Question 1

Heather, age 48, is the sole remaining participant of a money purchase pension plan. The plan is terminated and a $240,000 taxable distribution is made to Heather. The early distribution penalty tax, if any, for 2017 is:

Accepted Answer

The answer of Heather, age 48, is the sole remaining...

Question 2

Joyce, age 40, and Sam, age 42, who have been married for seven years, are both active participants in qualified retirement plans. Their total AGI for 2017 is $120,000. Each is employed and earns a salary of $65,000. What are their combined deductible contributions to traditional IRAs?

Accepted Answer

Since both Joyce and Sam are active participants in qualified retirement plans and their AGI exceeds the phase-out limit for deducting IRA contributions for 2017, they cannot make deductible contributions to traditional IRAs.

Question 3

Which of the following characteristics describes a defined benefit plan?

Accepted Answer

A defined benefit plan is subject to PBGC plan termination insurance rules and does not establish an individual account for each participant. It defines the benefit to be received, not the contribution amount.

Question 4

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan). She has the following income items for the year: ​
 What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?

Accepted Answer

To calculate the maximum deductible contribution for Susan, we need to follow these steps:

Step 1: Calculate Susan's net income from self-employment:

Net income = Gross income - Deduction for self-employment tax - Deduction for contribution to retirement plan

Deduction for self-employment tax = 0.5 x 15.3% x $130,000 = $9,945

Deduction for contribution to retirement plan = maximum contribution limit = lesser of 25% of net income or $54,000

So, Net income = $130,000 - $9,945 - $54,000 = $66,055

Step 2: Calculate the maximum deductible contribution:

Maximum deductible contribution = 25% x $66,055 = $16,514

But since the maximum contribution limit is $54,000, the actual maximum deductible contribution for Susan is $46,468 (which is lesser of 25% of net income or $54,000).

Therefore, the correct answer is D) $46,468.

Question 5

Zackie has five years of service completed as of February 5, 2017, which is his employment anniversary date. If his defined benefit plan [not a § 401(m) arrangement] uses the graded vesting rule, determine Zackie's nonforfeitable percentage.

Accepted Answer

The answer of Zackie has five years of service completed...

Question 6

Deidre has five years of service completed as of February 5, 2017, her employment anniversary date. If the defined benefit plan [not a § 401(m) arrangement] uses the cliff vesting schedule, determine Deidre's nonforfeitable percentage.

Accepted Answer

Under a cliff vesting schedule, an employee becomes 100% vested after a specified period, typically after three to five years of service. Since Deidre has completed five years of service, she is 100% vested.

Question 7

Brown, Inc., uses the three-to-seven year graded vesting approach for its defined benefit retirement plan. Peter has five years of service completed as of February 5, 2017, his employment anniversary date. Determine Peter's nonforfeitable percentage.

Accepted Answer

According to the given information, Peter has completed five years of service. Following the three-to-seven year graded vesting approach, Peter's nonforfeitable percentage would be 60%. This is because he has completed more than three but less than seven years of service, and nonforfeitable percentage increases by 20% for each additional year of service completed after three years. Therefore, Peter's nonforfeitable percentage is 60%.

Question 8

The compensation paid by Purple Corporation to the plan participants of a profit sharing plan in 2017 was $38,300. During 2017, Purple Corporation contributed $10,000 to the plan. Purple's deductible amount for 2017 is what amount, if any?

Accepted Answer

The deductible amount is the lesser of 15% of compensation or the amount contributed to the plan. 15% of compensation is $38,300 x 15% = $5,745. The amount contributed to the plan is $10,000. Therefore, the deductible amount is $5,745.

Question 9

A defined benefit retirement plan covers 72% of the non-highly compensated individuals. The plan benefits 48 of the 131 employees. Which is true?

Accepted Answer

The answer of A defined benefit retirement plan covers 72%...

Question 10

In 2017, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan. Jindal's deductible amount and any contribution carryover are as follows:

Accepted Answer

The deductible amount for a profit sharing plan is calculated by taking the total compensation paid in the year (in this case, $42,300) and subtracting the contribution made by the employer (in this case, $12,800).

$42,300 - $12,800 = $29,500

So the deductible amount is $29,500.

To calculate the carryover, you need to subtract the deductible amount from the maximum contribution limit. For 2017, the maximum contribution limit was 25% of eligible compensation, up to a maximum of $54,000.

25% of $42,300 = $10,575

$54,000 - $10,575 = $43,425

So the carryover is $43,425 - $29,500 = $13,925.

Therefore, the correct answer is C: $10,575 deductible and $2,225 carryover.

Question 11

Danielle, who is retired, reaches age 70 1/2 in 2016, and she will also be age 71 in 2016. She has a $150,000 balance in her traditional IRA. If her life expectancy is 15.3 years, what distribution, if any, must be made by April 1, 2017?

Accepted Answer

Danielle has to take her first RMD by April 1, 2017. The RMD amount is calculated by dividing the year-end balance of her IRA by her life expectancy factor.

RMD amount = $150,000 / 15.3 = $9,804.

Therefore, Choice B is the correct answer.

Question 12

Which of the following characteristics is not a characteristic of a stock bonus plan?

Accepted Answer

A stock bonus plan is a type of defined contribution plan, not a defined benefit plan. The other characteristics listed are all common characteristics of a stock bonus plan.

Question 13

Which of the following characteristics does not describe a defined benefit pension plan?

Accepted Answer

A defined benefit pension plan provides a specific benefit formula for retirees based on factors such as salary history and years of service, not on the value of the employee's account. The other options (A, C, D, E) describe characteristics that are typically associated with a defined benefit pension plan.

Question 14

A major disadvantage of a NQSO is that an employee must recognize ordinary income on the exercise of the option or at the date of the grant without receiving cash to pay the tax.

Accepted Answer

This is true. When an employee exercises a non-qualified stock option (NQSO), they must recognize ordinary income, but they do not receive any cash to pay the associated tax, which can create a financial burden.

Question 15

Merrill is a participant in a SIMPLE § 401(k) plan, and he elects to contribute 4% of his $40,000 compensation to the account, while his employer contributes 3%. What amount will vest immediately, if any?

Accepted Answer

The answer of Merrill is a participant in a SIMPLE...

Question 16

A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2017?

Accepted Answer

The maximum contribution for a participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to $18,000 in 2017.

Question 17

Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax). He has a profit sharing plan (i.e., defined contribution plan). What is the maximum amount Fred can contribute to his retirement plan?

Accepted Answer

The maximum amount Fred can contribute to his retirement plan is $28,000. This is because the maximum contribution limit for self-employed individuals is 25% of net income from self-employment, which is $140,000 - (1/2 x $140,000 x 12.4%) = $112,000.

Question 18

If a NQSO has a readily ascertainable value, an employee recognizes income on the grant date.

Accepted Answer

If a NQSO has a readily ascertainable value (meaning the value of the option can be determined with reasonable accuracy), the employee must recognize income on the grant date. The amount of income recognized is equal to the option's fair market value on the grant date.

Question 19

Which of the following characteristics is not a characteristic of a cash balance plan?

Accepted Answer

In a cash balance plan, the employer bears the investment risk and rewards, not the employee.

Question 20

Scott, age 68, has accumulated $850,000 in a defined contribution plan, $100,000 of which represents his own after-tax contributions. If the full amount is distributed in 2017, his early distribution penalty is:

Accepted Answer

Scott is over 59½ years old, so he is not subject to the early distribution penalty.

Quiz 19: Deferred Compensation

Heather, age 48, is the sole remaining participant of a money purchase pension plan. The plan is terminated and a $240,000 taxable distribution is made to Heather. The early distribution penalty tax, if any, for 2017 is:

Joyce, age 40, and Sam, age 42, who have been married for seven years, are both active participants in qualified retirement plans. Their total AGI for 2017 is $120,000. Each is employed and earns a salary of $65,000. What are their combined deductible contributions to traditional IRAs?

Which of the following characteristics describes a defined benefit plan?

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan) . She has the following income items for the year: What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?

Zackie has five years of service completed as of February 5, 2017, which is his employment anniversary date. If his defined benefit plan [not a § 401(m) arrangement] uses the graded vesting rule, determine Zackie's nonforfeitable percentage.

Deidre has five years of service completed as of February 5, 2017, her employment anniversary date. If the defined benefit plan [not a § 401(m) arrangement] uses the cliff vesting schedule, determine Deidre's nonforfeitable percentage.

Brown, Inc., uses the three-to-seven year graded vesting approach for its defined benefit retirement plan. Peter has five years of service completed as of February 5, 2017, his employment anniversary date. Determine Peter's nonforfeitable percentage.

The compensation paid by Purple Corporation to the plan participants of a profit sharing plan in 2017 was $38,300. During 2017, Purple Corporation contributed $10,000 to the plan. Purple's deductible amount for 2017 is what amount, if any?

A defined benefit retirement plan covers 72% of the non-highly compensated individuals. The plan benefits 48 of the 131 employees. Which is true?

In 2017, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan. Jindal's deductible amount and any contribution carryover are as follows:

Danielle, who is retired, reaches age 70 1/2 in 2016, and she will also be age 71 in 2016. She has a $150,000 balance in her traditional IRA. If her life expectancy is 15.3 years, what distribution, if any, must be made by April 1, 2017?

Which of the following characteristics is not a characteristic of a stock bonus plan?

Which of the following characteristics does not describe a defined benefit pension plan?

A major disadvantage of a NQSO is that an employee must recognize ordinary income on the exercise of the option or at the date of the grant without receiving cash to pay the tax.

Merrill is a participant in a SIMPLE § 401(k) plan, and he elects to contribute 4% of his $40,000 compensation to the account, while his employer contributes 3%. What amount will vest immediately, if any?

A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k) ] may contribute up to what amount in 2017?

Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax) . He has a profit sharing plan (i.e., defined contribution plan) . What is the maximum amount Fred can contribute to his retirement plan?

If a NQSO has a readily ascertainable value, an employee recognizes income on the grant date.

Which of the following characteristics is not a characteristic of a cash balance plan?

Scott, age 68, has accumulated $850,000 in a defined contribution plan, $100,000 of which represents his own after-tax contributions. If the full amount is distributed in 2017, his early distribution penalty is:

Quiz 19: Deferred Compensation

Heather, age 48, is the sole remaining participant of a money purchase pension plan. The plan is terminated and a $240,000 taxable distribution is made to Heather. The early distribution penalty tax, if any, for 2017 is:

Joyce, age 40, and Sam, age 42, who have been married for seven years, are both active participants in qualified retirement plans. Their total AGI for 2017 is $120,000. Each is employed and earns a salary of $65,000. What are their combined deductible contributions to traditional IRAs?

Which of the following characteristics describes a defined benefit plan?

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan) . She has the following income items for the year: ​ What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?

Zackie has five years of service completed as of February 5, 2017, which is his employment anniversary date. If his defined benefit plan [not a § 401(m) arrangement] uses the graded vesting rule, determine Zackie's nonforfeitable percentage.

Deidre has five years of service completed as of February 5, 2017, her employment anniversary date. If the defined benefit plan [not a § 401(m) arrangement] uses the cliff vesting schedule, determine Deidre's nonforfeitable percentage.

Brown, Inc., uses the three-to-seven year graded vesting approach for its defined benefit retirement plan. Peter has five years of service completed as of February 5, 2017, his employment anniversary date. Determine Peter's nonforfeitable percentage.

The compensation paid by Purple Corporation to the plan participants of a profit sharing plan in 2017 was $38,300. During 2017, Purple Corporation contributed $10,000 to the plan. Purple's deductible amount for 2017 is what amount, if any?

A defined benefit retirement plan covers 72% of the non-highly compensated individuals. The plan benefits 48 of the 131 employees. Which is true?

In 2017, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan. Jindal's deductible amount and any contribution carryover are as follows:

Danielle, who is retired, reaches age 70 1/2 in 2016, and she will also be age 71 in 2016. She has a $150,000 balance in her traditional IRA. If her life expectancy is 15.3 years, what distribution, if any, must be made by April 1, 2017?

Which of the following characteristics is not a characteristic of a stock bonus plan?

Which of the following characteristics does not describe a defined benefit pension plan?

A major disadvantage of a NQSO is that an employee must recognize ordinary income on the exercise of the option or at the date of the grant without receiving cash to pay the tax.

Merrill is a participant in a SIMPLE § 401(k) plan, and he elects to contribute 4% of his $40,000 compensation to the account, while his employer contributes 3%. What amount will vest immediately, if any?

A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k) ] may contribute up to what amount in 2017?

Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax) . He has a profit sharing plan (i.e., defined contribution plan) . What is the maximum amount Fred can contribute to his retirement plan?

If a NQSO has a readily ascertainable value, an employee recognizes income on the grant date.

Which of the following characteristics is not a characteristic of a cash balance plan?

Scott, age 68, has accumulated $850,000 in a defined contribution plan, $100,000 of which represents his own after-tax contributions. If the full amount is distributed in 2017, his early distribution penalty is:

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan) . She has the following income items for the year: What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?