ch13 Student 1 Qualified retirement plans include defined benefit plans but not defined contribution plans True False 2 Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will or can contribute to an employee s plan True False 3 The standard retirement benefit an employee will receive under a defined benefit plan depends on the number of years of service the employee provides but does not consider the amount of the employee s compensation near retirement True False 4 Jacob participates in his employer s defined benefit plan He has worked for his employer for four full years If his employer uses a five year cliff vesting schedule Jacob will need to work another year in order to vest in any of his defined benefit plan retirement benefits True False 5 Distributions from defined benefit plans are taxed as long term capital gains to beneficiaries 6 Taxpayers withdrawing funds from an IRA before they turn 70 are generally subject to a 10 percent penalty on the amount of the withdrawal True False 7 Both 401 k plans and Roth 401 k plans are forms of defined contribution plans True False True False 8 Both employers and employees may contribute to defined contribution plans However the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not True False 9 When an employer matches an employee s contribution to the employee s 401 k account the employee is immediately taxed on the amount of the employer s matching contribution True False 10 Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401 k accounts than employees who are not 50 years old by year end True False 11 Heidi retired from GE her employer at age 56 At the end of the year when she was 56 years of age Heidi received a distribution from her GE sponsored 401 k account Because Heidi was not at least 59 years of age at the time of the distribution she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution True False 12 Retired taxpayers over 59 years of age at the end of the year must receive minimum distributions from defined contribution plans or they are subject to a penalty True False 13 On December 1 2011 Irene turned 71 years old She is still working for her employer and she participates in her employer s 401 k plan Irene is not required to receive a minimum distribution for 2011 from her 401 k account because she has not yet retired True False 14 An employer may contribute to an employee s traditional 401 k account but the employer may not 15 Employee contributions to traditional 401 k accounts are deductible by the employee but employee contribute to an employee s Roth 401 k account True False contributions to Roth 401 k accounts are not True False 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 especially 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 21 Taxpayers who participate in an employer sponsored retirement plan are not allowed to contribute to nonqualified deferred compensation plans True False 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 2011 He forgot to contribute before year end If he contributes before April 15 2012 he is allowed to treat the contribution as though he made it during 2011 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 29 Individual 401 k plans generally have higher contribution limits than SEP IRAs 30 A taxpayer can only receive a saver s credit if she contributes to a qualified retirement account 31 High income taxpayers are not allowed to receive the saver s credit True False True False True False True False 32 Which of the following statements is true regarding employer provided qualified retirement plans A May discriminate against rank and file employees B Deductible contributions are generally phased out based on AGI C Executives are generally ineligible to participate in these plans D Generally referred to as defined benefit plans or defined contribution plans 33 Which of the following describes a defined benefit plan A Provides fixed income to the plan participants based on a formula B Distribution amounts determined by employee and employer contributions C Allows executives to defer income for a period of years D Retirement account set up by an individual 34 Which of the following statements regarding defined benefit plans is false A The benefits are