Topic 48 Other Tax-Advantaged Retirement Plans

Which of the following types of funding vehicles is (are) approved for TSAs?

(1) Annuity contracts (3) Mutual fund shares

An excess contribution to an IRA in previous years may be corrected in which of the following ways?

(1) By reducing subsequent contributions (2) By making appropriate withdrawals on or before the date for filing the taxpayer's federal income tax return (3) By accepting a distribution of the excess part and treating that amount as a premature distribution

Which of the following equity-based compensation plans will not result in an employee reporting ordinary income in the year the stock is received?

(1) Incentive stock options (3) Restricted stock (4) Junior stock

Which of the following statements concerning a rabbi trust is (are) correct?

(1) It is an irrevocable trust, but assets are still available to creditors.

A survivor's benefit payable under the terms of an unfunded deferred-compensation agreement will be included in the gross estate of the deceased employee if the benefit is provided for under an agreement, and the employee had which of the following rights?

(1) Nonforfeitable right to the future benefits (2) Forfeitable right to the future benefits

Which of the following statements concerning borrowing permitted under Keogh plans is (are) correct?

(1) Owner-employees are permitted to borrow to the same extent as corporate employees who borrow under a qualified plan. (2) Regular employees can borrow under the same rules that apply to owner-employees.

At age 65, "X" will receive from his employer $500 per month for ten years. Mrs. "X" is to receive any residual payments in the event of "X's" death prior to the termination of the ten years. "X" dies after receiving five payments. Under which of the following circumstances would the death benefit payable to "X's widow be included in "X's" gross estate for federal estate tax purposes?

(1) "X" has agreed to forfeit all benefits if he fails to comply with the employer's request for consulting service during his lifetime for the next ten years. (2) "X" has made no commitment of any kind as to services to be performed.

Bill and Christine Sims have AGI of $245,000 this year. Bill works in a small company that does not have a retirement plan. Christine receives no compensation for her volunteer work and her work in the home. The Sims have two children, ages 14 and 11. They would like to make contributions to IRAs for themselves and to Coverdell Education Savings Accounts for their children's college fund. What contributions are appropriate for the Sims?

(1) A $5,500 deductible contribution to an IRA for Bill (2) A $5,500 deductible contribution to an IRA for Christine

Employee-participants under age 50 in a SIMPLE may elect to contribute a maximum of how much before taxes?

C. $12,500

Which of the following statements concerning simplified employee pension (SEP) plans is (are) correct?

(1) The employer must contribute for eligible employees who have performed service for the employer during the calendar year for which contributions are made and who have worked for the employer for at least three of the five immediately preceding calendar years.

Which of the following statements concerning excess contributions to an IRA made this year is (are) correct?

(1) The excess is subject to a 6% excise tax. (2) The taxpayer may correct the excess contribution by making withdrawals, but the investment income earned while the excess is invested is included in the taxpayer's gross income. (3) The penalty tax is levied each year until the excess contribution is corrected.

Which of the following statements concerning the use of life insurance policies to fund a TSA is (are) correct?

(1) The one-year term cost of the protection provided must be included in the employee's gross income. (2) The amount of any annual premiums that is considered to be taxable income may be included in the employee's cost basis.

Which of the following statements concerning the federal income tax treatment of death benefits paid to a beneficiary under the terms of an unfunded deferred-compensation agreement is (are) correct?

(1) They are included in the beneficiary's gross income. (2) The $5,000 death benefit exclusion is no longer available to the beneficiary.

John and Mary file jointly and have an adjusted gross income of $76,000. Their broker has advised them to convert their IRA to a Roth IRA. As their retirement planner, what tax consequences can you tell them to expect this year?

(1) They will owe tax on the pretax contributions and earnings portion of the IRA in the year of conversion.

Which of the following statements concerning the timing of IRA deductible contributions is (are) correct?

(1) To be deductible for this year, the contribution must be made by April 15th next year.

Which of the following statements regarding Section 457 plans is (are) correct?

(2) A participant can defer annually up to 100% of includible compensation or $18,000, whichever is less.

Employer contributions, mandated by the government for a SIMPLE, are subject to which of the following requirements?

(2) Employers who elect to make matching contributions may reduce the elected percentage to as low as 1%, with reasonable notice to the employee-participants.

Which of the following statements concerning the criteria that may be used to determine an employee's eligibility to participate in a SEP and have contributions made to his or her account is (are) correct?

(2) The employee must have received compensation of at least $600. (3) Members of a collective bargaining unit may be excluded, provided that retirement benefits were the subject of good-faith bargaining.

A self-directed individual retirement account may invest in which of the following assets?

(3) U.S. gold and silver coins (newly minted)

A small employer which has an existing SEP plan wishes to add some form of employee contribution feature to its existing SEP contributions. What options can you recommend?

(4) Either a SIMPLE IRA, a SIMPLE 401(k), or a combination of a regular 401(k) and profit-sharing plan will support both types of employee and employer contributions.

Jessica's employer granted her 1,000 nonqualified stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Jessica sold the stock in November this year when the stock was worth $9 per share. How much AMT income did Jessica recognize when she exercised her options?

A. $0

Jessica's employer granted her 1,000 nonqualified stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Jessica sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Jessica recognize when her employer granted her the options?

A. $0

Jessica's employer granted her 1,000 nonqualified stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Jessica sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Jessica recognize when she sold the stock?

A. $0

Jim, age 42, files a federal income tax return for 2015 as a single person. His adjusted gross income is $115,000 and he does not have a retirement plan available at work, but does have a regular IRA. Jim wants to contribute $5,000 to a Roth IRA. How much can Jim deduct from his federal income tax for this contribution, assuming that he makes the contribution before April 15th of the next year.

A. $0

Samantha's employer granted her 1,000 incentive stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Samantha sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Samantha recognize under regular tax when she exercised her options?

A. $0

Samantha's employer granted her 1,000 incentive stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Samantha sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Samantha recognize when her employer granted her the options?

A. $0

Jessica's employer granted her 1,000 nonqualified stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Jessica sold the stock in November this year when the stock was worth $9 per share. How much capital gain did Jessica recognize when she sold the stock?

A. $3,000

Samantha's employer granted her 1,000 incentive stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Samantha sold the stock in November this year when the stock was worth $9 per share. How much capital gain did Samantha recognize when she sold the stock?

A. $3,000

All the following entities may establish Keogh (HR 10) plans:

A. A partnership B. A sole proprietor D. An unincorporated business

Section 457 plans are available to all of the following:

A. Nonprofit corporations B. Governmental agencies D. 503(c)(3) organizations

All the following statements concerning Keogh (HR 10) plans are correct:

A. They are a form of qualified plan for persons who are self-employed. B. They can be either defined-benefit or defined-contribution plans. D. They must follow most of the same rules the government imposes on qualified plans. E. They are commonly established for partnerships and sole proprietorships.

All the following statements concerning the informal funding of a non-qualified deferred-compensation plan, using a phantom stock plan are correct:

A. Under one form, the employer merely maintains a record of the shares of its own stock to be credited to the employee each year - the actual shares are never purchased. B. Under most plans, any cash dividends paid on phantom stock are credited to the account of the employee. C. At the time of the employee's retirement, the actual retirement benefit is based on the accumulated values in the employee's account. E. If benefits are based on the value of a specific mutual fund, any cash dividends become a part of the funding assets.

Which of the following statements correctly describes an important drawback that would likely keep a closely held corporation from adopting a phantom stock plan for its executives?

A. Valuing the stock repeatedly for the plan can be expensive.

Which of the following statements concerning deductible IRA contributions for those under age 50 is correct?

B. A married couple with both spouses working may each contribute the maximum permitted a single wage earner.

Which of the following statements concerning simplified employee pension (SEP) plans is correct?

B. A minimum contribution must be made annually on behalf of all non-key employees who participate in a top-heavy SEP.

An employer has adopted a SEP for his employees. What can you tell the employer if he wishes to add loans, in addition to employee contributions?

B. Only the SIMPLE 401(k) and the combination 401(k) and profit-sharing plan can allow for loans.

For an employee's salary reduction contributions to a tax-sheltered annuity (TSA) plan to be excluded, which one of the following requirements must be met?

B. The salary reductions must be made under a legally binding agreement between the employer and the employee.

What is the maximum amount a 45-year-old can contribute to a 403(b) plan in 2015?

C. $18,000

Jessica's employer granted her 1,000 nonqualified stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Jessica sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Jessica recognize when she exercised her options?

C. $4,000

Samantha's employer granted her 1,000 incentive stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Samantha sold the stock in November this year when the stock was worth $9 per share. How much AMT income did Samantha recognize when she exercised her options?

C. $4,000

Judy Jones established a Keogh profit-sharing plan for the current calendar year. As an owner-employee, how much can Judy contribute and deduct?

C. 20% of net income

Which of the following limits is correct for 2015 when a person arranges for elective deferral contributions to be made to two retirement plans?

C. If one plan is a Section 401(k) plan, and a second plan is a Section 403(b) plan, the employee's maximum annual contribution limit is $18,000.

Jasper and Jill Dill have AGI of $200,000. Jasper has a Keogh plan at his workplace, but Jill's employer does not have a plan. Which of the following statements concerning their contributions to IRAs and Roth IRAs is correct?

C. Jill can contribute to a nondeductible IRA.

Revenue Ruling 60-31 states that a non-qualified deferred-compensation plan confers no economic benefit on an employee if:

C. The employer merely promises to pay the benefit after age 65.

Jim just celebrated his 58th birthday and is considering early retirement. He first contributed to his Roth IRA six years ago. What can you advise him about the tax consequences of liquidating this account?

C. Until Jim is 591⁄2 years-old, withdrawals of contributions will be tax-free, but he will owe regular income taxes and 10% penalty on distributions of earnings.

What is the maximum amount a 55-year-old employee who contributes $24,000 to a 403(b) plan in 2015 can elect to treat as a Roth contribution?

D. $24,000

What is the maximum amount a 55-year-old employee who contributes $24,000 to a 457 plan in 2015 can elect to treat as a Roth contribution?

D. $24,000

Samantha's employer granted her 1,000 incentive stock options at $2 per share in December last year. She exercised her options in June this year when the stock was worth $6 per share. Samantha sold the stock in November this year when the stock was worth $9 per share. How much ordinary income did Samantha recognize when she sold the stock?

D. $4,000

Jim, age 42, files a federal income tax return for 2015 as a single person. His adjusted gross income is $119,000, and he does not have a retirement plan available at work. How much can he contribute to his Roth IRA for this tax year?

D. $4,400 ($131,000 maximum phaseout rate - $119,000 adjusted gross income = $12,000) divided by $15,000 ($131,000 minus 116,000 phaseout range) = .800. $5,500 maximum Roth IRA contribution x .800 = $4,400.

Jim, age 42, files a federal income tax return for 2015 as a single person. His adjusted gross income is $117,000, and he does not have a retirement plan available at work. Now assume that Jim has a traditional IRA with deductible and non-deductible contributions. What can you advise Jim about the tax consequences of converting his entire traditional IRA into a Roth IRA?

D. He must pay ordinary income tax on the entire amount minus the post-tax contributions made to his traditional IRA.

Distribution from an IRA typically must begin:

D. On or before April 1 of the year following the year in which the owner attains age 70.5

The government has prescribed which of the following requirements for SIMPLE plans?

D. Only employers with 100 or fewer employees are eligible for a SIMPLE.

Which of the following statements concerning Section 457 plans is correct?

D. Salary deferrals and earnings on such deferrals are the property of the employer and are subject to the claims of general creditors.