Retirement Accounts and Tax Implications Quiz

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What is a key feature of traditional IRAs?

Distributions are always nontaxable.
Contributions are tax-deductible when made. (correct)
There are no required minimum distributions.
Contributions are taxed when made.

Taxpayers age 73 who reach age 72 after December 31, 2022, are not subject to required minimum distributions.

False (B)

What can taxpayers do with IRA funds in relation to charitable contributions?

Request a charitable contribution from the IRA trustee.

The required minimum distribution age has been updated to ______ for certain taxpayers.

73 Signup and view all the answers

Match the types of retirement accounts with their tax implications:

Traditional IRA = Tax-deductible contributions Roth IRA = Nontaxable distributions 401(k) = Employer-sponsored plan with tax deferral SEP IRA = For self-employed individuals with tax benefits Signup and view all the answers

Which of the following plans requires taxes to be paid on contributions?

Roth IRA (A) Signup and view all the answers

Divorce can lead to different tax implications for the year it occurs and future years.

True (A) Signup and view all the answers

What should taxpayers review regarding beneficiary ownership in their retirement plans?

The taxability of distributions to the beneficiary. Signup and view all the answers

What must taxpayers expect to owe in tax to be required to make estimated tax payments?

$1,000 (C) Signup and view all the answers

Taxpayers can avoid penalties by ensuring their tax withholding and refundable credits exceed 90% of the current year’s tax return.

False (B) Signup and view all the answers

What is the penalty for a substantial understatement of income?

10% of the correct tax or $5,000, whichever is larger. Signup and view all the answers

Taxpayers can deduct contributions to certain ______ plans to reduce taxable income.

retirement Signup and view all the answers

Match the tax benefits with their descriptions:

Retirement plan contributions = Deductible to reduce taxable income Education expenses = Can be used for tax credits Childcare expenses = Eligible for tax credits Adoption expenses = May qualify for tax credits Signup and view all the answers

For taxpayers with an AGI exceeding $150,000, what is the percentage calculation for prior year’s tax return?

110% (B) Signup and view all the answers

Only taxpayers with lower income can take a credit for retirement contributions.

False (B) Signup and view all the answers

What should taxpayers keep in appropriate records to benefit from certain expenses?

Receipts and documentation for expenses. Signup and view all the answers

What determines the inclusion of an insurance policy in the gross estate?

If the decedent’s estate is the beneficiary or if the decedent had ownership rights (D) Signup and view all the answers

The fair market value of property in the gross estate is determined on the alternative valuation date six months from the date of death.

True (A) Signup and view all the answers

What deductions can reduce the taxable estate?

Funeral and administrative expenses, debts of the decedent, certain taxes, losses, state death taxes, and charitable gifts. Signup and view all the answers

There is no limit imposed on the __________ deduction.

charitable Signup and view all the answers

What happens to the taxable estate if an individual leaves everything to their spouse?

There is no federal estate tax imposed (B) Signup and view all the answers

The gross estate only consists of liquid assets.

False (B) Signup and view all the answers

What may happen to the couple's wealth after the death of the surviving spouse?

It may be subject to taxation. Signup and view all the answers

Match the following terms with their definitions:

Gross Estate = Includes the fair market value of all owned property at the time of death Taxable Estate = The gross estate reduced by allowable deductions Charitable Deduction = No limit on the amount deductible for charitable gifts Marital Deduction = An unlimited exemption for property passing to a surviving spouse Signup and view all the answers

What must a donor do for the Generation Skipping Transfer Tax to apply?

Make a direct skip during their lifetime (A) Signup and view all the answers

Estates that owe no federal estate tax can still use the alternative valuation method.

False (B) Signup and view all the answers

What is the GST tax exemption for the year 2023?

$12.92 million Signup and view all the answers

The election for alternative valuation must be made within one year after the due date of the federal estate tax return, and it is __________.

irrevocable Signup and view all the answers

Which of the following is a primary deduction for married decedents?

Marital deduction (D) Signup and view all the answers

A donee is considered a skip person if they are one generation below the donor.

False (B) Signup and view all the answers

What type of property must pass 'outright' to qualify for the marital deduction?

All property included in the gross estate Signup and view all the answers

What is a benefit of using minority interest and marketability discounts in gifting?

They reduce the value of annual exclusion and lifetime exemption gifts. (D) Signup and view all the answers

A §529 plan allows the designated beneficiary to have full rights to the funds immediately upon contribution.

False (B) Signup and view all the answers

What type of expenses does a §529 plan primarily cover?

Qualified education expenses Signup and view all the answers

In a §529 plan, the withdrawal of funds for non-qualified expenses will incur an additional ______ penalty tax.

10 percent Signup and view all the answers

What happens to the earnings portion of a distribution if it is a non-qualified withdrawal from a §529 plan?

It incurs income tax and a 10 percent penalty. (B) Signup and view all the answers

The donor of a §529 plan can change the designated beneficiary to any person without tax consequences.

False (B) Signup and view all the answers

What authority typically establishes and maintains a §529 plan?

States or eligible educational institutions Signup and view all the answers

What act temporarily suspended the 80% taxable income limitation for net operating losses (NOL)?

CARES Act (B) Signup and view all the answers

Farmers who had elected the two-year carryback prior to the CARES Act cannot preserve that option.

False (B) Signup and view all the answers

What form is used to apply the carryforward for unused credit for prior-year minimum tax?

Form 8801 Signup and view all the answers

An injured spouse is a taxpayer whose tax refund is appropriated for the past‐due debts of a __________.

spouse or former spouse Signup and view all the answers

For net operating losses carried forward to a year after December 31, 2020, what limitation applies?

80% limitation (D) Signup and view all the answers

Taxpayers can carry forward an unused Qualified Business Income deduction.

True (A) Signup and view all the answers

What must be used to figure any net loss carryforward from prior years?

Forms 8995 and 8995-A or IRS Publication 535 Signup and view all the answers

Required Minimum Distribution (RMD)

Taxpayers are required to start taking minimum distributions from their retirement accounts at age 73 if they reach age 72 after December 31, 2022.

Beneficiary Ownership

When you leave your retirement savings to someone else, it's called a beneficiary. The beneficiary may be taxed on the distributions they receive.

Charitable Distributions from an IRA

Taxpayers aged 73 or older (reaching age 72 after December 31, 2022) can make charitable donations directly from their IRA, avoiding taxes on the distribution.

Tax-Deferred Retirement Plans

Retirement plans where contributions aren't taxed until withdrawal, like traditional IRAs and 401(k)s.