Question 1

Which of the following statements regarding a Coverdell Education Savings Account (CESA) is incorrect?

Accepted Answer

A person can contribute to multiple CESAs for the same beneficiary or different beneficiaries, as long as the total contributions do not exceed the annual limit. The annual contribution limit for a CESA is $2,000 per beneficiary per year, and contributions are not tax-deductible.

Question 2

Omar is single, age 46, and reported AGI of $126,000 in tax year 2015. He is an active participant in his employer's pension plan. What is the maximum Roth IRA contribution he can make in 2015?

Accepted Answer

The answer of Omar is single, age 46, and reported...

Question 3

Which of the following statements is correct?

Accepted Answer

A) Congress did establish pension plan rules to encourage individuals to save for retirement.
B) Retirement plans are generally tax-deferred, meaning taxes are paid upon withdrawal from the plan.
C) Individuals or companies usually establish a pension plan with a trustee to oversee the management of the plan assets.

Question 4

In order to obtain and retain qualified status, a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:

Accepted Answer

Highly compensated employees are defined as employees who own more than 5% of the corporation's stock or received compensation in excess of a certain amount (which is adjusted annually). The top 25% of employees based on compensation are not specifically designated as highly compensated employees for the purposes of qualified plan nondiscrimination testing. Therefore, the correct answer is A.

Question 5

What are some tax consequences related to a qualified pension plan?

Accepted Answer

Employer contributions to a qualified pension plan are generally tax deductible when made. In addition, employees are not taxed on contributions until distributions are received from the plan. However, earnings on the contributions are taxable to the employee as they are earned. Therefore, the best choice is D, which includes both employer contributions being deductible when made and employees being taxed only when they receive distributions from the plan.

Question 6

Xavier is a self-employed plumber. His earnings from self-employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his deductible Keogh contribution for 2015?

Accepted Answer

For a self-employed individual, the maximum deductible contribution to a Keogh plan is 25% of net earnings from self-employment. After deducting half of the self-employment tax, Xavier's earnings are $80,000. Therefore, 25% of $80,000 is $20,000. However, the contribution is limited to 20% of net earnings before the Keogh deduction, which results in $16,000.

Question 7

Escobar and Rose are both age 36 and file a joint return. Neither is covered under an employer plan. Escobar earned $121,000 of compensation in 2015. Rose worked part-time and earned $1,200. What is the maximum deductible IRA contribution they can make in 2015?

Accepted Answer

Since neither Escobar nor Rose is covered by an employer plan, they can each contribute up to the maximum IRA limit for 2015, which is $5,500 per person. Therefore, together they can contribute a total of $11,000.

Question 8

In 2015, a 52-year-old participant in a 401(k) plan may contribute a maximum of:

Accepted Answer

The maximum contribution for individuals over age 50 in 2015 is $24,000. While options A and B are possible contribution limits for younger participants, the higher limit for those over 50 is the correct answer. Option D is incorrect as it represents the maximum contribution if both the employee and employer were contributing to the plan.

Question 9

Venkat is age 32, single, and reported AGI of $67,000 in tax year 2015. He is an active participant in his employer's pension plan. What is the maximum deductible IRA contribution he can make in 2015?

Accepted Answer

The answer of Venkat is age 32, single, and reported...

Question 10

Pension plans must meet complex rules to retain their tax-advantaged status. These rules include all of the following except:

Accepted Answer

Employee and employer contributions must fully vest within three years, not five years. Therefore, B is incorrect. The other options are correct: the plan must not discriminate in favor of highly compensated employees (A), must adequately cover rank-and-file employees (C), and must be established for the exclusive benefit of employees and their beneficiaries (D).

Question 11

Jill is single, age 27, and reported AGI of $62,000 in tax year 2015. She is an active participant in her employer's pension plan. What is the maximum deductible Roth IRA contribution she can make in 2015?

Accepted Answer

According to IRS rules, if Jill is an active participant in a pension plan, the deductibility of contributions to a traditional IRA is limited based on her income. In 2015, for single filers covered by a workplace retirement plan, the deductibility of traditional IRA contributions begins to phase out at $61,000 and is completely phased out at $71,000. Since Jill's income falls within this range, she cannot make a deductible contribution to a traditional IRA. Additionally, Roth IRA contributions are not deductible for tax purposes, so her maximum contribution would be $5,500, but it would not be deductible. Therefore, Jill's maximum deductible Roth IRA contribution for 2015 is $0.

Question 12

Charlotte is age 52, married, and reported AGI of $102,000 in tax year 2015. She is an active participant in her employer's pension plan. What is the disallowed portion of her deductible IRA contribution in 2015?

Accepted Answer

The maximum deductible IRA contribution for an individual who is age 50 or older is $6,500 for tax year 2015. However, because Charlotte is an active participant in her employer's pension plan and her AGI is above certain limits, her contribution limit is reduced. The maximum reduced contribution limit for her is $3,500. Therefore, the disallowed portion of her contribution is $6,500 - $3,500 = $3,000. However, because she is over age 50, she can make an additional catch-up contribution of $1,000, bringing the total disallowed portion to $3,000 + $1,000 = $4,000.

Question 13

Which of the following is true regarding an SEP?

Accepted Answer

SEP plans cannot discriminate in favor of highly compensated employees.

Question 14

Which of the following statements is incorrect?

Accepted Answer

If a pension plan is funded with contributions that have not been taxed, the distributions will eventually be taxed when they are received by the individual in retirement. This is known as tax-deferred growth, as taxes are deferred until the funds are withdrawn.

Question 15

Benjamin and Ester file a joint return and have AGI of $165,000. Both are active participants in their employer's pension plan. They have one child, Emily, who is age 8. Emily's grandparents contributed $1,000 to a Coverdell Education Savings Account for Emily in 2015. What is the maximum permitted Coverdell Education Savings Account contribution that Benjamin and Ester can make in 2015?

Accepted Answer

The answer of Benjamin and Ester file a joint return...

Question 16

Kaysia participates in a SIMPLE plan provided by her employer. In 2015, she contributes 6% of her $40,000 salary, and her employer contributes 3% to the plan. What amount of the contributions will be vested in her account at the end of 2015?

Accepted Answer

In a SIMPLE plan, employee contributions are always 100% vested. Kaysia contributes 6% of $40,000, which is $2,400, and her employer contributes 3% of $40,000, which is $1,200. The total vested amount is $2,400 + $1,200 = $3,600.

Question 17

Which of the following statements is incorrect?

Accepted Answer

Contributions to a pension plan can be made by both the beneficiary and the employer sponsoring the plan.

Question 18

Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan. The payments begin January 1, 2015. He contributed $71,500 to the plan prior to his retirement at age 62. Using the simplified method, how much of the payments will be included in Len's taxable income for 2015?

Accepted Answer

To determine the taxable portion of the pension payments using the simplified method, we need to divide Len's after-tax contributions (also known as his investment in the contract) by the expected return rate. The expected return rate is based on IRS tables and Len's age at the start of the pension payments.

In this case, Len's investment in the contract is $71,500, and assuming he is 62 years old, the expected return rate is 6.3%. Therefore, his taxable income from the pension plan for 2015 will be:

($1,500 monthly payment x 12 months) - ($71,500 / (Life expectancy factor of 180 months)) x 6.3% = $14,700

So the correct answer is C, $14,700.

Question 19

Valerie and Marty are both age 51 and file a joint return. They have one child who is age 17. They have combined AGI in 2015 of $180,000. What is their maximum permitted contribution to a Coverdell Education Savings Account for 2015 assuming no other persons make contributions?

Accepted Answer

The maximum permitted contribution to a Coverdell Education Savings Account for 2015 is $2,000 per beneficiary, regardless of income or tax-filing status. Therefore, Valerie and Marty can contribute up to $2,000 for their child's education savings account.

Question 20

Which of the following statements is incorrect?

Accepted Answer

Profit-sharing plans are a type of defined-contribution plans and can qualify as pension plans. The amount of annual profit-sharing contributions can be determined in advance, but the amount of future retirement benefits is not known in advance.

Quiz 11: Retirement and Other Tax-Deferred Plans and Annuities:

Which of the following statements regarding a Coverdell Education Savings Account (CESA) is incorrect?

Omar is single, age 46, and reported AGI of $126,000 in tax year 2015. He is an active participant in his employer's pension plan. What is the maximum Roth IRA contribution he can make in 2015?

Which of the following statements is correct?

In order to obtain and retain qualified status, a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:

What are some tax consequences related to a qualified pension plan?

Xavier is a self-employed plumber. His earnings from self-employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his deductible Keogh contribution for 2015?

Escobar and Rose are both age 36 and file a joint return. Neither is covered under an employer plan. Escobar earned $121,000 of compensation in 2015. Rose worked part-time and earned $1,200. What is the maximum deductible IRA contribution they can make in 2015?

In 2015, a 52-year-old participant in a 401(k) plan may contribute a maximum of:

Venkat is age 32, single, and reported AGI of $67,000 in tax year 2015. He is an active participant in his employer's pension plan. What is the maximum deductible IRA contribution he can make in 2015?

Pension plans must meet complex rules to retain their tax-advantaged status. These rules include all of the following except:

Jill is single, age 27, and reported AGI of $62,000 in tax year 2015. She is an active participant in her employer's pension plan. What is the maximum deductible Roth IRA contribution she can make in 2015?

Charlotte is age 52, married, and reported AGI of $102,000 in tax year 2015. She is an active participant in her employer's pension plan. What is the disallowed portion of her deductible IRA contribution in 2015?

Which of the following is true regarding an SEP?

Which of the following statements is incorrect?

Kaysia participates in a SIMPLE plan provided by her employer. In 2015, she contributes 6% of her $40,000 salary, and her employer contributes 3% to the plan. What amount of the contributions will be vested in her account at the end of 2015?

Which of the following statements is incorrect?

Valerie and Marty are both age 51 and file a joint return. They have one child who is age 17. They have combined AGI in 2015 of $180,000. What is their maximum permitted contribution to a Coverdell Education Savings Account for 2015 assuming no other persons make contributions?

Which of the following statements is incorrect?