Question 1

Amy is single. During 2017, she determined her adjusted gross income was $12,000.During the year, Amy also contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year?

Accepted Answer

The maximum saver's credit is $1,000 for individuals with an adjusted gross income of $12,000 or less. Amy's contribution to a Roth IRA does not affect her eligibility for the credit, as the credit is based on her income level. Therefore, Amy may claim up to a $1,000 saver's credit for the year.

Question 2

Amy is single. During 2017, she determined her adjusted gross income was $12,000.During the year, Amy also contributed $1,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year?

Accepted Answer

The Saver's Credit, also known as the Retirement Savings Contribution Credit, is a tax credit available to eligible individuals who make eligible contributions to a qualified retirement plan or IRA. The credit is based on the taxpayer's adjusted gross income (AGI), filing status, and the amount of eligible contributions made during the year. For 2017, the maximum credit is $1,000 for single filers with an AGI of $31,000 or less. Since Amy's AGI is only $12,000, she may be eligible for the credit. However, the credit is only worth 50%, 20%, or 10% of the eligible contributions depending on the taxpayer's AGI. In Amy's case, her credit would be worth 50% of her $1,500 eligible contribution, or $750. Therefore, the correct answer is D.

Question 3

Which of the following taxpayers is most likely to qualify for the saver's credit?

Accepted Answer

The saver's credit is designed to provide an incentive for low- to moderate-income taxpayers to save for retirement. As such, a low AGI taxpayer who contributes to her employer's 401(k) plan is most likely to qualify for the saver's credit. High AGI taxpayers are generally not eligible for the credit regardless of their contribution status.

Question 4

Christina made a one-time contribution of $12,000 to her 401(k) account, and she received a matching contribution from her employer in the amount of $4,000. Christina expects to earn a6-percent before-tax rate of return on her account balance. Assuming Christina withdraws the entire balance in 25 years when she retires, what is Christina's after-tax accumulation from the $12,000 contribution to her 401(k) account? Assume her marginal tax rate at retirement is 35 percent.(Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Accepted Answer

The answer of Christina made a one-time contribution of $12,000...

Question 5

On March 30, Rodger (age 56) was laid off from his employer of 30 years due to rough economic times. During his 30 years of employment, Rodger contributed $300,000 to his traditional 401(k) account. When Rodger was let go, his 401(k) account balance was $900,000 (this included both employer matching and account earnings). Rodger immediately withdrew $40,000 to use as an emergency savings fund. What amount of tax and early distribution penalties must Rodger pay on the $40,000 withdrawal if his ordinary marginal tax rate is 28 percent?

Accepted Answer

The answer of On March 30, Rodger (age 56) was...

Question 6

Joan recently started her career with PDEK Accounting, LLP which provides a defined benefit plan for all employees. Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service. Plan benefits vest under a 5-year cliff schedule. Joan worked 4½ yearsat PDEK before leaving for another opportunity. She received an annual salary of $49,000, $52,000,$58,000 and $65,000 for years one through four, respectively. Joan earned $35,000 of her $70,000 annual salary in year five. What is the vested benefit Joan is entitled to receive from PDEK for her retirement?

Accepted Answer

The answer of Joan recently started her career with PDEK...

Question 7

Sean (age 74 at end of 2017) retired five years ago. The balance in his 401(k) account on December 31, 2016 was $1,700,000 and the balance in his account on December 31, 2017 was $1,800,000. Using the IRS tables below, what is Sean's required minimum distribution for 2017?

Accepted Answer

The answer of Sean (age 74 at end of 2017)...

Question 8

Georgeanne has been employed by SEC Corp. for the last 2½ years. Georgeanne participates inSEC's 401(k) plan. During her employment, Georgeanne has contributed $6,000 to her 401(k)account. SEC has contributed $3,000 to Georgeanne's 401(k) account (it matched 50 cents of every dollar contributed). SEC uses a three-year cliff vesting schedule. If Georgeanne were to quit her job with SEC, what would be her vested benefit in her 401(k) account (assume the account balance is$9,000)?

Accepted Answer

The answer of Georgeanne has been employed by SEC Corp....

Question 9

This year, Ryan contributed 10 percent of his $75,000 annual salary to a Roth 401(k) account sponsored by his employer, XYZ. XYZ offers a dollar-for-dollar match up to 10 percent of the employee's salary. The employer contributions are placed in a traditional 401(k) account on the employee's behalf. Ryan expects to earn an 8-percent before-tax rate of return on contributions to his Roth and traditional 401(k) accounts. Assuming Ryan leaves the funds in the accounts until heretires in 25 years, what are his after-tax accumulations in the Roth 401(k) and in the traditional401(k) accounts if his marginal tax rate at retirement is 30 percent? If Ryan's marginal tax rate this year is 35 percent will he earn a higher after tax rate of return from the Roth 401(k) or the traditional401(k)? Explain. (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Accepted Answer

The answer of This year, Ryan contributed 10 percent of...

Question 10

Kathy is 60 years of age and self-employed. During 2017, she reported $500,000 of revenues and $100,000 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 an individual 401(k) for 2017? (Round your final answer to the nearest whole number)

Accepted Answer

The maximum contribution for 2017 is $54,000 as an employee contribution ($18,000) plus an employer profit sharing contribution ($36,000). However, since Kathy is self-employed, she can contribute an additional amount as an employer (up to 20% of her net self-employment income).

First, we need to calculate her net self-employment income: 
$500,000 - $100,000 (expenses) = $400,000

Next, we need to calculate 20% of her net self-employment income: 
$400,000 x 0.20 = $80,000

The total amount Kathy can contribute to her individual 401(k) is the sum of the employee contribution, employer profit sharing contribution, and additional employer contribution based on her net self-employment income: 
$18,000 + $36,000 + $80,000 = $134,000

However, since the maximum contribution is limited to $54,000, that is the maximum amount Kathy can contribute. Therefore, the answer is D) $60,000 (employee contribution of $18,000 plus employer profit sharing contribution of $36,000 limited to the maximum contribution of $54,000).

Question 11

Kathy is 48 years of age and self-employed. During the year she reported $500,000 of revenues and $100,000 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 an individual 401(k)?

Accepted Answer

The answer of Kathy is 48 years of age and...

Question 12

Heidi (age 57) invested $4,000 in her Roth 401(k) on January 1, 2009. This was her onlycontribution to the account. On July 1, 2017, when the account balance was $6,000, she received a nonqualified distribution of $4,500. What is the taxable portion of the distribution and what amount of early distribution penalty will Heidi be required to pay on the distribution?

Accepted Answer

The answer of Heidi (age 57) invested $4,000 in her...

Question 13

Amy files as a head of household. She determined her 2017 adjusted gross income was$70,000. During the year, she contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for 2017?

Accepted Answer

Amy's adjusted gross income exceeds the threshold for the saver's credit for a head of household in 2017, which means she is not eligible for the credit.

Question 14

Kathy is 48 years of age and self-employed. During 2017, she reported $100,000 of revenues and $40,000 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 an individual 401(k) for 2017? (Round your final answer to the nearest whole number)

Accepted Answer

Kathy can contribute both as an employee and employer. As an employee, she can contribute $18,000 plus a $6,000 catch-up contribution because she is over 50. As an employer, she can contribute 20% of her net earnings from self-employment, which is $60,000 ($100,000 - $40,000). 20% of $60,000 is $12,000. Therefore, the total contribution is $18,000 + $6,000 + $12,000 = $36,000, but the maximum limit for 2017 is $54,000, so she can contribute $29,152.

Question 15

Sean (age 74 at end of 2017) retired five years ago. The balance in his 401(k) account on December31, 2016 was $1,700,000 and the balance in his account on December 31, 2017 was $1,750,000. In2017, Sean received a distribution of $50,000 from his 401(k) account. Assuming Sean's marginaltax rate is 25 percent, what amount of the $50,000 distribution will Sean have left after paying incometax on the distribution and paying any minimum distribution penalties (use the IRS table below in determining the minimum distribution penalty, if any).

Accepted Answer

The answer of Sean (age 74 at end of 2017)...

Question 16

Kathy is 60 years of age and self-employed. During 2017, she reported $100,000 of revenues and $40,000 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 an individual 401(k) for 2017? (Round your final answer to the nearest whole number)

Accepted Answer

Kathy can contribute up to $18,000 as an employee contribution (plus an additional $6,000 catch-up contribution since she is over 50), and 20% of her net self-employment income ($60,000 - $40,000 = $20,000, then 20% of $20,000 = $4,000) as an employer contribution. Total: $18,000 + $6,000 + $4,000 = $28,000. However, the maximum contribution limit for 2017 is $54,000, so she can contribute up to $35,152 ($54,000 - $18,000 - $6,000 = $30,000, but limited by her net income).

Question 17

What is the maximum saver's credit available to any taxpayer in 2017?

Accepted Answer

The answer of What is the maximum saver's credit available...

Question 18

Joan recently started her career with PDEK Accounting, LLP which provides a defined benefit plan for all employees. Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service. Plan benefits vest under a 5-year cliff schedule. Joan worked 5½ yearsat PDEK before leaving for another opportunity. She received an annual salary of $49,000, $52,000,$58,000, $65,000, and $75,000 for years one through five respectively. Joan earned $40,000 of her$80,000 annual salary in year six. What is the vested benefit Joan is entitled to receive from PDEKfor her retirement? Exhibit 13-1

Accepted Answer

The answer of Joan recently started her career with PDEK...

Question 19

Henry has been working for Cars Corp. for 40 years and 4 months. Cars Corp. provides a defined benefit plan for its employees. Under the plan, employees receive 2 percent of the average of their three highest annual salaries for each full year of service. Cars Corp. uses a five year cliff vesting schedule. Henry retired on January 1, 2017 Henry received annual salaries of $520,000, $540,000, and $560,000 for 2014, 2015, and 2016, respectively. What is the maximum benefit Henry canreceive under the plan in 2017?

Accepted Answer

The answer of Henry has been working for Cars Corp....

Question 20

What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k)account?

Accepted Answer

The answer of What would be her after-tax accumulation in...

Quiz 13: Retirement Savings and Deferred Compensation