© 2010 CCH. All Rights Reserved. Chapter 14 633 Chapter 14 Deferred Compensation and Education Savings Plans TRUE-FALSE QUESTIONS—CHAPTER 14 An S corporation is permitted to adopt a Keogh plan or a SEP IRA for its employees. 1. A deduction to a Keogh plan for the prior year is allowed as long as the plan is established and the 2. contribution made by the due date of the return (including extensions). A deductible IRA would convert tax-exempt municipal bond interest into fully taxable ordinary income. 3. IRA distributions may be made with no penalties prior to age 59 ½ if: 4. (1.) Made to a spouse age 59 ½ or more, or (2.) If actual retirement occurred. Contributions to de fi ned contribution plans are capped at $220,000. 5. If a quali fi ed pension plan is contributory, the annuitant may use either the “exclusion ratio” or the “cost 6. recovery” methods of reporting. Lump-sum distributions from quali fi ed pension plans, but not from pro fi t- sharing plans, may be rolled 7. over to an IRA by the plan participant. A plan participant may borrow the fi rst $50,000 of the total vested account balance. 8. Unemployed individuals may be able to take early withdrawals from quali fi ed pension plans to pay for 9. medical insurance premiums without being subject to the penalty tax. A married couple, both aged 50, with only one working spouse may contribute up to $12,000 to deductible 10. IRA accounts in 2010. Under the SIMPLE pension plans, employers must contribute an amount equal to 5 percent of their 11. employees’ earnings. SIMPLE plans may be administered by companies with 100 or more employees earning $5,000 or more in 12. the previous year. Eligible employees may contribute up to $11,500 per year to their SIMPLE account. 13. Amounts contributed by employees to a SIMPLE are not subject to employment tax. 14. Contributions made by an employer to an employee’s SIMPLE accounts are not generally deductible by 15. the employer. Employees may be subject to a fi ne of up to 25 percent of the amount withdrawn for early withdrawal from 16. a SIMPLE. Employer contributions to a SIMPLE do not vest until the employee has been in the plan for fi ve years. 17. Tax-exempt organizations generally may establish 401(k) plans for their employees. 18. Quali fi ed distributions from Roth IRAs are made free of tax. 19. For a non-quali fi ed distribution from a Roth IRA, the distribution is deemed to come from direct 20. contributions fi rst. A taxpayer whose spouse is covered at work under a quali fi ed pension plan is generally not eligible to 21. make a tax-deductible contribution to an IRA. Taxpayers may make penalty-free withdrawals from Coverdell education savings accounts to pay for 22. quali fi ed higher education expenses of the taxpayer, the taxpayer’s spouse, and children and grandchildren of the taxpayer or the taxpayer’s spouse. An existing IRA may generally not be converted to a Roth IRA. 23.
634 CCH Federal Taxation—Basic Principles Chapter 14 © 2010 CCH. All Rights Reserved.
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