60. An agreement that provides for future payment for current work. a. Usually offered to highly-paid executives. b. The employer must make contributions to the plan currently. c. The plan generally accompanies a qualified plan available to all employees. d. Which of the following statements about rabbi trusts is true? 61. They are set up exclusively for rabbis, priests, etc.
639 Testbank ©2010 CCH. All Rights Reserved. Modern Bedding, Inc. has 300 employees, all of whom are covered by its defined benefit pension plan, 62. and 50 of whom are highly compensated. This year contributions are made to the accounts of all 50 highly compensated employees and 200 of the rest. Is it possible for the above plan to be qualified? a. If Modern Bedding maintains one plan for the highly compensated employees and another for the rank b. and file, is it possible for both plans to be qualified? Ann Sacks has an annual salary of $30,000. Her employer established a Section 401(k) plan, providing that 63. she may invest up to 12 percent of her salary in the plan. The employer will match the first five percent. This year Ann took an eight percent salary reduction. What is Ann’s gross income from compensation? a. What amount is subject to social security tax? b. What is the employer’s compensation deduction? c. What is Ann’s total increase in her Section 401(k) account? d. Answer the following questions about traditional IRAs: 64. May a self-employed private investigator establish and deduct contributions to an IRA? a. May a 16-year-old baby-sitter open an IRA? b. Can the plan participant write covered calls through an IRA? c. Can the taxpayer deduct the interest on a loan obtained for the sole purpose of making an IRA contribution? d. Can an IRA contribution be made in IBM stock? e. May an IRA purchase term life insurance on the participant’s children? f. May the IRA be used as collateral for a loan? g. May the IRA contribution be made after the return is filed? When must the participant start withdrawing funds from the IRA? i. Robin Benchly retired and received an annuity of $15,000 a year for life, unadjusted for inflation. Her life 65. expectancy is 20 years for tax purposes. What portion of the annuity would constitute gross income to her under the following circumstances? The payments are made from a nonqualified, noncontributory, “pay-as-you- go” plan. a. The payments are made from a qualified, fully funded, noncontributory plan. b. Same as (a), except Robin contributed $60,000 to the plan over the years and lived for 30 years. c. Same as (c), but Robin lived for 10 years. d. Leslie Bonkers retired from Cascade Whigs, Inc. after 37 years of service and elected to take her account 66. balance in the qualified pension plan, $150,000, in a lump sum. (a.) May she roll over the lump sum to an IRA? (b.) How are subsequent withdrawals going to be taxed? Chapter 14 SUPPLEMENTARY PROBLEMS—CHAPTER 14 h.
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