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Retirement Plans – SEP and Personal 401(k)1. Kathy is 60 years of age and self-employed. During 2016 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 a simplified employee pension (SEP) IRA for 2016?a.$11,152b. $16,652c.$59,000d.$53,000A. Her maximum contribution is the lesser of (1) $53,000 or (2) $11,152 [($60,000 - (60,000 × .9235 × .153 × .5)) × 20%]. There is no catch-up contribution for taxpayers at least 50 years of age at the end of the year.2. Wanda is 60 years of age and self-employed. During 2016 she reported $400,000 of revenues and $100,000 of expenses relating to her self-employment activities. If Wanda has no other retirement accounts in her name, what is the maximum amount she can contribute this year to a simplified employee pension (SEP) IRA?a.$53,000b.$59,000c.$57,727d.$88,636A. Her maximum contribution is the lesser of (1) $53,000 or (2) $57,727 [20% × ($300,000)] - [((300,000 × .9235 - 118,500) × 2.9% × 50%) + (118,500 × .153 × 50%)]3. Ann is 60 years of age and self-employed. During the year she reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Ann has no other retirement accounts in her name, what is the maximum amount she can contribute to an individual 401(k)?a.$29,152b. $35,152c.$59,000d.$53,000?B. She may contribute the lesser of (1) $53,000 or (2) $29,152 [[($60,000 - (60,000 × .9235 × .153 × .5)) × 20%] + $18,000]. Because she is at least 50 years of age at the end of the year, she may contribute an additional $6,000 as a catch-up adjustment. So in total she may contribute $35,152 ($29,152 + $6,000).4. Bob is 48 years of age and self-employed. During the year he reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Bob has no other retirement accounts in his name, what is the maximum amount he can contribute to an individual 401(k)?a.$11,152b. $17,152c.$29,152d.$53,000C. He may contribute the lesser of (1) $53,000 (2) $29,152 [[($60,000 - (60,000 × .9235 × .153 × .5)) × 20%] + $18,000]. Because he is not at least 50 years old at the end of the year, she does not qualify for a catch-up contribution.5. Bob is 60 years of age and self-employed. During the year she reported $400,000 of revenues and $100,000 of expenses relating to his self-employment activities. If Bob has no other retirement accounts in her name, what is the maximum amount he can contribute to an individual 401(k)?a.$53,000b.$59,000c.$75,727d.$75,727B. He may contribute the lesser of (1) $53,000 or (2) $75,727 [20% × ($300,000 - [((300,000 × .9235 - 118,500) × 2.9% × 50%) + (118,500 × 15.3% × 50%)])] + $18,000. Because she is at least 50 years of age at the end of the year, he may contribute an additional $6,000 as a catch-up adjustment in addition to the lesser of (1) or (2). So he may contribute $59,000 ($53,000 + $6,000)6. Jim is 48 years of age and self-employed. During the year he reported $400,000 of revenues and $100,000 of expenses relating to his self-employment activities. If Jim has no other retirement accounts in her name, what is the maximum amount he can contribute to an individual 401(k)?a.$53,000b.$59,000c.$75,727d.$81,727A. He may contribute the lesser of (1) $53,000 or (2) $75,727 [20% × ($300,000 - [((300,000 × .9235 - 118,500) × 2.9% × 50%) + (118,500 × 15.3% × 50%)])] + $18,000. He is not at least 50 years old at the end of year. He may not contribute an additional $6,000 as a catch-up adjustment.Retirement Plans - Operation1. Which of the following statements regarding traditional IRAs is true??A.?Once a taxpayer reaches age 55 years of age she is allowed to contribute an additional $1,000 a year.B.?Taxpayers with high income are not allowed to contribute to traditional IRAs.C.?Taxpayers who participate in an employer-sponsored retirement plan are allowed to deduct contributions to a traditional IRA regardless of their AGI.D.?A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.The limit for deductible contributions to traditional IRAs is the lesser of $5,500 or earned income. A taxpayer with no earned income would not be allowed to make a deductible IRA contribution.2.Which of the following statements regarding Roth 401(k) accounts is false??A.?Employees can make contributions to a Roth 401(k).B.?Employers can make contributions to Roth accounts on behalf of their employees.C.?Contributions to Roth 401(k) plans are not deductible.D.?Qualified distributions from Roth 401(k) plans are not taxable.An employer is not allowed to contribute to an employee's Roth 401(k) account.3. Amy is single. During 2016, 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?a.$1,250b. $2,500c.$1,000d.$0e.OtherC. $2,000 × 50% (the maximum contribution eligible for the credit multiplied by the maximum applicable percentage based on filing status and AGI).Retirement Plans – Early Distribution4. Shauna received a $100,000 distribution from her 401(k) account this year. Assuming Shauna's marginal tax rate is 25%, what is the total amount of tax and penalty Shauna will be required to pay if she receives the distribution on her 59th birthday and she has not yet retired?a.$0b. $10,000c.$25,000d.$35,000e.OtherShe must pay $25,000 of income tax on the distribution and a 10% early distribution penalty because she was not 59? on the date of the distribution and she had not yet retired.?5. Heidi (40 years old) has contributed $20,000 in total to her Roth 401(k) account over a six-year period. When her account was worth $50,000 and Heidi was in desperate need of cash, Heidi received a $30,000 nonqualified distribution from the account. How much of the distribution will be subject to income tax and 10% penalty?a.$0b. $10,000c.$12,000d.$18,000e.OtherD. Heidi is not taxed on 40% of the distribution because this is considered a return of her nondeductible contribution. The 40% is the amount of her contributions divided by the value of the account ($20,000/$50,000). The remaining 60% ($18,000) is subject to tax and penalties. Note that the distribution is nonqualified because Heidi is not 59? years of age at the time of the distribution (she had the Roth open for more than five years). Because she had not reached age 59? at the time she received the distribution, she is penalized on the earnings she received in the distribution.6. Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA). His marginal ordinary income tax rate is 15%. What amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution.A.?$3,000 income tax; $2,000 early distribution penalty.B.?$3,000 income tax; $0 early distribution penalty.C.?$0 income tax; $2,000 early distribution penalty.D.?$0 income tax; $0 early distribution penalty.The IRA distribution was used for qualified medical expenses.It is not subject to the 10 percent early distribution penalty but the full amount of the distribution is subject to the regular income tax ($20,000 × 15%).Retirement Plans – Required Distribution7. Riley participates in his employer's 401(k) plan. He retired in 2016 at age 75. When must Riley receive his distribution pertaining to 2016 to avoid minimum distribution penalties?a.April 1, 2016b. April 1, 2017c.December 31, 2016d.December 31, 2017To avoid minimum distribution penalties, the taxpayer must receive the first distribution by no later than April 1 of the year after which the employee turns 70? or the year in which the employee retires (if later). Because Riley is over 70? years of age and he has retired he can receive his 2016 distribution no later than April 1 of 20178. Sean (age 74 at end of 2016) retired five years ago. The balance in his 401(k) account on December 31, 2015 was $1,700,000 and the balance in his account on December 31, 2016 was $1,800,000. Using the IRS tables below, what is Sean's required minimum distribution for 2016??Age of ParticipantDistribution PeriodApplicable Percentage7027.43.65%7126.53.77%7225.63.91%7324.74.05%7423.84.20%7522.94.37%??For 2016, his required minimum distribution is $71,400 ($1,700,000 × 4.2%).Feedback: This is determined by his age at the end of the year of distribution (74) and the balance in his account at the end of the year prior to the distribution (2015). 9.Heidi (age 57) invested $4,000 in her Roth 401(k) on January 1, 2008. This was her only contribution to the account. On July 1, 2016, 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? ??$1,500 taxable portion of distribution; $150 penalty. Heidi is penalized because she was not 59? at the time she received the distribution. DescriptionAmountExplanationContribution to Roth 401(k)$4,000?Account Balance on distribution6,000?Nonqualified distribution4,500?Percentage of distribution that is not taxable66.67%4,000/6,000Nontaxable portion of distribution3,00066.67% × $4,500Taxable portion of distribution$1,5004,500 – 3,000Penalty on early distribution$1501,500 × 10% ................
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