity insurance plan. A partnership buy/sell plan. A buy-sell cross-purchase insurance plan. A key person plan.
A buy-sell entity insurance plan. When the entity purchases a life insurance policy on each partner, it is known as a buy-sell entity insurance plan.
Which of the following statements concerning rabbi trusts is(are) correct? A) 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. B) A rabbi trust calls for an irrevocable contribution from the employer to finance promises under a nonqualified plan, and funds held within the trust cannot be reached by the employer's creditors. C) A rabbi trust can only be established by a religious organization. D) All of the above are correct.
A) 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. Only option a is correct as it describes a rabbi trust. Option b describes a secular trust. Option c is a false statement.
Jennifer received 1,000 SARs at $18, the current trading price of Clippers, Inc., her employer. If Jennifer exercises the SARs three years after the grant when Clipper's stock is $20 per share, which of the following statements is true? A) Jennifer will have an adjusted taxable basis of $18,000 in the Clippers, Inc. stock. B) Jennifer will have W-2 income equal to $20,000. C) Jennifer will have long-term capital gain of $2,000. D) Jennifer will have W-2 income equal to $2,000.
D) Jennifer will have W-2 income equal to $2,000. At the exercise of a SAR, the employee receives the difference between the fair market value and the exercise price as W-2 income. Thus, Jennifer has W-2 income equal to $2,000 [($20-$18)x1,000].
If a term life insurance policy is purchased in a defined contribution plan, the aggregate cost of the term life insurance policy cannot exceed 10% of the value of the account. True False
False The aggregate cost of a term life insurance policy included in a defined contribution plan cannot exceed 25% of the value of the defined contribution plan assets.
Robbie had been an active participant in a qualified plan for four years. His AGI exceeded the thresholds to make deductible IRA contributions for those years, but Robbie continued to make nondeductible IRA contributions totaling $9,000 (these were the only nondeductible contributions to the IRA - all other contributions were pre-tax). If Robbie were to take a distribution of $10,000 from his IRA, valued at $100,000, $900 would not be subjected to ordinary income tax. True False
True Because of his nondeductible IRA contributions, Robbie would have an adjusted basis (AB) in his IRA of $9,000. When an individual with an AB in an IRA takes a distribution from that IRA, the distribution is partially taxable and partially return of AB. To calculate the ratio of return of AB, divide the AB within the IRA before the distribution by the FMV of the account before the distribution. 9% ($9,000/$100,000) of Robbie's $10,000 IRA distribution, or $900, would be return of AB.
Mandy, a single 29 year old, has an AGI of $52,000. She is eligible to defer to her 401(k) plan, but she has not deferred any compensation to the 401(k) plan for the current year. However, she did receive a qualified matching contribution of $200. Her maximum deductible contribution to an IRA for this year (2014) is $5,500. True False
True Mandy's deductible contributions to an IRA is not limited even though she is an active participant in a qualified plan (as indicated by the fact that she received an employer contribution). Mandy's deductible IRA contribution would be $5,500, the maximum for 2014.
A single individual has an adjusted gross income of $28,000, no tax-exempt interest, and Social Security benefits of $14,000. How much of this individual's Social Security benefits is subject to income tax? $5,000. $5,350. $7,000. $11,900.
$5,350 The lesser of the following is taxable: 85% of $14,000 = $11,900 or 85% ($35,000-$34,000) = $850 + lesser of: [$5,000 (the amount calculated under 50%) or $4,500] = $5,350 ($850 + $4,500).
This year, Bo and Martha received $14,000 of Social Security income and had $6,000 of interest income. What portion of the Social Security benefits will be taxable on their married filing jointly income tax return? $0. $3,000. $7,000. $14,000.
$0 The lesser of: 50% of $14,000 = $7,000 or 0.5 [$6,000 + 0.5 ($14,000) - $32,000] < 0 Since the answer calculated is less than $0, none of the Social Security benefits received by Bo and Martha are taxable.
On January 1 of last year, Randy was awarded 15,000 ISOs at an exercise price of $3 per share when the fair market value of the stock was equal to $3. On April 17 of this year, Randy exercised all of his ISOs when the fair market value of the stock was $5 per share. At the date of exercise, what are the tax consequences to Randy? $0 W-2 income, $30,000 AMT adjustment. $0 W-2 income, $75,000 AMT adjustment. $30,000 ordinary income, $30,000 AMT adjustment. $75,000 ordinary income, $0 AMT adjustment.
$0 W-2 income, $30,000 AMT adjustment. When an ISO is exercised, the appreciation in excess of the exercise price is an AMT adjustment. In this case, Randy would have an AMT adjustment equal to $30,000 (15,000 x $2 appreciation).
Robert, single and age 54, is a participant of his employer's qualified profit sharing plan. For the current year he received a forfeiture allocation of $25, but the employer did not make any other contribution for the year. Robert would like to make a deductible IRA contribution. If Robert's AGI is $79,000 (all comprised of W-2 earnings and portfolio income), what is the maximum deductible IRA contribution Robert may make to the qualified plan? $0. $3,000. $5,500. $6,500.
$0. Because of the forfeiture allocation Robert received from his employer's plan, he would be considered an active participant of his employer's qualified plan. Accordingly, his maximum deductible contribution to the IRA may be limited based upon his AGI. The AGI phaseout for a single active participant in a qualified plan is $60,000 - $70,000 (2014). Since Robert's AGI exceeds the threshold, he cannot make a deductible IRA contribution.
This year, Bo and Martha received $14,000 of Social Security income and had $6,000 of interest income. What portion of the Social Security benefits will be taxable on their married filing jointly income tax return? $0. $3,000. $7,000. $14,000.
$0. The lesser of: 50% of $14,000 = $7,000 or 0.5 [$6,000 + 0.5 ($14,000) - $32,000] < 0 Since the answer calculated is less than $0, none of the Social Security benefits received by Bo and Martha are taxable.
Sodium Services, Inc. (SSI) sponsors a SIMPLE for its employees with a 100% match up to 3% of compensation. Mary, age 42, has been an SSI employee for 14 years. In the current year, Mary earns $35,000 and defers $10,000 to the SIMPLE plan. What is the maximum matching contribution to Mary's SIMPLE from SSI? $700. $1,050. $8,750. $10,000.
$1050 Since SSI uses a 100% match up to 3% of compensation, the matching contribution from SSI to Mary's SIMPLE would be 3% of $35,000 (Mary's compensation) or $1,050.
Going Higher Construction sponsors a 401(k) profit sharing plan. In the current year, Going Higher Construction contributed 25% of each employees' compensation to the profit sharing plan. The ADP of the 401(k) plan for the NHC was 3.5%. If Bob, age 57, earns $100,000 and is a 6% owner, what is the maximum amount that he may defer into the 401(k) plan for this year? $3,500 $5,500 $11,000 $23,000
$11,000 Bob is highly compensated because he is more than a 5% owner, so the maximum that he can defer to satisfy the ADP Test requirements is 5.5% (3.5% + 2%) and because he is over 50, he can defer the additional $5,500 (2013) as a catch-up contribution. Bob can defer $5,500 (5.5% x $100,000) and $5,500 (the catch-up) for a total of $11,000.
Henry Hobbs, age 42, has compensation of $72,000. The normal retirement age for his 457(b) plan is age 62. Henry has unused deferrals totaling $21,000 as of the beginning of the year. How much can Henry defer into his 457(b) public plan for 2014? $17,500. $23,000. $26,000. $35,000.
$17,500 Henry is not within 3 years of the plan's normal retirement age and therefore can only defer the normal $17,500. The $5,500 catch up (2014) for those participant's age 50 and over is not available because he is only 42 years old.
Danielle has worked for the City of Buffalo for the last 20 years. She has deferred $17,500 into her 457(b) plan for 2014. She will attain her normal retirement age under the City's 457(b) plan in 2015. Danielle has prior unused deferral amount of $45,000 as of December 31, 2013. How much can Danielle contribute as her three-year catch-up contribution in 2014? $0. $17,500. $23,000. $35,000.
$17,500 Since the plan's normal retirement age for Danielle is 2015, Danielle would be allowed to defer an additional $17,500 in 2014. This is within the three years of the plan's normal retirement age and Danielle has sufficient prior unused deferral.
Jennifer, age 54, earns $125,000 annually from ABC Incorporated. ABC sponsors a SIMPLE, and matches all employee deferrals 100% up to a 3% contribution. Assuming Jennifer defers the maximum to her SIMPLE, what is the total contribution to the account in 2014 including both employee and employer contributions? $14,500. $15,750. $18,250. $21,250.
$18,250 Jennifer can defer up to $14,500 ($12,000 + $2,500) for 2014 because she is over 50. ABC's match for Jennifer is 3% of her compensation, or $3,750 (3% x $125,000). The maximum contribution to Jennifer's SIMPLE is $18,250 ($12,000 + $2,500 + $3,750).
Perry operates In-N-Out Pharmacy, a sole proprietorship. In-N-Out sponsors a profit sharing plan. Perry had net income of $205,000 and paid self-employment taxes of $30,000 during the year. If Perry makes a 15% of salary contribution on behalf of all of his employees to the profit sharing plan, how much is the contribution to the profit sharing plan on behalf of Perry? $22,820. $24,776. $28,500. $30,750.
$24,776. $205,000 Net Income ($15,000) Less 1/2 SE Tax $190,000 Net SE Income x 0.1304 0.15/1.15 $24,776
Carrie, age 55, is an employee of Rocket, Inc. (Rocket). Rocket sponsors a SEP IRA and would like to contribute the maximum amount to Carrie's account for the plan year. If Carrie earns $14,000 per year from Rocket, what is the maximum contribution Rocket can make on her behalf to the SEP IRA? $3,500. $14,000. $15,500. $52,000.
$3,500 Contributions to a SEP IRA are limited to the lesser of 25% of the employee's compensation or $52,000 (2014). In this case, Carrie's compensation is $14,000, so the contribution on her behalf would be limited to 25% of $14,000, or $3,500.
Marisol was granted 100 NQSOs five years ago. At the time of the option grant, the value of the underlying stock was $100 and the exercise price was equal to $100. If Marisol exercises the options on August 22 of this year when the stock is valued at $145, what are the tax consequences (per share) to Marisol from exercising the options? $45 of W-2 income, $100 of short-term capital gain. $100 of W-2 income, $45 of short-term capital gain. $145 of W-2 income. $45 of W-2 income.
$45 of W-2 income. At the exercise date of an NQSO, the individual will have to buy the stock at the exercise price and will have W-2 income for the appreciation of the stock value in excess of the exercise price. In this case, Marisol will have $45 ($145-$100) of W-2 income. There is no other gain or loss at exercise.
Judy is covered by a $200,000 group-term life insurance policy of which her daughter is the sole beneficiary. Judy's employer pays the entire premium for the policy, for which the uniform annual premium is $0.75 per $1,000 per month of coverage. How much, if any, of the cost of the group-term life insurance is excluded from Judy's gross income on an annual basis? $0. $450. $1,350. $1,800.
$450 Judy can exclude the cost of up to $50,000 of group term life insurance coverage. In this case, the cost of $50,000 of coverage is $450 [($50,000/$1,000) x 0.75 x 12 months)].
A single individual has an adjusted gross income of $28,000, no tax-exempt interest, and Social Security benefits of $14,000. How much of this individual's Social Security benefits is subject to income tax? $5,000. $5,350. $7,000. $11,900.
$5,350 The lesser of the following is taxable: 85% of $14,000 = $11,900 or 85% ($35,000-$34,000) = $850 + lesser of: [$5,000 (the amount calculated under 50%) or $4,500] = $5,350 ($850 + $4,500).
Shawn, a married 29 year old, deferred 10% of his salary, or $10,000, into a 401(k) plan sponsored by his employer this year. His wife was unemployed all year and did not receive unemployment compensation. Assuming Shawn has no other income, what is the maximum contribution Shawn's wife can make to her Roth IRA for this year? $0. $1,000. $5,500. $6,500.
$5,500 Shawn's wife can make a $5,500 Roth IRA contribution, the maximum for this year, because Shawn's AGI of $100,000 ($10,000 deferral divided by 10% deferral percentage) is below the phase-out limit of $181,000. Even though she does not have any earned income of her own, she can use Shawn's earnings to qualify for the contribution.
At the age of 57, James converted his traditional IRA, valued at $45,000, to a Roth IRA. At age 60, James took a distribution from this Roth IRA of $100,000 to buy a new car for his daughter for college. Which of the following statements is true with regards to the distribution from the Roth IRA? $100,000 will be subject to ordinary income tax. $55,000 will be subject to ordinary income tax. $55,000 will not be subject to ordinary income tax or penalty. $55,000 will be subject to ordinary income tax and penalty.
$55,000 will be subject to ordinary income tax. For a distribution from a Roth IRA to be a qualified distribution, the distribution must be on account of death, disability, the owner attaining the age of 59½, or the first time purchase of a home, AND the distribution must occur five years after the account was created. In this case, since the Roth was not created five or more years before the distribution, the distribution will be taxable to the extent it represents earnings in the account, $55,000. Since the distribution was taken after James attained 59½, it will not be subjected to the 10% penalty.
Corey, age 54 and single, has compensation this year of $85,000. His employer does not sponsor a qualified plan, so Corey would like to contribute to a Roth IRA. What is Corey's maximum contribution for this year to the Roth IRA? $0. $5,500. $6,500. $21,250.
$6,500 The maximum Roth IRA contribution is $5,500 plus $1,000 (2014) for those individuals 50 and over. Corey can make a $5,500 contribution to his Roth IRA. Corey is not phased-out (Single Roth IRA phase-out for 2014 is $114,000 to $129,000).
James is employed by a large corporation with 400 employees. The corporation provides its employees with a no-cost gym membership at the local public YMCAs. The cost of the membership is $60/month which is completely paid for by James' employer for all employees. How much, if any, must James include in his yearly gross income related to this fringe benefit? $0. $60. $600. $720.
$720. James must include the full cost paid by his employer in his adjusted gross income. The exclusion for payment of health club facility dues is only provided when the facilities are on the employer's business premises, and are solely for the use of the employees and the employee's family. In this example, James' employer provides a membership at a public YMCA so the fringe benefit is taxable.
What is the first year in which a single taxpayer, age 48 in 2014, could receive a qualified distribution from a Roth IRA, if he made a $5,000 contribution to the Roth IRA on April 1, 2014, for the tax year 2013? 2016. 2017. 2018. 2026.
2018 A qualified distribution can only occur after a five-year period has occurred and is made on or after the date on which the owner attains age 59½, made to a beneficiary or the estate of the owner on or after the date of the owner's death, attributable to the owner's being disabled, or for a first-time home purchase. The five-year period begins at the beginning of the taxable year of the initial contribution to a Roth IRA. The five-year period ends on the last day of the individual's fifth consecutive taxable year beginning with the taxable year described in the preceding sentence. Therefore, the first year in which a qualified distribution could occur is 2018.
Margaret earned $4,000 during January of this year. She was unemployed for February and March, and during April she earned an additional $3,000. She did not work again until December, during which time she earned $1,200. How many quarters of coverage has Margaret earned for Social Security during this year? 1. 3. 4. 7.
4 An individual attains a quarter of coverage for earning $1,200 (2014), but the maximum quarters per year is 4. The employee earns the quarters as earning income - regardless of the earning date.
Margaret earned $4,000 during January of this year. She was unemployed for February and March, and during April she earned an additional $3,000. She did not work again until December, during which time she earned $1,200. How many quarters of coverage has Margaret earned for Social Security during this year? 1. 3. 4. 7.
4. An individual attains a quarter of coverage for earning $1,200 (2014), but the maximum quarters per year is 4. The employee earns the quarters as earning income - regardless of the earning date.
Which of the following accurately describes a 403(b) plan? A. A 403(b) plan is a noncontributory qualified profit sharing plan. B. Because of catch-up provisions, the investment risk of the assets within a 403(b) plan is borne equally by the plan sponsor not the participant. C. A participant's benefits within a 403(b) plan will generally vest according to a 3 to 7 year graduated vesting schedule; however, a 5-year cliff vesting schedule may be used. D. 403(b) plan assets can be invested indirectly in stocks and bonds through annuities or mutual funds.
403(b) plan assets can be invested indirectly in stocks and bonds through annuities or mutual funds. Option d is a correct statement accurately describing a 403(b) plan. Option a is incorrect as a 403(b) plan is an employee deferral plan and is not a qualified plan. Option b is incorrect as the investment risk is borne by the employee in all cases. Option c is incorrect as an employee's benefit within a 403(b) plan is generally 100% vested.
Which of the following situations might convince an employer to choose a nonqualified retirement plan over a qualified profit-sharing plan? A) The employer, a closely held C Corporation, is in the 15% income tax bracket and the sole owner of the employer is in the 35% income tax bracket. B) The employer only wants to meet the organization's objectives of attracting executives, retaining executives, and providing for a graceful transition in company leadership. The employer is not concerned with providing retirement benefits to the rank and file employees. C) The employer is not willing to pay high administrative costs. D) All of the above.
All of the reasons listed might convince an employer to use a nonqualified plan. In option a, the owner of the closely held C Corporation would use a nonqualified plan because the income tax rate of the business is lower than the owner's tax rate. By making the payments into a nonqualified plan the owner will not have any taxable income and the earnings of the plan will be taxed initially to the business at the lower tax rate. Option b is a true statement. As nonqualified plans are typically only established to benefit the executive and there are no requirements to benefit the rank and file. Option c would cause an employer to choose a nonqualified plan because a nonqualified plan requires less administrative costs than a profit sharing plan.
Which of the following situations would create an inclusion in an employee's gross income? Kay is the director and manager of Holiday Hotel. As a condition of her employment, Kay is required to live at the hotel. The value of this is $1,000 per month. Natalie is a secretary at JKL Law Firm. JKL provides her with free soft drinks. Natalie estimates that she drinks $20 worth of soft drinks per month. Brian is an airline pilot with We Don't Crash Airlines, Inc. and is allowed to fly, as a passenger, for free on the airline whenever an open seat is available. Eric moved from Houston to New Orleans. His expenses for the move included $400 of truck rental costs, $100 of lodging and $200 of pre-move house hunting expenses. Eric's employer reimbursed him $600.
Eric moved from Houston to New Orleans. His expenses for the move included $400 of truck rental costs, $100 of lodging and $200 of pre-move house hunting expenses. Eric's employer reimbursed him $600. Eric must include $100 of the reimbursement in his gross income as pre-move house hunting expenses are not qualified moving expenses. To the extent an individual is reimbursed for nonqualifying expenditures, the individual must include the reimbursement in his taxable income. In this case, the lodging of $100 and the truck rental of $400 are qualified expenses, so any reimbursement in excess of $500 ($400 + $100) is included in Eric's gross income. Since Eric's employer reimbursed him $600, $100 is taxable income to him. In option a, Kay is required to live at her employer's hotel as a condition of employment, thus the provision of the housing is not taxable. Option b describes the provision of a de minimis fringe benefit to an employee which is not taxable to the employee. Option c describes a "no additional cost benefit" which is not taxable to Brian.
Hank's employer sponsors a 457(f) plan. Hank, age 41, earns $400,000 per year and defers $25,000 to the 457(f) plan each year. Although there is no limit on deferrals to an ineligible plan, only $17,500 of the deferral is protected by trust. The remaining $7,500 ($25,000 - $17,500) is the only amount subject to the employer's creditors. True/False
False A 457(f) plan is an ineligible 457 plan and there is no limit on the amount an executive may defer to the plan, but none of the deferred funds are protected by a trust.
Contributions to SIMPLE plans predominantly consist of employer contributions. True/False
False Contributions to SIMPLEs are predominantly employee deferral contributions. The employer may elect to make nonelective contributions of at least 2% of employee compensation, or the employer may elect to match employee deferrals dollar-for-dollar up to 3% of the employee's compensation.
Rock, age 28, terminated employment with Stone Brothers on April 30 this year (2014). Before terminating employment Rock had earned $25,000 of compensation and deferred $6,000 to the SIMPLE sponsored by Stone Brothers. If during the remaining months of 2014 Rock earns $40,000 from his new employer who sponsors a 401(k) plan, Rock may defer up to $17,500 of the $40,000 of compensation to their 401(k) plan. True/False
False The employee deferral limit for contributions to qualified plans is a combined limit for 401(k) plans, 403(b) plans, SIMPLEs, and SARSEPS. The aggregate total employee deferrals to these plans cannot exceed $17,500 (2014) plus $5,500 (2014) if the participant is age 50 or older. Since Rock deferred $6,000 to the SIMPLE for the year, he can only defer $11,500 ($17,500 - $6,000) to the 401(k) plan during the year.
Otto, who is 41 years old, was a participant in his employer-sponsored 401(k) plan during the early part of the year, prior to being terminated. He deferred a total of $10,000 into that plan. Later in the year, Otto becomes a participant in his new employer's 403(b) plan and the employer's public 457(b) plan. Otto can defer a maximum of $17,500 (2014) to each of the 403(b) plan and the 457(b) plan this year. (Chapter 10) True/False
False The employee deferral limit for contributions to qualified plans is a combined limit for 401(k) plans, 403(b) plans, SIMPLEs, and SARSEPS. The aggregate total employee deferrals to these plans cannot exceed $17,500 (plus $5,500 if the participant is age 50 or older) for 2014. He can defer the max to the 457(b) plan, but not the 403(b) plan.
MH sponsors a qualified profit sharing plan. Of their 205 employees, 200 are nonexcludable. Of the 200 nonexcludable employees, 160 are NHC and 40 are HC. The plan covers 110 of the NHC and 15 of the HC. The plan does not meet the coverage requirements because only 69% of the NHC are covered by the plan. True False
False. MH's plan meets the coverage requirements because the plan passes the ratio percentage test. The percentage of NHC covered, 68.75% (110/160), divided by the percentage of HC covered, 37.5% (15/40), is greater than 70%.
Mitchell LLC is a manufacturing company based in Boulder, Colorado. Mitchell manufactures car stereo equipment for high-end performance cars. Mitchell provides the following fringe benefits to employees: (I) Mitchell made an agreement with the N-Shape athletic facility in the same building as Mitchell's offices. The monthly fee is generally $100, but is paid for by Mitchell for any employees who are interested. (II) Mitchell allows employees to purchase equipment for themselves at a 40% discount, even though the cost of goods sold is 45%. Which of these employee fringe benefits will be taxable to employees? I only. II only. Both I and II. Neither I nor II.
I only. The athletic facilities must be operated by the employer, located on the employer's premises, and substantially all of the use of the facility is by employees or spouses or dependents. In addition, the facility cannot be operated by an unrelated entity. Therefore, the benefit will be taxable to the employees. Because the discount does not exceed the gross profit percentage it is not taxable.
Which of the following statement(s) regarding 403(b) plans is true? (I) Assets within a 403(b) plan may be invested in individual securities. (II) A 403(b) plan usually provides a 3 to 7 year graduated vesting schedule. (III) A 403(b) plan must pass the ACP test if it is an ERISA plan. (IV) In certain situations, a participant of a 403(b) plan can defer an additional $15,000 as a catch up to the 403(b) plan. IV only. I and II. III and IV. II, III, and IV.
III & IV. 403(b) plan assets cannot be invested in individual securities, and contributions to 403(b) accounts are always 100% vested. Statements 3 and 4 are true.
The following statements concerning retirement plan service requirements for qualified plans are correct EXCEPT: The term "year of service" refers to an employee who has worked at least 1,000 hours during a 12-month period. If an employee hired on October 5, 20X2 has worked at least 1,000 hours or more by October 4, 20X3, he has acquired a year of service the day after he worked his 1,000th hour. An employer has the option of increasing the one-year of service requirement to 2 years of service. Once an employee attains the service requirement of the plan, the employer cannot make the employee wait more than an additional six months to be considered eligible to participate in the plan.
If an employee hired on October 5, 20X2 has worked at least 1,000 hours or more by October 4, 20X3, he has acquired a year of service the day after he worked his 1,000th hour. Option b is incorrect because the employee would NOT acquire a year of service the day after he worked his 1,000th hour, but after twelve months AND 1,000 hours.
Mike was awarded 1,000 shares of restricted stock of B Corp at a time when the stock price was $14. Assume Mike properly makes an 83(b) election at the date of the award. The stock vests 2 years later at a price of $12 and Mike sells it then. What are Mike's tax consequences in the year he makes the 83(b) election? Mike has W-2 income of $12,000. Mike has a long-term capital loss of $2,000. Mike has W-2 income of $14,000. Mike has a $12,000 long-term capital gain.
Mike has W-2 income of $14,000. At the time Mike makes the 83(b) election, the value of the stock at that date will be included in his taxable income. Thus, Mike will have W-2 income of $14,000 ($14 x $1,000).
Which of the following statements regarding a SEP is true? (I) The maximum contribution to a SEP is the lesser of 100% of compensation or $52,000 for 2014. (II) A SEP is appropriate for an employer with many part-time employees who want to limit coverage under the SEP. (III) Contributions to a SEP must vest at least as rapidly as a 5 year cliff vesting schedule or 2 to 6 year graduated vesting schedule. (IV) If a partnership makes a flat percentage contribution equal to 25% of all employees' salary for the year to a SEP, a partner earning $100,000 during the year would receive a $25,000 contribution. IV only. I and III. I and IV. None of the statements are true.
None of these statements. None of the statements are true. The maximum contribution to a SEP is the lesser of 25% of compensation or $52,000 for 2014. A SEP is inappropriate for an employer with many part-time employees who want to limit coverage under the SEP as the SEP requires coverage after a very short period of time. Contributions to a SEP are always 100% vested. A partner is considered self-employed and therefore subject to the special calculation for self-employed individuals.
Which of the following statements is true? A) Social Security payments are not adjusted for inflation. B) A worker's average indexed monthly earnings (AIME) will be their Social Security benefit at retirement. C) If an individual who will reach full retirement age for Social Security purposes at the age of 67 begins taking benefits at age 62, they will take a 30 percent reduction in benefits. D) A 68 year old worker will have their Social Security benefits reduced based on earnings from their current employment.
Option c is a correct statement. Option a is incorrect as the Social Security benefits are adjusted for inflation each year. Option b is incorrect as the AIME is then adjusted by the PIA to calculate the ultimate Social Security retirement benefit. Option d is incorrect because after attaining full retirement age (max is age 67), benefits are not reduced based on earnings.
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? (I) At the date of the grant, Marguerite will have ordinary income of $22. (II) At the date of exercise, Marguerite will have W-2 income of $8. (III) At the date of sale, Marguerite will have long term capital gain of $5. (IV) Marguerite's employer will have a deductible expense in relation to this option of $22. III only. II and III. II, III, and IV. I, II, III, and IV.
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.
(I) At the date of grant, Jackie will have ordinary income equal to $22. (II) At the date of exercise, Jackie will have W-2 income of $8. (III) At the date of sale, Jackie will have long-term capital gain of $13. (IV) Jackie's employer will not have a tax deduction related to the grant, exercise or sale of this ISO by Jackie. III only. III and IV. II, III, and IV. I, II, and IV.
Statements 3 and 4 are correct. Since Jackie held the underlying security 2 years from grant and one year from exercise before its sale, Jackie will receive long-term capital gain treatment for the appreciation, and her employer will not have a deductible expense related to the ISO.
Which of the following statements concerning tax considerations of nonqualified retirement plans is (are) correct? (I) Under IRS regulations an amount becomes currently taxable to an executive even before it is actually received if it has been "constructively received." (II) Distributions from nonqualified retirement plans are generally subject to payroll taxes. I only. II only. I and II. Neither I nor II.
The correct answer is a or (I). Statement 2 is incorrect because payroll taxes are due on deferred compensation at the time the compensation is earned and deferred, not at the date of distribution. Statement 1 is a correct statement.
An individual is considered an active participant in a defined contribution plan if the individual receives a qualified nonelective contribution from the plan sponsor so that the plan sponsor can meet the required ADP test. The individual need not make or receive any other allocations to the qualified plan for the year. True False
True Any contribution to a defined contribution account on behalf of a participant would deem the individual an active participant for the plan year. A contribution may consist of a deferral, an employer matching contribution, as well as a qualified matching contribution (which is only made on account of a deferral contribution), a qualified nonelective contribution or a forfeiture allocated to the individual.
