Week 6_Luaces FIN360

docx

School

Grantham University *

*We aren’t endorsed by this school

Course

340

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

Uploaded by tinkrrbel24

Katie Luaces Week 6/FIN360 19 April 2022 Chapter 7 Questions 1. Mindy, who is 44 years old, has five IRAs. On January 12 th , she converts $40,000 in IRA 2, which is a traditional IRA, into a Roth IRA. On March 25 th , she takes a distribution of $20,000 from IRA 1. On May 20 th , she rolls over the $20,000 into IRA 4. Which of the following statements is correct? a. Mindy owes tax and penalty on $40,000 b. Mindy owes tax and penalty on the $20,000 because it represents her second rollover during the year. c. The $20,000 rollover qualifies for the 60-day rollover exception. d. Mindy owes ordinary income tax on $60,000 but no penalty Since the rollover occurred within the 60-day window from distribution to roll over, the rollover would qualify without a penalty being incurred. 2. Kay turned 70 ½ on March 17 th of Year 2. Her profit-sharing account balance was $500,000 at the end of Year 1 and $550,000 at the end of Year 2. Her beneficiary is her favorite granddaughter, Jordan, who turned 12 years old on July 23 rd of Year 2. Assume that the joint life expectancy factor for a 70-year-old and a 12-year-old is 71 and the joint life expectancy for a 71-year-old and a 13-year-old is 70. Also, assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, and 72, is 27.4, 26.5, and 25.6, respectively. Kay takes a distribution of $10,000 in November of Year 1 and in Year 2. What is Kay’s minimum distribution for Year 2? a. $18,248 b. $18,868 c. $20,073 d. $20,755 Beginning balance:$550,000/26.5(life expectancy factor) = $20,754.71 3. Donna turned 72 on January 7 th of Year 2. Her profit-sharing account balance was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. Her beneficiary is her older sister, Robin, who turned 82 years old on July 2 nd of Year 2. Assume that the life expectancy factor based on the uniform lifetime table for someone who is 70, 71, 72, and 73 is 27.4, 26.5, 25.6, and 24.7, respectively. If Donna only takes a distribution of $2,000 for Year 2, then how much is her minimum distribution penalty?

a. $953 b. $1,024 c. $1,930 d. $2,036 Beginning account balance: $150,000/25.6 (life expectancy factor) = $5859.37 $5,859.37 - $2,000 = $3,859.37 x 50% (minimum distribution penalty) = $1929.68 4. Kathy has an account balance in her employer’s money purchase pension plan of $1,000. The plan has a 2-6 graded vesting policy. She has been a participant for three and a half years and has worked for the company for five years. Assuming the plan permits loans, what is the maximum loan that Kathy could take from the plan? a. $20,000 b. $30,000 c. $40,000 d. $50,000 5. BJ has a vested account balance in his employer-sponsored qualified money purchase pension plan of $60,000. He has two years of service with his employer and the plan follows the least generous graduated vesting schedule permitted under PPA 2006. If BJ has an outstanding loan balance within the prior 12 months of $15,000, what is the maximum loan BJ could take from this qualified plan, assuming the plan permitted loans? a. $15,000 b. $30,000 c. $35,000 d. $50,000 6. Thomas, who is 49 years old, received a distribution form his Roth account of his employer’s 401(k) plan in the amount of $100,000 on August 11 th . He has been a participant in the plan for ten years. His adjusted basis in the plan was $600,000 and the fair market value of the account as of August 11 was $1 million. The distribution was for the purpose of buying a Porsche for himself for this birthday. What is the taxable amount of the distribution and any applicable penalty? a. $0 taxable, $0 penalty because it is a qualified distribution b. $40,000 taxable, $4,000 tax penalty c. $40,000 taxable, $0 tax penalty d. $100,000 taxable, $10,000 tax penalty

Chapter 8 Questions 7. Baily owns and operates Ben’s Red Truck Shop (BRT), which is a sole proprietorship, She has self-employment income of $150,000. How much self- employment tax does she owe for 2019? a. $20,497 b. $20,830 c. $21,194 d. $22,950 8. Dan owns and operates Schoepf’s Sales Solutions (3S), a sole proprietorship. 3S sponsors a profit-sharing plan. Dan had net income of $250,000 and paid self- employment taxes of $22,000 (assumed) during the year. Assuming Dan is over the age of 50, what is the maximum amount that Dan can contribute to the profit sharing plan on his behalf for 2019? a. $47,800 b. $53,800 c. $56,000 d. $62,000 9. Colin owns and operates Colin’s Creative Coaching (3C), a sole proprietorship, 3C sponsors a 401(k)/profit-sharing plan. Colin had net income of $200,000 and paid self- employment taxes of $20,000 (assumed) during the year. Assuming Colin is over the age of 50, what is the maximum amount that Colin and his company can contribute on his behalf to the plan for 2019? a. $25,000 b. $56,000 c. $62,000 d. $63,000 10. Jordan owns and operates Jordan’s Exotic Jouneys (JEJ), a sole proprietorship. JEJ sponsors a profit-sharing plan. Jordan had a net income of $150,000 and paid self- employment taxes of $20,000 (assumed) during the year. Jordan has decided to make a 15% contribution for her employees for the year. Assuming Jordan is over the age of 50, what amount will she contribute for herself to the plan for 2019? a. $16,957 b. $18,261

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

c. $28,000 d. $56,000 Pg. 394-395 1. Which of the following distributions from a qualified plan would not be subject to the 10 percent early withdrawal penalty, assuming the participant has not attained age 591⁄2? 1. A distribution made to a spouse under a Qualified Domestic Relations Order (QDRO). 2. A distribution from a qualified plan used to pay the private health insurance premiums of a current employee of Clinical Trials Company. 3. A distribution to pay for costs of higher education. 4. A distribution made immediately after separation from service at age 57. a. 1 and 2. b. 1 and 3. c. 1 and 4. d. 2 and 3. A distribution from a qualified plan prior to the age of 59 ½ would be subjected to a 10 percent early withdrawal penalty is the funds were to pay for the cost of higher education or pay the private health insurance premiums of an employee as these situations are not listed on the exception list. Therefore, a distribution made to a spouse under a Qualified Domestic Relations Order (QDRO) and a distribution made immediately after separation from service at age 57 would not be subjected the 10 percent tax. 2. Viola, who is 75 years old, requested from the IRS a waiver of the 60-day rollover requirement. She indicated that she provided written instructions to her financial advisor that she wanted to take a distribution from her IRA and roll it over into a new IRA. Her financial advisor inadvertently moved the funds into a taxable account. Viola did not make the request of the IRS until five years after the mistake was made. Will the IRS permit the waiver? a. No, the IRS never waives this requirement, except under the most extreme circumstances. b. Yes, the mistake was the fault of the financial advisor, and the IRS regularly grants waivers in these circumstances c. No, Viola waited beyond the one-year period for filing such a request

d. No, Viola waited an unreasonable amount of time before filing the request Had Viola reported this in a timely manner, the IRS would have granted the waiver as it was the fault of the financial advisor. However, she waited 5 years and should have realized the mistake sooner since she would have had to report the interest on her Form 1040 and receive account statements. 3. Owen, turned 72 on November 1st of 2021, and must receive a minimum distribution from his qualified plan. The account balance had a value of $409,216 at the end of 2020. The distribution. For 72-year-old is 25.6 and. For a 73-year-old it is 24.7 under the uniform lifetime table, effective for distribution years prior to 2022. The distribution. For 72-year-old is 27.4 and 27.4 year old. it is 26.5 under the uniform lifetime table effective for distribution years after 2021. If Owen takes $15,000 distribution on April 1st 2022 what is the amount of the minimum distribution tax penalty associated with his first-year distribution? a. $0 b. $230 c. $492 d. $985 Beginning account balance: $409,216/25.6 (life expectancy factor) = $15,985 $15,985 - $15,000 = $985 x 50% (minimum distribution penalty) = $1929.68 = $492.50