Chapter 14, Chapter 13, Chapter 12, Chapter 2

Daniela retired at the age of 65. The current balance in her Roth IRA is $200,000. Daniela established the Roth IRA 10 years ago. Through a rollover and annual contributions, Daniela has contributed $80,500 to her account. If Daniela receives a $50,500 distribution from the Roth IRA, what amount of the distribution is taxable? Multiple Choice: $0 $50,500 $30,174 $20,326

$0 Explanation Qualified distributions from a Roth IRA are not taxable.

Aaron retired at the age of 63 when the balance in his Roth IRA was $140,000. Aaron established the Roth IRA eight years ago. Through a conversion (direct transfer) and annual contributions, Aaron has contributed $70,000 to his account. If Aaron receives a $60,000 distribution from the Roth IRA, what amount of the distribution is taxable? Multiple Choice: $0 $30,000 $60,000 None of the choices are correct.

$0 Explanation Qualifying distributions from a Roth IRA are not taxable.

Maren received 11 NQOs (each option gives her the right to purchase 14 shares of stock for $9 per share) at the time she started working when the stock price was $7 per share. When the share price was $16 per share, she exercised all of her options. Eighteen months later, she sold all of the shares for $23 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent? Multiple Choice: $2,156 gain and $431 tax $1,078 gain and $399 tax $1,078 gain and $216 tax $0 gain and $0 tax

$1,078 gain and $216 tax Explanation The gain realized is $1,078 (154 shares × $23) less basis (154 shares × $16 exercise price). The tax is calculated as follows: $1,078 × 20% (preferential rate).

Stevie recently received 1,055 shares of restricted stock from her employer, Nicks Corporation, when the share price was $10 per share. Stevie's restricted shares vested three years later when the market price was $13. Stevie held the shares for a little more than three years and sold them when the market price was $14. Assuming Stevie made an 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock? Multiple Choice: $13,715 $10,550 $0 $1,055

$10,550 Explanation $10,550 (1,055 shares × $10 market price on grant date).

Jill is 62 years of age and self-employed. She reported $120,000 of revenues and $50,000 of expenses relating to her self-employment activities. If Jill has no other retirement accounts in her name, what is the maximum amount she can contribute to a simplified employee pension (SEP) IRA for 2022? Multiple Choice: $13,011 $20,500 $61,000 $70,000

$13,011 Explanation Her maximum contribution is the lesser of (1) $61,000 or (2) $13,011 [($70,000 - ($70,000 × 0.9235 × 0.153 × 0.5)) × 20%]. There is no catch-up contribution for taxpayers at least 50 years of age at the end of the year.

Ethan (single) purchased his home on July 1, 2012. He lived in the home as his principal residence until July 1, 2019, when he moved out of the home, and rented it out until July 1, 2021, when he moved back into the home. On July 1, 2022, he sold the home and realized a $233,500 gain. What amount of the gain is Ethan allowed to exclude from his gross income? Multiple Choice: $186,800 $223,500 $233,500 $0

$186,800 Explanation Ethan's post-2008 nonqualified use is two years. He owned the property for 10 years, so he is not allowed to exclude 20 percent of the gain ($233,500 × 20% = $46,700). He is allowed to exclude $186,800 ($233,500 − $46,700).

On March 31, year 1, Mary borrowed $200,000 to buy her principal residence. Mary paid 1 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. What is Mary's year 1 deduction for her points paid? Multiple Choice: $1,500 $200 $2,000 $17

$2,000 Explanation $200,000 × 1% = $2,000.

Rachel receives reimbursement from her employer for dependent care expenses for up to $10,000. Rachel applies for and receives reimbursement of $7,000 for her 1-year-old son. How much, if any, is includible in her income? Multiple Choice: $0 $2,000 $5,000 $7,000

$2,000 Explanation Employees may exclude up to $5,000 of dependent care expenses.

Cara, who is 42 years old, had some unexpected medical expenses during the year. To pay for these expenses (which were above the 10% of AGI threshold and claimed as itemized deductions on her tax return), she received a $10,000 distribution from her traditional IRA (she has only made deductible contributions to the IRA). Assuming her marginal ordinary income tax rate is 22%, what amount of taxes and/or early distribution penalties will Cara be required to pay on this distribution? Multiple Choice: $2,200 income tax; $100 early distribution penalty $2,200 income tax; $1,000 early distribution penalty $2,200 income tax; $0 early distribution penalty $0 income tax; $0 early distribution penalty

$2,200 income tax; $0 early distribution penalty Explanation Because the IRA distribution was used for qualified medical expenses (above the 10% of AGI floor) it is not subject to the 10 percent early distribution penalty, but the full amount of the distribution is subject to the regular income tax ($10,000 × 22%).

Janna received a $90,000 distribution from her traditional 401(k) account this year. Assuming Janna's marginal tax rate is 24%, what is the total amount of tax and penalty Janna will be required to pay if she receives the distribution on her 60th birthday and she has not yet retired? Multiple Choice: $0 $21,600 $30,600 None of the choices are correct.

$21,600 Explanation She must pay $21,600 of income tax on the distribution ($90,000 × 24%), but no 10% early distribution penalty because she was over 59 ½ on the date of the distribution and she had not yet retired.

Grace's employer is now offering group-term life insurance. The company will provide each employee with $205,000 of group-term life insurance. It costs Grace's employer $920 to provide this amount of insurance to Grace each year. Assuming that Grace is 45 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit. Uniform Premiums for $1,000 of Group-Term Life Insurance Protection: Five-Year Age Bracket, Cost per $1,000 of Protection for One Month Under 25 $0.05 25 to 29, 0.06 30 to 34, 0.08 35 to 39, 0.09 40 to 44, 0.10 45 to 49, 0.15 50 to 54, 0.23 55 to 59, 0.43 60 to 64, 0.66 65 to 69, 1.27 70 and above, 2.06 Multiple Choice: $34.05 $73.80 $23.25 $0

$23.25 Explanation $205,000 policy less $50,000 exemption times $0.15 per month per $1,000 of coverage.

Harvey rents his second home. During the year, Harvey reported a net loss of $50,000 from the rental. If Harvey is an active participant in the rental and his AGI is $88,800, how much of the loss can he deduct against ordinary income for the year? Multiple Choice: $25,000 $12,500 $50,000 $0

$25,000

Aubrey bought her house for $150,000 and moved into it four years ago. Last November 1, she married Dave and he moved in with her. This November 1, they have decided to sell because prices in the neighborhood have skyrocketed. If they sell the house for $550,000, how much of the gain are they allowed to exclude? Multiple Choice: $0 $250,000 $300,000 $400,000

$250,000 Explanation Because there are no hardship circumstances and Dave does not meet the use test, they can use only Aubrey's exclusion of $250,000.

During 2022, Rebekah, a 20-year-old full-time student, earned $3,400 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2022 is $6,000. How much of a tax-deductible contribution can she make to an IRA? Multiple Choice: $0 (Full-time students are not allowed to participate in IRAs) $3,400 $6,000 $9,400

$3,400 Explanation Tax deductible contributions are limited to the lesser of $6,000 or the amount of earned income.

Lisa, age 47, needed some cash so she withdrew $52,500 from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,500 to her account. What amount of the distribution is taxable and subject to early distribution penalty (if any)? Multiple Choice: $0 $52,500 $32,000 $5,250

$32,000 Explanation Because this is a nonqualified distribution, Lisa is taxed and penalized (because she was not 59½ years of age at the time of the distribution) to the extent the distribution exceeds her contributions to the account. In this case, the excess is $32,000 ($52,500 distribution minus $20,500 contributions).

Sweet Sarah received 10 NQOs (each option gives her the right to purchase 20 shares of stock for $5 per share) from her employer. At the time she started working, the stock price was $7 per share. Now that the share price is $20 per share, she intends to exercise all of the options. Two years later Sweet Sarah sells the stock for $22 per share, what is Sweet Sarah's basis in her stock for purposes of calculating the gain or loss? Multiple Choice: $1,000 $1,400 $4,000 $4,400

$4,000 Explanation The basis is the $1,000 (200 shares × $5 strike price) cash paid and the $3,000 (200 shares × $15 bargain element) income recognized on the exercise, which is equal to the market price on the exercise date.

Kathy is 60 years of age and self-employed. During 2022 she reported $518,000 of revenues and $109,000 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to a SEP IRA for 2022? Assume she pays $29,031 in self-employment tax for 2022. Note: Round your final answer to the nearest whole number. Multiple Choice: $84,046 $73,575 $95,920 $61,000

$61,000 Explanation Her maximum contribution is the lesser of (1) $61,000 or (2) $78,897 [20% × [$409,000 − ($29,031 × 50%)]].

Kathy is 48 years of age and self-employed. During 2022 she reported $504,000 of revenues and $100,800 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to an individual 401(k)? Multiple Choice: $6,500 $20,500 $61,000 $67,500

$61,000 Explanation She may contribute the lesser of (1) $61,000 or (2) $98,237 ([20% × ($403,200 − [(($403,200 × 0.9235 − $147,000) × 2.9% × 50%) + ($147,000 × 15.3% × 50%)])] + $20,500). Because she is not at least 50 years of age at the end of the year, she may not contribute an additional $6,500 as a catch-up adjustment.

Kathy is 60 years of age and self-employed. During 2022, she reported $516,000 of revenues and $103,200 of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name, what is the maximum amount she can contribute to an individual 401(k) for 2022? Assume she pays $29,021 in self-employment for 2022. Note: Round your final answer to the nearest whole number. Multiple Choice: $79,658 $100,158 $61,000 $67,500

$67,500 Explanation She may contribute the lesser of (1) $61,000 or (2) $99,158 ([20% × [$412,800 − ($29,021 × 50%)]] + $20,500). Because she is at least 50 years of age at the end of the year, she may also contribute an additional $6,500 as a catch-up adjustment in addition to the lesser of (1) or (2). So she may contribute $67,500 ($61,000 + $6,500).

James has earned $60,000 annually for the past three years working at ABC Incorporated. Under ABC's defined benefit plan (which uses a 7-year graded vesting schedule) employees earn a benefit equal to 4 percent for every year of service, of the average salary for their three highest full years of compensation with ABC. James has worked for five full years for ABC and his vesting percentage (based on the 7-year graded vesting schedule) is 60 percent. What is James's vested benefit (or annual retirement benefit he has earned so far)? Multiple Choice: $0 $3,600 $4,320 $7,200

$7,200 Explanation $7,200: $60,000 (average salary for the prior three years) × 20% (4% × 5 years of service) × 60% (vesting percentage).

Ilene rents a property for the entire year. During the year, Ilene reported a net loss of $10,600 from the rental. If Ilene is an active participant in the rental and her AGI is $133,000, how much of the loss can she deduct against ordinary income in the year? Multiple Choice: $2,100 $8,500 $10,600 $0

$8,500 Explanation $8,500 [($133,000 − $100,000) × 0.5] = $16,500 phased out, $8,500 allowed.

On September 1, year 1, Jackson borrowed $400,000 to refinance the original mortgage on her principal residence. Jackson paid 2 points to reduce her interest rate from 7.5 percent to 7 percent. The loan is for a 30-year period. How much can Jackson deduct in year 1 for her points paid? Multiple Choice: $89 $267 $5,333 $8,000

$89 Explanation $8,000/360 × 4 = $89

Jill was granted 1,000 shares of restricted stock when she joined the company. The share price was $6 on the date of grant, $9 when the restrictions lapsed, and $15 when the she disposed of the stock. No section 83(b) election was made. What is the amount and character of Jill's income on the date the restrictions lapse? Multiple Choice: $6,000 ordinary income $9,000 capital gain $9,000 ordinary income $6,000 ordinary income and $3,000 capital gain None of the choices are correct.

$9,000 ordinary income Explanation Taxpayer's recognize ordinary income equal to the fair market value of the stock on the date the restrictions lapse.

Mary purchased a home in 2021 for $200,000. She made a 20-percent down payment and financed the rest with a 15- year loan at six percent. In 2021, she took out a $20,000 home equity loan and used the proceeds to go on a trip around the world. In 2022, her interest payments were $9,600 on her mortgage and $1,400 on her home equity loan. What amount can she deduct in 2022 as an itemized deduction? Multiple Choice: $0 $1,400 $9,600 $11,000

$9,600 Explanation Interest on a loan secured by the home that is not acquisition debt is not deductible.

The Johnsons have a second home that was available to rent for four full weeks (28 days) during the summer. Of the twenty-eight days, the Johnsons rented it to unrelated tenants for 16 days at fair market value. In addition, the Johnsons rented the home to the Florians for four days. Because they are family friends, the Florians only paid half the market rate for the rent. The Johnsons also rented the home for five days to the Smiths. The Smiths paid full fair market value rent even though they are related to the Johnsons. How many days did the Johnsons use the home for rental purposes during the year? Multiple Choice: 16 20 21 25 28

16 Explanation Days when the home is available for rent, but not rented, count as neither personal nor rental days. Renting to relatives is deemed personal use regardless of rent paid. Renting at less than fair market value is deemed personal not rental use.

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit? Multiple Choice: The fair market value of the rent of an apartment manager living on the premises. An overtime meal provided to an employee while working late. A meal provided by a hospital to residents during their shift. A meal at a holiday party.

A meal at a holiday party. Explanation The value of a meal at a holiday party is a nontaxable fringe benefit, but it is not a "for the convenience of the employer" benefit.

The Statements on Standards for Tax Services (SSTS) and Code of Professional Conduct provide professional standards for tax professionals and were issued by which of the following organizations? Multiple Choice: IRS AICPA Congress U.S. Treasury

AICPA Explanation The AICPA issues both the SSTS and a code of professional conduct.

Which of the following is a type of common tax service used in tax research? Multiple Choice: Annotated tax service Antiquated tax service Analytical tax service Technical tax service All of these choices are correct.

Annotated tax service Explanation Annotated tax services, arranged by code section, are often used in tax research.

Shannon participates in her employer's 401(k) plan. She turns 70 years of age on February 15, year 1, and she plans on retiring on May 1, year 2. When must Shannon receive her first distribution from the plan to avoid minimum distribution penalties? Multiple Choice: April 1, year 1 April 1, year 2 April 1, year 3 April 1, year 4

April 1, year 4 Explanation To avoid minimum distribution penalties the taxpayer must receive the first distribution by no later than April 1 of the year after the employee turns 72 or the year after the year in which employee retires (if later). Because Shannon turns 72 years of age in year 3 (after she retires), she must receive her first distribution no later than April 1, year 4 to avoid minimum distribution penalties.

Which of the following items is most commonly used to check the status of a court case? Multiple Choice: Private letter ruling Citator Revenue ruling Tax digest Determination letter

Citator Explanation A citator is a research tool that allows you to check the status of several types of tax authorities, including court cases.

How is depreciation expense on a residence with significant rental use (vacation home) allocated to rental use? Multiple Choice: Depreciation expense × (number of rental days/365). Depreciation expense × [number of rental days/(number of rental days + number of personal use days)]. Depreciation expense × (number of rental days/number of personal days). None of the choices are correct.

Depreciation expense × [number of rental days/(number of rental days + number of personal use days)]. Explanation The expense is always allocated based on the number of days used (this is true for both the IRS and the Tax Court method of allocating expenses).

A distribution from a traditional 401(k) account is excluded from the taxpayer's gross income. [T/F]

False

A section 83(b) election allows an employee to freeze the value of ordinary income on stock options at the grant date. [T/F]

False

A taxpayer can only exclude gain on the sale of their current personal residence (the residence the taxpayer is living in at the time of the sale). [T/F]

False

A textbook is an example of a primary authority. [T/F]

False

All else equal, a nonqualified deferred compensation plan is preferable from a tax perspective to an employee when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers receiving the compensation. [T/F]

False

Employers always prefer to award incentive stock options rather than nonqualified stock options. [T/F]

False

Field examinations are conducted by the IRS at the local IRS field office. [T/F]

False

Generally, the tax law provides more incentives for renters than homeowners. [T/F]

False

Hotel employees can receive free flights from an airline whose employees receive free hotel rooms. [T/F]

False

In year 1, Jessica is 73 years old at year end but not yet retired. Jessica is required to receive a minimum distribution from her traditional 401(k) plan for year 1. [T/F]

False

Jessica participates in her employer's defined benefit retirement plan. She has worked for her employer for three full years. If her employer uses a five-year cliff vesting schedule, Jessica is only vested in 60 percent of her defined benefit plan retirement benefits. (Use Exhibit 13-1) [T/F]

False

One purpose of Form W-2 is to determine an employee's withholding during the year. [T/F]

False

Qualified retirement plans include defined benefit plans but not defined contribution plans. [T/F]

False

Saver's credits are awarded for contributions to both qualified and nonqualified retirement accounts. [T/F]

False

The "30-day" letter gives the taxpayer the opportunity to pay the proposed tax adjustment or file a petition in the U.S. District Court to hear the case. [T/F]

False

The IRS information matching program checks each tax return for mathematical mistakes. [T/F]

False

The date on which stock options are awarded to an employee is called the vesting date. [T/F]

False

The maximum deductible amount of qualified residence interest is indexed for inflation (it increases each year). [T/F]

False

The standard retirement benefit an employee will receive under a defined benefit plan depends on the number of years of service the employee provides, but does not consider the amount of the employee's compensation. [T/F]

False

To be allowed to exclude gain on the sale of a principal residence, the taxpayer selling the home must be using the home as a principal residence at the time of the sale. [T/F]

False

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions. [T/F]

False Explanation Employees are not allowed to deduct home office expenses.

For 2022, up to $300 of transportation fringe benefits can be excluded from income. [T/F]

False Explanation For 2022, up to $280 of transportation fringe benefits can be excluded from income.

Which of the following best describes the home office deduction of a self-employed taxpayer? Multiple Choice: Itemized deduction, unlimited. Itemized deduction, limited to $10,000 ($5,000 if married filing separately). For AGI, unlimited. For AGI, limited to net income from the business.

For AGI, limited to net income from the business. Explanation The deduction is a business expense and is deductible for AGI. However, the deduction may not exceed the net income generated from that activity.

Which of the following forms is given to an employee and shows taxable wages and income tax withholding? Multiple Choice: Form I-9 Form W-2 Form W-4 Form 1099

Form W-2 Explanation Employers provide employees with a Form W-2, which discloses taxable wages and income tax withholding among other things.

Which of the following committees is not involved in enacting tax legislation? Multiple Choice: House Ways and Means Committee House Tax Committee Senate Finance Committee Joint Conference Committee

House Tax Committee Explanation The House Ways and Means Committee, Senate Finance Committee, and Joint Conference Committee draft tax legislation.

Which of the following statements concerning nonqualified deferred compensation plans is true? Multiple Choice: These plans can be an important tax planning tool for employees who expect their marginal tax rate to increase over time. These plans can be an important tax planning tool for employers if they expect their marginal tax rate to decrease over time. If an employer doesn't have the funds to pay the employee when the payment is due, the employee will become an unsecured creditor of the employer. Distributions are taxed at the same tax rate as long-term capital gains.

If an employer doesn't have the funds to pay the employee when the payment is due, the employee will become an unsecured creditor of the employer. Explanation See discussion on nonqualified deferred compensation plans in text.

Which of the following isn't done by Form W-2? Multiple Choice: Summarizes the employee's taxable salary and wages. Provides annual Federal and state withholding information. Indicates how many exemptions an employee claimed. Generated by an employer annually.

Indicates how many exemptions an employee claimed. Explanation The W-4 details how many exemptions an employee claimed.

Jackie's return was selected for audit because she did not report her salary (from her Form W-2 from her employer) on her tax return. Which IRS program likely identified Jackie's oversight? Multiple Choice: DIF System Document perfection Information matching Mathematical correction None of these choices is correct.

Information matching Explanation The information matching program compares the taxpayer's tax return to information submitted to the IRS from other taxpayers like banks, employers, mutual funds, brokerage companies, and mortgage companies. Information matched includes items such as wages (Form W-2 submitted by employers), interest income (Form 1099-INT submitted by banks), and dividend income (Form 1099-DIV submitted by brokerage companies).

Which of the following has the highest authoritative weight? Multiple Choice: Internal Revenue Code Regulation Revenue Ruling Revenue Procedure Private Letter Ruling

Internal Revenue Code Explanation The Internal Revenue Code, Supreme Court Rulings, and Treaties have the highest authoritative weight of primary authorities.

Which of the following statements regarding restricted stock is false? Multiple Choice: Like stock options, restricted stock has to vest before it can be sold. Like incentive stock options, the employee's income inclusion (the bargain element) occurs when the stock is sold. Even if the value of restricted stock decreases from the price on the grant date, it retains some value to employee. There are no effective tax planning elections for restricted stock.

Like incentive stock options, the employee's income inclusion (the bargain element) occurs when the stock is sold. Explanation Employees are taxed on the fair market value of the restricted stock when the restrictions lapse.

Which of the following statements is true regarding equity compensation? Multiple Choice: Restricted stock maintains value to an employee even when the market price decreases after grant date. NQOs maintain value to an employee even when the market price decreases after grant date. Employees usually prefer NQOs rather than ISOs. The difference between the market value and the strike price is treated as ordinary income on the exercise date for ISOs.

Restricted stock maintains value to an employee even when the market price decreases after grant date.

Meeting which of the following standards for tax return positions would allow both taxpayers and tax return preparer to avoid a penalty with respect to a tax return position? Multiple Choice: Supreme authority Reasonably probable Significant authority Realistic possibility Substantial authority

Substantial authority Explanation Both the taxpayer and tax practitioner may avoid penalty for a tax return position if the position meets the substantial authority standard.

Which of the following is not considered a primary authority? Multiple Choice: Supreme Court case Tax Law Review article Regulation Internal Revenue Code None of these choices is correct.

Tax Law Review article Explanation Journal articles (including tax law review articles) are considered secondary authority.

Which of the following statements regarding who gets to deduct the real property taxes when real property is sold mid-year is correct? Multiple Choice: The seller gets to claim the entire deduction. The buyer gets to claim the entire deduction. Whoever pays the taxes gets to claim the deduction. The deduction is pro-rated based on the number of days owned.

The deduction is pro-rated based on the number of days owned. Explanation The buyer is allocated the day of the sale.

A cafeteria plan allows employees to choose fringe benefits from a menu of options. [T/F]

True

A personal residence is a capital asset. [T/F]

True

An employer may contribute to an employee's traditional 401(k) account but the employer may not contribute to an employee's Roth 401(k) account. [T/F]

True

As a general rule, at most, a taxpayer is allowed to exclude gain on the sale of a principal residence once every two years. [T/F]

True

Employee contributions to traditional 401(k) accounts are deductible by the employee, but employee contributions to Roth 401(k) accounts are not. [T/F]

True

Employees complete a Form W-4 to specify their income tax withholding. [T/F]

True

Fringe benefits are generally a form of noncash compensation. [T/F]

True

In certain circumstances, a taxpayer could rent her personal residence at a profit and not pay any tax on the income. [T/F]

True

Interest paid on a home equity loan used to purchase a car is not deductible. [T/F]

True

Private Letter Rulings have less authoritative weight than Revenue Rulings. [T/F]

True

Taxpayers renting a home would generally report the rental income and expenses on Schedule E. [T/F]

True

Taxpayers with a qualifying home office can compute their home office expense using the actual expense method or the simplified method. Taxpayers can choose to use one method for one year and the other method for the next year. [T/F]

True

The date on which stock options are no longer subject to forfeiture is called the vesting date. [T/F]

True

The employee's income for restricted stock is typically measured on the date the restrictions lapse. [T/F]

True

The tax return filing requirements for individual taxpayers depend on the taxpayer's gross income. [T/F]

True

U.S. District Courts appeal to U.S. Circuit Courts. [T/F]

True

Unlike employee contributions to a Roth 401(k), employee contributions to a traditional 401(k) account are deductible by the employee. [T/F]

True

Valdez received a distribution from a traditional 401(k) account this year. In which of the following situations will Valdez be subject to an early distribution penalty? Multiple Choice: Valdez is 62 years of age but not yet retired when the distribution is received. Valdez is 60 years of age but not yet retired when the distribution is received. Valdez is 53 years of age and retired when the distribution is received. Valdez is 69 years of age but not yet retired when the distribution is received.

Valdez is 53 years of age and retired when the distribution is received. Explanation Taxpayers are subject to an early distribution penalty if they receive a distribution before they reach 59 ½ and are not retired, or have retired but not reached 55 years of age.