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Johnson & Wales University Wk 5 Medicare Tax Rate of Ben Red Truck Shop Questions

Johnson & Wales University Wk 5 Medicare Tax Rate of Ben Red Truck Shop Questions

Question Description

1.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?

$21,092.

$21,194.

$22,194.

$22,950.

2.Colin is 35 years old and inherits an IRA from his mother, who dies prematurely at age 60. Which of the following statements is correct regarding his options for the inherited IRA?

Colin does not have to take distributions until his mother would have been 70 years old.

Colin can rollover the IRA into his own IRA.

Colin can take out the entire distribution within ten years and avoid all penalties.

Colin must take distributions over his single life expectancy.

3. Which of the following statements is correct regarding self-employment tax?

1. W-2 income earned during a year will always reduce the amount of self-employment tax due on self-employment income.

2. Two separate sources of self-employment income are combined to determine the total self-employment tax owed by the taxpayer.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

4. Kathy has an account balance in her employer’s money purchase pension plan of $100,000. 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?

$20,000.

$30,000.

$40,000.

$50,000.

5.Donna turned 72 on January 7th of Year 2., which is before the year 2020. 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 2nd 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?

$953.

$1,024.

$1,930.

$2,036.

6.Which of the following statements regarding determination letters for qualified plans is true?

Employers must request a determination letter from the IRS for all qualified plans.

Employers must request a determination letter from the DOL for all qualified plans that are materially modified or materially amended.

Employers who receive a favorable determination letter are protected from the IRS disqualifying their qualified plan.

Employers must follow each and every aspect of their qualified plan document.

7.Which of the following statements about required notifications is correct?

1. Employers are required to provide, free of charge, a summary of the details of the qualified retirement plan, called a summary plan description, to employees, participants, and beneficiaries under pay status (receiving benefits). The summary must be furnished within 90 days after the person becomes a participant.

2. Employers are required to provide the plan participants notices of any plan amendments or changes. This notice can be provided either through a revised Summary Plan Description or in a separate document, called a summary of material modifications. This document must be given to participants free of charge within 210 days after the end of the plan year in which a change is adopted and applies when there are substantive changes in the plan.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

8.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?

$15,000.

$30,000.

$35,000.

$50,000.

9.Thomas, who is 49 years old, received a distribution from his Roth account of his employer’s 401(k) plan in the amount of $100,000 on August 11th. 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 his birthday. What is the taxable amount of the distribution and any applicable penalty?

$0 taxable, $0 penalty because it is a qualified distribution.

$40,000 taxable, $4,000 tax penalty.

$40,000 taxable, $0 tax penalty.

$100,000 taxable, $10,000 tax penalty.

10.Which of the following are acceptable reasons for an employer to terminate a qualified retirement plan?

1. The employer is not profitable and cannot afford to make plan contributions.

2. The employer wants to reduce the cost of retirement benefits. As a result, the employer terminates a defined benefit plan and replaces it with a 401(k) plan.

1only.

2 only.

Both 1 and 2.

Neither 1 nor 2.


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