Chapter 18 (7 Questions)

Question 1

Tax-deferred

Answer 1

income tax is put off (deferred) to a later time.

Question 2

Qualified plan

Answer 2

An employer-sponsored plan, such as a pension, 401(k), or 403(b), where the contributions are made with pre-tax dollars and earnings in the account grow without any tax (tax-deferred) until the funds are withdrawn.

Question 3

Qualified

Answer 3

term by itself means that contributions are made with pre-tax dollars and earnings in the account are tax deferred until the funds are withdrawn. This can apply to either a qualified plan or an IRA.

Question 4

Nonqualified plan:

Answer 4

An employer-sponsored plan, such as a deferred compensation plan, where there are no tax advantages other than that the payout is not received until sometime later when the individual should be in a lower tax bracket. Another advantage is that the employer can discriminate between employees.

Question 5

Deductible contribution:

Answer 5

contribution made by the individual, whether an employee contribution to a qualified plan such as a 401(k) plan, or by any individual to an IRA

Question 6

Nondeductible contribution:

Answer 6

contribution to a qualified plan or an IRA that is made with after-tax dollars. The funds do grow tax deferred, but there is no tax benefit derived from the contribution.

Question 7

Traditional IRAs

Answer 7

llows a maximum tax-deductible annual contribution of the lesser of $7,000 per individual or $14,000 per couple, or 100% of taxable compensation for the taxable year 2025. The income and capital gains earned in the account are tax deferred until the funds are withdrawn.

Question 8

Compensation for IRA Purposes

Answer 8

-Wages, salaries, and tips
-Commissions and bonuses
-Self-employment income
-Alimony*
-Nontaxable combat pay-