Question 1

Which of the following is not an exception to the 10% early withdrawal penalty of a traditional IRA:

Accepted Answer

The exception for first-time home-buying expenses allows for a withdrawal of up to $10,000, not $30,000.

Question 2

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000.He is an active participant in his employer's pension plan.What is the maximum amount Donald can contribute to a Roth IRA in 2018?

Accepted Answer

In 2018, the maximum contribution limit for a Roth IRA for individuals under 50 is $5,500, and Donald's income is within the limits to contribute the full amount.

Question 3

Rob and Julie, both in their 30s, file a joint income tax return for 2018.Rob's wages are $25,000 and Julie's wages are $33,000 for the year.Their total adjusted gross income is $58,000, and Julie is covered by a qualified pension plan at work but Rob is not.​
a.What is the maximum amount that Rob and Julie may each contribute to their Roth IRAs?
b.​​​If Julie's wages are $110,000 for 2018, instead of $33,000, and their adjusted gross income is $135,000, (1) what is the maximum amount that Rob and Julie may each deduct for contributions to their traditional individual retirement accounts, and (2) what is the maximum amount they could each contribute to Roth IRAs instead?

Accepted Answer

The answer of Rob and Julie, both in their 30s,...

Question 4

Which of the following statements is correct?

Accepted Answer

The correct statement is B. Self-employed taxpayers can contribute the lesser of 25 percent of their net self-employment income after the deduction for the contribution to the SEP or $55,000. Option A is incorrect because the contribution limit is 25 percent, not 15 percent. Option C is incorrect because it pertains to 401(k) plans which are different from SEP plans. Option D is incorrect because it is the contribution limit for individual 401(k) plans, not SEP plans.

Question 5

Jody is a physician (not covered by a retirement plan)with a salary of $40,000 from the hospital where she is employed.She supports her husband, Andre, who sells art work and has no earned income.Both are in their twenties.What is the maximum total amount that Jody and Andre may contribute to their IRAs and deduct for the 2018 tax year?

Accepted Answer

Jody can contribute up to $5,500 to her traditional IRA for the 2018 tax year since she is under the age of 50. Since she is married and files a joint tax return, Andre can also contribute up to $5,500 to a spousal IRA since he has no earned income. Therefore, the maximum total amount they may contribute and deduct for the 2018 tax year is $11,000 ($5,500 for each of them).

Question 6

Ben is a 19-year-old single software inventor earning $200,000 a year and is not covered by a pension plan at work.How much can he put into a Roth IRA in 2018?

Accepted Answer

The answer of Ben is a 19-year-old single software inventor...

Question 7

Under the SEP plan provisions, deductible contributions to a qualified retirement plan on behalf of an employee whose net earned income is $20,000 are limited to:

Accepted Answer

The maximum amount that can be contributed to a SEP plan on behalf of an employee is the lesser of 25% of their compensation or $57,000 in 2020. In this case, the employee's net earned income is $20,000, so the maximum allowable contribution is $5,000 (25% of $20,000). Therefore, the correct answer is D.

Question 8

What is the maximum amount a 30-year-old taxpayer and a 35-year-old spouse can put into a Traditional or Roth IRA for 2018, assuming they earn $50,000 in total and are not covered by pension plans?

Accepted Answer

The answer of What is the maximum amount a 30-year-old...

Question 9

Which of the following taxpayers qualifies for the maximum traditional individual retirement account deduction for 2018?

Accepted Answer

Married taxpayers, neither of whom is covered by a qualified retirement plan, with total adjusted gross income, all earned, of $85,000 qualify for the maximum traditional IRA deduction in 2018. The maximum deductible contribution limit for individuals under the age of 50 was $5,500 in 2018, and taxpayers with an adjusted gross income of $101,000 or less (for married filing jointly) can claim the full deduction. Since the taxpayers in option A have a total adjusted gross income of $85,000, they qualify for the maximum deduction. The other options do not qualify for the maximum deduction due to various reasons such as coverage under a qualified retirement plan, high income, or no earned income.

Question 10

Jeremy, age 38, has $25,000 in a traditional IRA account and is considering taking the money out to buy himself a new car.What will be the tax consequences to Jeremy if he withdraws the $25,000 from his IRA in 2018 for this purpose? Explain.

Accepted Answer

The answer of Jeremy, age 38, has $25,000 in a...

Question 11

Debbie is 63 years old and retired in 2016.She receives Social Security payments of $12,000 a year and interest income of $30,000.She wishes to put the maximum allowed into an IRA.How much can she contribute to her IRA?

Accepted Answer

The answer of Debbie is 63 years old and retired...

Question 12

What is the maximum amount a 55-year-old taxpayer and a 48-year-old spouse can put into a Traditional or Roth IRA for 2018, assuming they earn $85,000 in total and are not participants in pension plans?

Accepted Answer

The answer of What is the maximum amount a 55-year-old...

Question 13

Steven is 27 years old and has a total AGI of $110,000 in 2018.He contracts pneumonia in 2018 and incurs a medical bill that totals $7,500.He withdraws $7,500 from his traditional IRA to pay the bill.Which of the following is true?

Accepted Answer

The IRS allows penalty-free withdrawals from a traditional IRA for medical expenses that exceed 7.5% of AGI. Since Steven's medical expenses do not exceed this threshold, he is subject to penalties.

Question 14

Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2018.What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP)for the year?

Accepted Answer

The answer of Barrett is a 45-year-old political commentator who...

Question 15

Contributions by a self-employed individual to a SEP plan for 2018 are limited to the lesser of a percent of net earned income or:

Accepted Answer

The maximum contribution limit for a SEP plan for 2018 is $55,000 or 25% of the individual's net earned income, whichever is less. Since the contribution limit in option D is within this limit, it is the best choice. Option A is incorrect because $18,500 is the maximum contribution limit for a 401(k) plan, not a SEP plan. Option B is incorrect because a self-employed individual can contribute to a SEP plan. Option C is incorrect because it exceeds the maximum contribution limit for a SEP plan.

Question 16

If a Section 401(k)plan allows an employee to choose between a direct payment of compensation in cash or a contribution to the retirement plan, the plan is not a "qualified" plan.

Accepted Answer

This statement is false. This type of plan is called a "cash or deferred arrangement" or CODA, which is a type of qualified plan known as a 401(k) plan.

Question 17

John is a single 40-year-old landscape architect earning $125,000 a year and is not covered by a pension plan at work.How much can he put into a Traditional IRA in 2018?

Accepted Answer

The answer of John is a single 40-year-old landscape architect...

Question 18

Christine is a self-employed graphics artist who has net earned income of $160,000 from her business.Christine has a defined contribution SEP Plan and plans to contribute the amount that provides the maximum deduction allowable.How much can Christine contribute?

Accepted Answer

The answer of Christine is a self-employed graphics artist who...

Question 19

What is the difference between the tax treatment of contributions and distributions from a traditional IRA and a Roth IRA?

Accepted Answer

The answer of What is the difference between the tax...

Question 20

Wilson and Joan, both in their 30s, file a joint income tax return for 2018.Wilson's wages are $15,000 and Joan's wages are $23,000 for the year.Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not.
a.​What is the maximum amount that Wilson and Joan may each deduct for contributions to their traditional individual retirement accounts?
b.​​If Joan's wages are $88,000 for 2018, instead of $23,000, and their adjusted gross income is $103,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to their traditional individual retirement accounts?

Accepted Answer

The answer of Wilson and Joan, both in their 30s,...

Quiz 5: Deductions and Adjustments to Income