Tax Topic 23 - Pension and Annuity Income

1. Look at the Form 1040 you prepared for Greg Rojas. What is the amount on Form 1040, Line 16b?

A. $180,000.
B. $125,360.
C. $155,000. 
D. $25,960.

2. Look at the Form 1040 you prepared for Greg Rojas. What is the amount on Form 1040, Line 44?

A. $54,490.
B. $56,890.
C. $42,948. 
D. $40,782.

3. You can choose not to have income tax withheld from retirement plan payments unless they are eligible roll over distributions. The payer will ignore your choice not to have tax withheld if

A. You do not give the payer your social security number (in the required manner).
B. The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number.
C. You give the payer an incorrect address.
D. Either A or B above.

4. To choose not to have tax withheld, a U.S. citizen or resident must give the payer a home address in the United States, and have the check delivered to an address in the United States or its possessions. Without that address, the payers must withhold tax. If you do not give the payers a home address in the United States or its possessions, you can choose not to have tax withheld only if you

A. Certify to the payer that you are not a U.S. citizen.
B. Certify to the payer that you are not a U.S. resident alien.
C. Certify to the payer that you are not someone who left the country to avoid paying tax.
D. Any of the above.

5. Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). If you do not, tax will be withheld

A. As if you were married and claiming three withholding allowances.
B. As if you were single and were claiming no withholding allowances.
C. At a 30% flat rate.
D. At 10% of distribution.

6. For a non-periodic distribution that is not an eligible roll over distribution, the withholding is 10% of the distribution, unless

A. You ask the payer to withhold an additional amount.
B. You choose to have tax withheld.
C. You choose not to have tax withheld.
D. You treat it as wages for  withholding purposes.

7. Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). If any part of a distribution is treated as a recovery of your cost, that part is

A. Taxable.
B. Tax free.
C. A pension.
D. An annuity.

8. Distribution from your pension or annuity plan may include amounts treated as a recovery of your cost. Your cost is your net investment in the contract as of the annuity starting date. This includes the amounts your employer contributed that were taxable when paid. It does not include

A. Amounts withheld from your pay on a tax-deferred basis.
B. Amounts you contributed for health and accident benefits.
C. Any additional premiums paid for double indemnity or disability benefits.
D. Any of the above.

9. Pension or annuity plans are also known as amounts received as an annuity. You can recover the cost of your pension or annuity tax free over the period you are to receive the payments. The amount of each payment that is taxable is

A. The amount of each payment that is less than the part that represents your cost.
B. The amount for which you did not pay anything or are not considered to have paid anything for your pension or annuity.
C. The amount for which your employer withheld contributions from your salary.
D. None of the above.

10. The distribution or payment in one tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind such as pension, profit-sharing, or stock bonus plans is a

A. Partially rolled over distribution.
B. Redemption proceed.
C. Lump-sum distribution.
D. Qualified plan.

11. If you receive a non-periodic distribution before that annuity starting date from a qualified retirement plan, you generally can allocate only part of it to the cost of the contract. You exclude from your gross income the part that you allocate to the cost. You include the remainder in your gross income. For this purpose, a qualified retirement plan is

A. A qualified employee plan (or annuity contract purchased by such a plan).
B. A qualified employee annuity plan.
C. Tax-sheltered annuity plan (403(b) plan).
D. Any of the above.

12. Before he had a right to an annuity, Daniel received $60,000 from his retirement plan. He had $15,000 invested (cost) in the plan. His account balance was $110,000. How much of the $60,000 distribution can he exclude?

A. $ 8,182.
B. $15,000.
C. $5,000.
D. $0

13. If you borrow money from your retirement plan, you must treat the loan as a non-periodic distribution from the plan unless it qualifies for the exception to the loan-as-distribution rule. At least part of certain loans under a qualified employee plan, qualified employee annuity, tax-shelter annuity (403(b) plan), or government plan is not treated as a distribution from the plan. Exception applies only to a loan that is either used to buy your main home or must be repaid

A. Before the end of the tax year.
B. Within 3 years.
C. Within 4 years.
D. Within 5 years.

14. If the loan from a qualified plan is not treated as a distribution because the exception applies, you cannot deduct any of the interest on the loan during any period that

A. The loan is secured by amounts from elective deferrals under a qualified cash or deferred arrangement (section 401 (k) plan.
B. A salary reduction agreement to purchase a tax-sheltered annuity.
C. You are a key employee as defined in section 416 (i) of the Internal Revenue Code.
D. Any of the above.

15. The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because

A. You did not pay anything or are not considered to have paid anything for your pension or annuity.
B. Your employer did not withhold contributions from your salary.
C. You got back all of your contributions tax free in prior years.
D. Any of the above.

16. If you transfer without full and adequate consideration an annuity contract issued after April 22, 1987, you are treated as receiving a nonperiodic distribution. The distribution equals the excess of the cash surrender value of the contract at the time of transfer, over 

A. Your investment in the contract at that time.
B. The amount of cash distributed under the old contract.
C. Repayments of any loans that were taxable to the plan participants.
D. Any of the above.

17. These payments are a series of definitely determinable payments made to you after you retire from work. These payments are made regularly and are based on certain factors, such as years of service with your employer or your prior compensation.

A. Pension.
B. Annuity.
C. Employee plan.
D. A tax shelter.

18. A series of payments under a contract made at regular intervals over a period of more than one full year. They can be fixed or variable. You can buy the contract alone or with the help of your employer.

A. Pension.
B. Annuity.
C. Employee plan.
D. A tax shelter.

19. An employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets IRS code requirements. It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions.

A. Pension.
B. Annuity.
C. Qualified Employee plan.
D. A tax shelter.

20. A retirement plan for employees of public schools and certain tax exempt organization. Generally provides retirement benefits by purchasing annuity contracts for its participants.

A. Pension.
B. A tax shelter annuity plan.
C. Qualified Employee plan.
D. Annuity.