Topic 24 - Retirement Income and Rollovers

1. Look at the Form 1040 you prepared for Greg Rojas. What is the amount on Form 1040, Line 46?

a. $ 35,061.
b. $ 25,960.
c. $ 26,893. 
d. $ None of the above.

2. Look at the Form 1040 you prepared for Greg Rojas. What is the amount on Form 1040, Line 74a?

a. $ -0- Owe $4,061.
b. $ -0- Owe $25,893.
c. $ 5,040. 
d. None of the above.

3. 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.

4. 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.

5. 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 a lump-sum distribution.

a. Pension.
b. Annuity.
c. Qualified Employee plan.
d. A tax shelter.

6. 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. Annuity.
c. Qualified Employee plan.
d. A tax shelter annuity plan.

7. You received definite amounts at regular intervals for a specified length of time.

a. Fixed-period annuities.
b. Annuities for a single life.
c. Joint and survivor annuities.
d. Variable annuities.

8. You receive definite amounts at regular intervals for life and the payments end at death.

a. Fixed-period annuities.
b. Annuities for a single life.
c. Joint and survivor annuities.
d. Variable annuities.

9. The first annuitant receives a definite amount at regular intervals for life. After he or she dies, a second annuitant receives a definite amount at regular intervals for life. The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant.

a. Fixed-period annuities.
b. Annuities for a single life.
c. Joint and survivor annuities.
d. Variable annuities.

10. You receive payments that may vary in amount for a specified length of time or for life. The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund.

a. Fixed-period annuities.
b. Annuities for a single life.
c. Joint and survivor annuities.
d. Variable annuities.

11. You receive disability payments because you retired on disability and have not reached minimum retirement age.

a. Fixed-period annuities.
b. Annuities for a single life.
c. Joint and survivor annuities.
d. Disability pensions.

12. If you withdraw funds (other than as an annuity) on or after your annuity starting date

a. a ratable part of the amount withdrawn is tax free.
b. the entire amount withdrawn is generally taxable.
c. the entire amount withdrawn is generally non-taxable.
d. None of the above.

13. If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan 

a. a ratable part of the amount withdrawn is tax free.
b. the entire amount withdrawn is generally taxable.
c. the entire amount withdrawn is generally non-taxable.
d. None of the above.

14. If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally

a. taxable only to the extent it is more than the un-recovered cost of the contract.
b. non-taxable
c. taxable if it is at least the cost of the contract.
d. taxable to the extent that it is less than the un-recovered cost of the contract.

15. You may be able to participate in this compensation plan if you work for a state or local government or for a tax-exempt organization.

a. Section 475 plan.
b. Section 502 plan.
c. Section 457 deferred compensation plan.
d. Section 675 plan.

16. If you retired on disability, you generally must include in income any disability you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you

a. turn 65 years of age.
b. reach minimum retirement age.
c. turn 55 years of age.
d. None of the above.

17. This is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Which category do these benefits under the Railroad Retirement Act fall into?

a. First Category.
b. Second Category.
c. Third Category.
d. Fourth Category.

18. Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. The total cost of your annuity is $12,000. Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). After that,

a. Your annuity payments qualify to be excluded from taxations.
b. Your annuity payments are fully taxable.
c. Your annuity payments cannot exceed total cost.
d. Your deduction is not subject to the 2%-of adjusted-gross-income limit.

19. 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. both a and b are correct.

20. 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. all of the above.

21. 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.

22. 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.

23. 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.

24. 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. all of the above.

25. 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.

26. The distribution or payment in 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.

a. Partially rolled over distribution.
b. Redemption proceeds.
c. Lump-sum distribution.
d. Qualified plan.

27. 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. all of the above.

28. 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-

29. 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. 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

a. must be repaid before the end of the tax year.
b. must be repaid within 3 years.
c. must be repaid within 4 years.
d. must be repaid within 5 years.

30. 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. all of the above.

31. Look at the Form 540 you prepared for Greg Rojas. What is the amount on Form 540, Line 35?

a. $ 11,739.
b. $ 14,158.
c. $ 4,880. 
d. $ 4,820.

32. Look at the Form 540 you prepared for Greg Rojas. What is the amount on Form 540, Line 66?

a. $ -0- owe $6,837.
b. $ 22.
c. $ -0- owe $9,256. 
d. $ 82.

33. If you are a California resident who was a former nonresident, the new law may affect the taxation of your IRA income. Under prior law, when you became a resident, you received a stepped-up basis in your IRA equal to your annual contributions made while a nonresident, plus the earnings on your IRA basis until it was fully recovered. Beginning in 2002, you

a. Can use this stepped-up basis again.
b. No longer have this stepped-up basis.
c. Are a resident for all prior years for all items of deferred income, including IRAs. 
d. None of the above.

34. California does not have taxes similar to the federal tax on

a. Excess accumulations.
b. Excess contributions.
c. Excess distributions.
d. All of the above.

35. A pension attributable to services performed outside California but received after you became a California resident is

a. Non-taxable because you were not a resident at the time of contributions.
b. Non-taxable because it's income from sources outside of California.
c. Taxable in its entirety by California.
d. Not taxed because California residents not taxed on all income.

36. You IRA distribution is fully taxable if your IRA contributions were fully deductible. If your IRA contributions were partially or fully nondeductible, then the nondeductible contributions are not taxed when they are distributed to you.

True False

37. All Roth IRA transactions must be treated the same way for California purposes as they are for federal purposes and no California adjustment will be necessary unless

a. You made a conversion from a traditional IRA to a Roth IRA.
b. The federal basis of the traditional IRA was different from the California basis.
c. Both A and B are correct.
d. None of the above.

38. In general, the taxable amount of your Roth IRA distribution will be the same for California and federal purposes. However, the taxable portion of your distribution may be different for California purposes than for federal purposes if

a. You made a 1998 conversion from a traditional IRA to a Roth IRA.
b. You elected to report the taxable portion of the conversion over 4 years.
c. The federal basis of the traditional IRA was different from the California basis.
d. All of the above.

39. You worked in Nevada for 20 years. You retired and moved permanently to California on January 1, 2007. While living in California, you begin receiving your pension attributable to the service performed in Nevada. You are a full-year resident of California. Your pension

a. Is taxable by Nevada.
b. Is not taxable by California.
c. Is taxable by California.
d. None of the above.

40. Under the "Three-year Rule", amounts you receive are not taxed until your after-tax contributions are recovered. Once your contributions are recovered, your pension or annuity is

a. Partly taxable.
b. Fully taxable.
c. Not taxable.
d. None of the above.