Question 1

Which of the following statements comparing traditional and Roth IRAs is false?

Accepted Answer

Roth IRAs are not subject to the age-based minimum distribution requirement.

Question 2

This year, Nilo Inc. granted incentive stock options (ISO) to 230 employees. For financial statement purposes, Nilo recorded a $179,200 expense for the estimated value of the ISOs. As a result of this transaction, Nilo has a:

Accepted Answer

The unfavorable difference is permanent because Nilo is never allowed a deduction with respect to the ISOs.

Question 3

Which of the following statements concerning qualified retirement plans is false?

Accepted Answer

All of the statements are true. Employer contributions are not included in employees' gross income, the plan is tax-exempt, and employer contributions are deductible in the year of payment.

Question 4

Lana, an employee of Compton University, paid $1,500 for professional journal subscriptions and $1,000 membership dues to academic organizations. Her employer reimbursed her only for the $1,000 membership dues. Which of the following statements is true?

Accepted Answer

Unreimbursed employee business expenses are nondeductible.

Question 5

Jason Inc. maintains a qualified profit-sharing plan for its employees. This year, Jason contributed $2,300 to Ms. Preston's profit-sharing account. Which of the following statements is true?

Accepted Answer

Employer contributions to a qualified profit-sharing plan are tax-deductible for the employer and are not included in the employee's gross income until distributions are taken.

Question 6

Mr Sherman incurred $7,000 of employment-related business expenses. Which of the following statements is true?

Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, miscellaneous itemized deductions, including unreimbursed employee expenses, are not deductible for tax years 2018 through 2025. Therefore, if Mr. Sherman's employer only reimbursed him for $3,000 of his $7,000 employment-related expenses, the remaining $4,000 would be a nondeductible expense.

Question 7

This year, Mr Cox elected to contribute $4,000 of his $95,000 salary to his Section 401(k) plan. Mr Cox's employer made a $4,000 matching contribution. How much compensation is reported on Mr Cox's Form W-2?

Accepted Answer

$95,000 salary - $4,000 elective contribution.

Question 8

In 2018, Amanda earned $70,000 self-employment income. She was allowed a $4,945 above-the line deduction for her SE tax. Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Accepted Answer

($70,000 - SE tax deduction) × 20%.

Question 9

Peter is a 20-year-old college student. His AGI consists of $12,000 interest and dividend income from a trust fund and $4,180 of wages from a part-time job. Compute Peter's maximum IRA contribution:

Accepted Answer

IRA contributions are limited to the taxpayer's earned income.

Question 10

Mr and Mrs Alexander, ages 43 and 44, each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan. Which of the following is true?

Accepted Answer

Each spouse on a joint return can make the maximum contribution to a traditional IRA. The deduction for such contributions is above-the-line.

Question 11

Mr and Mrs Lawry, both age 60, each make the maximum contribution to their traditional IRAs. Mr Lawry is an active participant in a section 401(k) plan, but Mrs Lawry is not an active participant in any other qualified plan. If their joint AGI before any IRA deduction is $144,900, compute their AGI.

Accepted Answer

Mr. Lawry's $6,500 contribution is nondeductible because he is an active participant in another plan and AGI exceeds $121,000. Mrs Lawry's $6,500 contribution is deductible because AGI is less than $189,000.

Question 12

Mr Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost of the withdrawal if Mr Thano has a 37% marginal tax rate on ordinary income.

Accepted Answer

$8,140 tax ($22,000 × 37%) + $2,200 premature withdrawal penalty.

Question 13

Knox, age 34 and single, has $127,800 AGI, $108,200 of which is compensation income. Compute her maximum contribution to her Roth IRA.

Accepted Answer

$5,500 - $2,860 ($5,500 × 0.52 [($127,800 -$120,000)/$15,000]).

Question 14

Mr Wang's corporate employer transferred him from its Seattle office to its San Jose office. Mr Wang incurred $18,000 of moving expenses to relocate his household to San Jose. Which of the following statements is true?

Accepted Answer

CUnder the Tax Cuts and Jobs Act of 2017, moving expense reimbursements are included in gross income, meaning if Mr. Wang's employer paid him an $18,000 moving allowance, it must be included in his gross income (A). Additionally, the Act suspends the deduction for moving expenses for tax years 2018 through 2025, except for members of the Armed Forces on active duty who move pursuant to a military order. Therefore, the general public, including Mr. Wang, cannot claim moving expenses as an itemized or above-the-line deduction, making options B and D incorrect. However, the question's phrasing suggests a scenario outside of the current tax law context, leading to the selection of C as a traditionally correct answer under previous tax laws, where moving expenses exceeding reimbursements could be considered an above-the-line deduction. This reflects a misunderstanding in the question's premise based on current tax laws.

Question 15

Which of the following is not a benefit of nonqualified deferred compensation plans?

Accepted Answer

Nonqualified deferred compensation plans are unfunded and therefore more risky for participating employees than qualified retirement plans.

Question 16

Jorland is a 30-year-old single taxpayer. Her $3,760 AGI is the total of $7,940 interest and dividend income from a trust fund, $4,190 income from a rent property, and an $8,370 loss from a new business that she started this year. Compute Ms. Jorland's maximum IRA contribution.

Accepted Answer

Ms. Jorland has no compensation or self-employment income.

Question 17

Mr Paul, age 73 and single, earned a $150,000 salary (AGI) as a university professor. He no longer participates in the university's qualified retirement plan. Which of the following is true?

Accepted Answer

Mr. Paul is too old to contribute to a traditional IRA and has too much AGI to contribute to a Roth IRA.

Question 18

Louise, age 51, quit her job and received a $70,000 distribution from her employer-sponsored qualified retirement plan. She immediately contributed $50,000 to a rollover IRA and used the remaining $20,000 to purchase a car. Compute the tax cost of the distribution if Louise has a 32% marginal tax rate on ordinary income.

Accepted Answer

$6,400 tax ($20,000 × 32%) + $2,000 premature withdrawal penalty.

Question 19

Which of the following statements regarding Keogh plans is false?

Accepted Answer

This statement is false. A self-employed person with a Keogh plan is required to provide retirement benefits to his or her employees through the plan if they work the minimum amount of hours needed to be eligible.

Question 20

This year, Mrs Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

Accepted Answer

The answer of This year, Mrs Pike's compensation from her...

Quiz 15: Compensation and Retirement Planning