SU 12: IRA

Which of the following is a true statement regarding Sec. 529 plans?

$10,000 may be distributed to pay for qualified student loans.

Which one of the following types of individual retirement accounts (IRAs) cannot be established?

An individual retirement account with a trustee who invests one's money in life insurance contracts.

Which of the following statements is false with respect to setting up a traditional individual retirement account (IRA)?

An individual who files a joint return and is not covered by an employer retirement plan can deduct the entire contribution to an IRA, regardless of the amount of his or her AGI, even if the spouse is covered by an employer's plan.

Qualified higher education expenses under a Sec. 529 plan include all of the following EXCEPT

Foreign student exchange programs

Annual contributions to a Sec. 529 Qualified Tuition account for a designated beneficiary are limited to

No limit

Which of the following would be an allowable investment for a traditional IRA?

One-ounce silver coins minted by the U.S. Treasury Department

Generally, which of the following is a prohibited transaction concerning your traditional IRA?

Pledge your IRA account as security for your mortgage

A Sec. 529 is an account for qualified higher education expenses. What is the primary purpose of a Sec. 529 qualified tuition program?

To provide for a beneficiary's qualified higher education expenses.

Ms. Seburn had the following during the current year: Taxable alimony received $ 4,000 Wages 12,000 Net loss from self-employment (10,000) Interest income 3,000 For the purpose of an IRA, Ms. Seburn had compensation for the current year of

$16,000, 12,000+4000=16,000

Kimberly, age 30, a full-time student with no taxable compensation, married Michael, age 30, during 2021. For the year, Michael had taxable compensation of $35,000. He plans to contribute and deduct $6,000 to his traditional IRA. If he and Kimberly file a joint return, how much may each deduct in 2021 for contributions to their individual traditional IRAs and what is the compensation Kimberly uses to figure her contribution limit?

$6,000 $29,000, 35,000-6000=29,000

Gina, who is single, received taxable compensation of $1,700 in 2020 and $2,500 in 2021. She did not actively participate in a pension plan. She contributed $2,000 in 2020 and $2,000 in 2021 to her IRA. On March 18, 2021, she withdrew $300 of her 2020 contribution plus the interest accumulated on it from her IRA and did not deduct that amount on her 2020 tax return. Based on this information, what is the amount of her excess contributions subject to the 6% tax?

0

Joe has a traditional IRA with a basis of $8,800. In 2021, this was his only IRA. On December 31, 2021, he converted $44,000 of the $88,000 total value of the IRA to a Roth IRA. He files as head of household and his AGI, without the conversion, is $62,000. What amount of income will be included on Joe's 2021 return as the result of this conversion?

39,600, 44000-4400(basis of conversion)=39,600. Half the IRA was converted, so 8800 is divided by 1/2.

Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT

A dependent, age 14, for whom the dependency is claimed

Which of the following is a true statement regarding a rollover distribution from a qualified plan to a traditional IRA?

A hardship distribution from a qualified plan is not an eligible rollover distribution.

Taxable compensation for IRA purposes excludes all of the following EXCEPT

Alimony and separate maintenance pmts.

Which of the following are examples of prohibited transactions with a traditional IRA?

All of the answers are correct

Which of the following is an eligible educational institution for the Sec. 529 Qualified Tuition Program?

All of the answers are correct. (Postsecondary edu school, vocational school, University or college)

Which of the following amounts may be converted directly to a Roth IRA, provided all requirements are met?

Amounts in a SIMPLE IRA, and the 2-year participation period has been met.

Which of the following statements regarding Roth IRAs is false?

An individual may place 6000 into a roth IRA in addition to other IRA contributions

On April 18, 2022, Mr. Thomas filed Form 4868, Application for Automatic Extension of Time to File, extending the due date for filing his 2021 income tax return to October 17, 2022. By what date must he make his IRA contribution to qualify for an IRA deduction on his 2021 return?

April 18, 2022

Morris, a single taxpayer, is not covered by a qualified plan at his place of employment. He wishes to establish an IRA and contribute $6,000 for 2021. An IRA may be invested in all of the following accounts EXCEPT

Artwork.

In December 2018, Gail worked for ABC Co. and participated in its retirement plan. On February 1, 2021, Gail was employed by XYZ Corp., which has a qualified retirement plan. On March 1, 2021, the ABC Co. plan administrator distributed to Gail her vested share of the plan. Gail was 42 years old at the time of distribution. Which of the following will allow Gail to avoid paying taxes and penalties on her withdrawal?

Contribute the distribution to the XYZ Corp. plan within 60 days. A taxpayer can avoid taxes and penalties on a distribution of assets from a qualified retirement plan if the assets are deposited into another qualified plan within 60 days.

Which of the following is true regarding contributions to a Roth IRA?

Contributions may be made regardless of age, provided other requirements are met.

When figuring compensation for purposes of determining the amount of an allowable contribution to a traditional IRA, which of the following is an incorrect statement?

Earnings and profits from property, such as rental income, are considered compensation.

All of the following are true statements regarding Sec. 529 plans EXCEPT

Eligible education costs are determined without regard to scholarships, grants, and other financial aid received by the beneficiary.

An investment by an IRA in which of the following assets will NOT be treated as a distribution?

Gold bullion exceeding the minimum fineness required to satisfy a regulated futures contract.

With regard to excess contributions to a traditional IRA, which of the following statements is false?

If the excess contribution for a year is not withdrawn by the date a taxpayer's return is due, the taxpayer is subject to an 8% tax.

For traditional individual retirement accounts (IRAs) for tax year 2021, which of the following is true

If your spouse is covered by a retirement plan and you are not, your traditional IRA deduction is not limited by your modified AGI on a joint return less than 198,000

Which of the following individual retirement accounts does NOT meet Internal Revenue Code requirements?

Individual Savings bonds

All of the following types of accounts are permitted for individual retirement accounts EXCEPT

Individual savings bonds clearly designated as an IRA.

The use of IRA funds in prohibited transactions can result in additional taxes and penalties. Which of the following is NOT a prohibited transaction in a traditional IRA?

Inheriting your spouse's IRA

Generally, an IRA contribution is limited to the lesser of $6,000 in 2021 or the taxpayer's compensation. However, which of the following items is NOT treated as compensation for this limitation?

Self employed loss

Generally, an IRA contribution is limited to the lesser of $6,000 in 2021 or the taxpayer's compensation. However, which of the following items is NOT treated as compensation for this limitation?

Self employment loss

Each of the following beneficiaries withdrew $7,000 from their Sec. 529 plan to pay for qualified expenses to attend an eligible educational institution. Withdrawals were made during the same calendar year as the expenses were paid. Under which circumstance may taxes and penalties be imposed on the student's withdrawal?

Sybil paid $5000 for her daughter's enrollment at a qualified private secondary school and used the remaining $2000 to pay for childcare.

Which of the following is compensation for the purpose of contributions to individual retirement accounts?

Taxable alimony and separate maintenance

Under a Sec. 529 plan, up to $10,000 per year may be used by a designated beneficiary to pay

Tuition at a public, private, or religious elementary or secondary school.

Violet made no estimated tax payments for 2021 because she thought she had enough tax withheld from her wages. In January 2022, she realized that her withholding was $2,000 less than the amount needed to avoid a penalty for the underpayment of estimated tax so she made an estimated tax payment of $2,500 on January 10. Violet filed her 2021 return on March 1, 2022, showing a refund due her of $100. Which of the following statements is NOT true regarding the estimated tax penalty?

Violet will not owe a penalty for any quarter because her total payments exceed her tax liability

Generally, the excess contribution to an IRA is subject to a tax. Which of the following is true?

You will not have to pay the 6% tax if you withdraw the excess contributions and any income earned on the excess contributions before the date your tax return for the year is due, including extensions

In 2020, Ivan was over age 72. The balance at the beginning of 2020 of his traditional IRA was $41,000. All of his IRA contributions had been tax deductible. The required minimum distribution for 2020 was $3,000. If Ivan only took a distribution of $1,000, what is the amount of excise tax that Ivan would have to pay on the excess accumulation?

$1,000, Since Ivan was required to receive a distribution of $3,000 and he only received a distribution of $1,000, he is required to pay a tax of $1,000 [($3,000 - $1,000) × 50%].

Gary and Mabel have been married for many years and file jointly. Gary was born February 21, 1947. Mabel was born April 10, 1951. They each received Social Security benefit payments throughout 2021. Gary earned $15,000 as a part-time security guard in 2021; he was not covered by any type of retirement plan. Mabel has been retired for many years. Gary and Mabel expect their 2021 adjusted gross income not to exceed $105,000. What is the amount of Gary and Mabel's largest allowable IRA deduction for 2021 (assume the proper amount claimed as a deduction was paid timely)?

14,000, 6000+1000 if 50 or older. Both are over 50, so 7000+7000

Marc and Mandy's dependent children, ages 3 and 4, attend day care where the total expense for 2021 was $15,200, $7,600 per child. Marc earned $70,000 and Mandy earned $65,000, and the two are a married couple. How much Child and Dependent Care Credit can they claim for 2021? Adjusted Gross Income Percentage for Credit $125,000 50 $129,000 48 $135,000 45

6840, 70000+65000= 135,000 .45*15,200= 6840

Rev. Jones, an ordained minister, received $8,400 designated as a housing allowance. Rev. Jones used the full amount to pay his mortgage principal of $1,000, mortgage interest of $6,300, and property taxes of $1,200. Rev. Jones itemized his deductions and deducted the home mortgage interest and property taxes. What is the amount Rev. Jones may exclude from income?

8,400,

Rick and Stacy were divorced in February of the current year. Requirements of the divorce decree and Stacy's performance follow: Transfer title to their residence to Rick. Stacy's basis was $95,000, the fair market value was $105,000, and the residence was subject to a mortgage of $90,000. Make the mortgage payments of $1,000 per month (beginning in March) for the remaining 20 years or until Rick dies, if sooner. Pay Rick $500 per month (beginning in March) for 6 years or until Rick dies, if sooner. Of this amount, $200 is designated as child support. Stacy's current-year alimony deduction is

0, divorce after 2018

Bill correctly filed as single for 2021. The only income he earned was $76,500 as a construction engineer, and he was covered by a retirement plan at work. What is Bill's maximum IRA deduction for 2021?

0, has retirement plan at work

Thad Manning is a single taxpayer under age 50. For the year, Thad earned a salary of $172,000 from his job at Rocky Top Corporation. This was his only source of income for the year. What is the maximum contribution Thad can make to a Roth IRA for the year?

0, phaseout is between 125,000 and 140000 for single taxpayers

Joe and Denise are married and both under age 50. They each have an IRA. During the current year, Joe earned $2,500 and Denise earned $40,000. Neither is covered by an employer retirement plan. What is the maximum amount they can contribute to the two IRAs for the year?

12,000

In 2021, Ruth and Lester were both under age 50. Ruth worked full-time as a county magistrate and was covered by a retirement plan at work. Lester owns some rental property for which he does minor repairs but provides no extraordinary services. Lester had to serve on a jury during 2021. Ruth and Lester's income for 2021 was composed of the following: Ruth's salary $48,000 Lester's net rental income 8,000 Lester's jury duty pay 58 Joint taxable investment income 6,000 Ruth and Lester will file a joint return and timely contribute to their respective IRAs the maximum amount for which they can claim a deduction. What is the amount of Ruth and Lester's largest allowable IRA deduction for 2021?

12,000, modified AGI is less than 105,000

aul, a full-time graduate student at a state university, incurred the following expenses related to his attendance in the current year: Off-campus housing $7,800 Utilities $3,200 Books, fees, and supplies 2,500 Computer entertainment software 700 Internet access 350 Paul's tuition was paid through scholarships. Annual housing allowance for the university is $10,000. How much of Paul's expenses may be paid with Sec. 529 funds?

12,850, 10,000(Housing&Utility costs limit) +2500 +350= 12850.

P was eligible for, and set up as his only retirement plan, an individual retirement account (IRA) for Year 1 on January 27, Year 2. On February 15, Year 2, P contributed $1,700 to his account. Mr. P's income for Year 1 consisted of the following: Wages $9,000 Interest income 3,000 Dividend income 2,100 What is P's deduction for Year 1?

1700, less of 6000 or the amount contribuited

Vernon, age 73, had compensation of $2,500 in 2021. He made a $3,000 contribution to his traditional IRA during 2021. The balance of the IRA account at the end of 2021 was $10,000. Vernon did not withdraw any amount of the contribution by the due date of the 2021 return. What would be the tax as a result of an excess contribution for 2021?

180, 6% excise tax, so 3000*.06= 180

Minnie's tax return for 2021 shows the following income: $800 wages $6,490 unemployment compensation $1,000 alimony (2018 divorce) $8,000 rental income from apartment buildings she owns What is Minnie's earned income for the purpose of determining how much she can contribute to an IRA?

1800, 1000+800

Mr. West decided to form West Company. As the sole proprietor, Mr. West purchased a machine for West Company. Mr. West incurred the following costs in connection with the purchase of the machine: Note to seller $60,000 Cash paid to seller 5,000 Wages paid to install machine 4,000 State sales tax 3,250 Freight charges to place of business 1,000 What is the amount of Mr. West's basis in the property?

73,250, 65000+4000+3250+1000= 73,250

Joyce was recently divorced. Per a court order, she must transfer her IRA to her former spouse. To avoid paying taxes on the withdrawal, which of the following is the best choice?

Make a direct transfer of the IRA Assets

All of the following types of income are considered earned compensation in determining whether an individual retirement account can be set up and contributions made EXCEPT

Rental income from a property in which the taxpayer has active participation

If distributions from your traditional IRA are less than the minimum required distribution for the year, you may have to pay an excise tax for that year on the amount not distributed as required. The excise tax is how much?

50%

John failed to take required minimum distributions from his traditional IRA. The excess accumulation is subject to a penalty of

50%

In 2020, your father gave you a gift of property with a fair market value (FMV) of $75,000. His adjusted basis was $50,000. The gift tax paid was $7,440. What is your basis in the property?

53,100, 75,000-50000/75,000-15,000*7440= 3,100

Edwin and Donna were married. Edwin had established a traditional IRA to which he made contributions and had taken no distributions. The total value of the IRA was $50,000, of which $20,000 was nondeductible contributions. As the spousal beneficiary, which of the following applies to Donna?

Edwin's $20,000 basis in the IRA may be treated as basis to Donna.

Scott McTavish made a rollover contribution from his traditional IRA to a newly created Roth IRA on December 1, 2019. Also, on February 1, 2021, he made another rollover contribution from an employer IRA to the same account. Which of the following is true?

He may not withdraw the funds tax-free earlier than jan 1, 2024

Mr. Knox wants to make contributions to an IRA (spousal IRA) for his wife. For Mr. Knox to be eligible to make such contributions, all of the following requirements must be met EXCEPT

His wife must have no taxable compensation for the tax year

Generally, which of the following rules apply to both traditional IRAs and Roth IRAs?

Non-rollover contributions are generally limited to 6000 each year or 100% of compensation, whichever is less

Joe Smith never married and had no children. When he died, he left all of his assets, including his traditional IRA, to his nephew, David. What is David allowed to do with the inherited IRA?

None of the answers are correct. If an individual inherits a traditional IRA from anyone other than a deceased spouse, the person is not permitted to treat the inherited IRA as his or her own, making direct contributions. The inherited IRA will generally not have tax assessed on the IRA assets until distributions are received (Publication 590-A).

If you purchase stock of a small corporation meeting the requirements of Section 1244 (small business) stock and you sell that stock at a loss, the loss from the stock will be reported as

Ordinary Loss subject to Limitations

A taxpayer has an excess accumulation in her IRA for the year. It is due to a reasonable error, and the taxpayer has taken steps to remedy the insufficient distribution. Which of the following statements best describes the course of action this taxpayer should take with regard to the excise tax on an excess accumulation?

Pay the penalty tax that is due with the return, attach a written stmt to the return explaining the situation, and wait for the IRS to approve by sending a refund of the penalty tax that was paid.

Owners of traditional individual retirement accounts (IRAs) are required to begin receiving distributions no later than which of the following?

By April 1 of the year following the year in which the owner reaches age 72

Tony and Janet are married filing a joint return. In 2021, Tony's taxable compensation is only $1,500, and Janet's compensation is $58,500. Tony contributed all $1,500 of his earnings to a Roth IRA. Neither Tony nor Janet is covered by a retirement plan. What is the maximum amount the couple may deduct for traditional IRA contributions for the two of them if they are both under age 50?

10,500, 12000-1500=10,500

Elvin is single, age 35, and has total wages of $70,000. His adjusted gross income is also $70,000 before any IRA contribution. Elvin works for the Murphy Corporation, which sponsors a retirement plan that Elvin participates in. In addition, Elvin contributes $6,000 to his IRA account. What amount can Elvin deduct on his 2021 income tax return?

3,600, (70000-66,000)/(76000-66000)*6000= 2400. 6000-2400= 3,600

Peter and Jill are married and file a joint return. In 2021, Jill was a media relations manager for a large firm and earned $98,000; Peter owns a graphic design business that showed a net profit of $500 for 2021. In 2021, Jill was covered by an employer's plan and Peter was not. Their annual gross income was $203,000. What is the maximum deductible amount that Peter can contribute to a traditional IRA?

3000, (203,000-198,000(phaseout limit)/10,000*6000= 3,000

What is the maximum amount that Darlene, who is single, may contribute to a Roth IRA in 2021? She has modified AGI of $128,000 and is under 50 years of age.

4,800, (128-125)/(140-125)*6000= 1200. 6000-1200.

Mr. L purchased stock in Corporation O in Year 1 for $500. In Year 2, Mr. L received a distribution of $200 at a time when Corporation O had no current or accumulated earnings and profits, so it was a nontaxable return of capital. Mr. L sold his Corporation O stock in Year 3 for $700. What is the amount of long-term capital gain to be reported by Mr. L?

400, 500-200=300. 700-300= 400.

Milton spent $70,000 for a building that he used in his business. He made improvements at a cost of $20,000 and deducted a depreciation of $10,000. He sold the building for $100,000 cash and received property having a fair market value of $20,000. The buyer assumed Milton's real estate taxes of $3,000 and a mortgage of $17,000 on the building. Selling expenses were $4,000. The gain on the sale is

56,000, amount realized: 100+20+3+17-4= 136. 70+20-10= 80 adjusted basis. 136-80= 56.

Jamal and Ronee Smith are married and filed a joint return for 2021. Jamal is 45 years old, and Ronee is 46 years old. Jamal earned a salary of $60,000 in 2021 from his job at Sunshine Corporation. Ronee earned $6,000 from her part-time job at Rain Corporation. On May 1, 2021, Jamal contributed $6,000 to a Roth IRA for himself. What is the maximum contribution Ronee may make in 2021 to her Roth IRA?

6000

Margaret will receive Social Security benefits at retirement but has no other retirement plan coverage. Her present and past employers have not had retirement plans available. In 2021, she files as single, and her earnings are $69,000. Also in 2021, she contributes $6,000 to a traditional IRA. How much of the $6,000 contribution may she deduct?

6000.

For 2021, Mr. and Mrs. White filed a joint income tax return. Mr. White's salary was $36,000, Mrs. White's was $20,000, and their modified adjusted gross income was $109,000. Mr. White was covered by his employer's retirement plan. Mrs. White's employer did not have a retirement plan. Mr. White contributed $6,000 to an individual retirement account (IRA), and Mrs. White contributed $1,500 to an IRA. What is the maximum IRA deduction each is entitled to take for 2021?

Mr. White: 4800 Mrs. White: 1500, (109,000-105,000/125,000-105,000)*6,000=1200. 6000-1200.

Martin, age 35, made an excess contribution to his traditional IRA in 2021 of $1,000, which he withdrew by April 18, 2022. Also in 2021, he withdrew the $50 income that was earned on the $1,000. Which of the following statements is true? I. Martin must include the $50 in his gross income in 2021. II. Martin would have to pay the 6% excise tax on the $1,050. III. Martin would have to pay the 10% additional tax on the $50 as an early distribution. IV. Martin would have to pay the 10% additional tax on the $1,000 because he made a withdrawal.

I and III only. Premature distributions are amounts withdrawn from an IRA or annuity before a taxpayer reaches age 59 1/2. The additional tax on premature distributions is equal to 10% of the amount of premature distribution that must be included in gross income. Therefore, both I and III are true statements, making this the best choice of the listed options.

In general, a taxpayer over age 50 may make which of the following in a given tax year? A $7,000 contribution to a Roth IRA. A $7,000 contribution to a traditional IRA.

I or II.

Maria has a traditional IRA from which she has taken a taxable distribution of $8,000. Under which of the following circumstances will the distribution be subject to the 10% penalty for premature distributions?

Maria is age 57. The distribution is not part of a series of equal periodic payments. She has no qualifying expenses or condition.

An individual retirement account (IRA) is a trust or custodial account created by a written document that must meet all of the following requirements, EXCEPT

Money in your account can be used to buy a life insurance policy.