Chapter 13 Retirement Savings and Deferred Compensation

| November 9, 2018

16.

When a
taxpayer receives a nonqualified distribution from a Roth 401(k) account the
taxpayer contributions are deemed to be distributed first. If the amount of
the distribution exceeds the taxpayer contributions, the remainder is from
the account earnings.

True False

17.

Just like
distributions from qualified retirement plans, distributions from
nonqualified deferred compensation plans are taxed as ordinary income to the
recipient.

True False

18.

Participating
in an employer-sponsored nonqualified deferred compensation plan is
potentially risky because employers are not required to fund nonqualified
plans. If the employer is not able to pay the employee when the payment is
due, the employee usually becomes an unsecured creditor of the
employer.

True False

19.

From a tax
perspective, participating in a nonqualified deferred compensation plan is an
effective tax planning strategy when the employee anticipates that her
marginal tax rate will be higher when she receives the deferred compensation
than when she defers the compensation.

True False

20.

Employers may
choose whom they allow to participate and whom they do not allow to
participate in their nonqualified deferred compensation plans.

True False

21.

Taxpayers who
participate in an employer-sponsored retirement plan are not allowed to
contribute to individual retirement accounts (IRAs).

True False

22.

Taxpayers who
participate in an employer-sponsored retirement plan are not allowed to
deduct contributions to individual retirement accounts (IRAs) under any circumstances.

True False

23.

Darren is
eligible to contribute to a traditional 401(k) in 2014. He forgot to
contribute before year end. If he contributes before April 15, 2015, he is
allowed to treat the contribution as though he made it during 2014.

True False

24.

Taxpayers
never pay tax on the earnings of a traditional 401(k) account.

True False

25.

Qualifying
distributions from traditional IRAs are nontaxable while qualifying
distributions from Roth IRAs are fully taxable as ordinary income.

True False

26.

Taxpayers
contributing to and receiving distributions from a Roth IRA generally earn a
before-tax rate of return on their contributions equal to their after-tax
rate of return.

True False

27.

If a taxpayer’s
marginal tax rate is decreasing, a taxpayer contributing to a traditional IRA
can earn an after-tax rate of return greater than her before-tax rate of
return.

True False

28.

A SEP IRA is
an example of a self-employed retirement account.

True False

29.

Individual
401(k) plans generally have higher contribution limits than SEP IRAs.

True False

30.

A taxpayer
can only receive a saver’s credit if she contributes to a qualified
retirement account.

True False

31.

High-income
taxpayers are not allowed to receive the saver’s credit.

True False

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