Study Unit 12: Individual Retirement Accounts

1. When figuring compensation for purposes of determining the amount of an allowable contribution to a traditional IRA, which of the following is an incorrect statement?

Pension or annuity income is not considered compensation for an IRA plan.

Earnings and profits from property, such as rental income, are considered compensation.

Interest and dividends are not considered compensation for an IRA plan.

Generally, amounts excluded from income are not considered compensation for an IRA plan.

2. Generally, an IRA contribution is limited to the lesser of $7,000 in 2025 or the taxpayer’s compensation. However, which of the following items is NOT treated as compensation for this limitation?

Wages earned by an individual under the age of 18.

Taxable alimony.

Self-employment loss.

Commissions.

3. Which one of the following types of individual retirement accounts (IRAs) cannot be established?

An individual retirement annuity that is purchased from a life insurance company.

An individual retirement account with a trustee who invests one’s money in 1-ounce U.S. gold coins.

A simplified employee pension account.

An individual retirement account with a trustee who invests one’s money in life insurance contracts.

4. All of the following types of income would be considered compensation in determining if an individual retirement account could be set up and contributions could be made EXCEPT

Tip income.

Net rental income.

Partnership income of an active partner providing services to the partnership.

Commissions.

5. All of the following types of accounts are permitted for individual retirement accounts EXCEPT

A trust or custodial account at an IRS-approved entity.

An individual retirement annuity.

An employer and employee association trust account.

Individual savings bonds clearly designated as an IRA.

6. An individual retirement account (IRA) is a trust or custodial account created by a written document that must meet all of the following requirements, EXCEPT

The amount in your account must be fully vested.

Money in your account can be used to buy a life insurance policy.

Assets in your account cannot be combined with other property except in a common trust fund or common investment fund.

You must start receiving distributions from your account by April 1 of the year following the year in which you reach age 73.

7. With regard to IRAs, which of the following is considered earned compensation?

Rental income.

Taxable alimony.

Annuity income.

Deferred compensation.

8. All of the following types of income are considered earned compensation in determining whether an individual retirement account can be set up and contributions made EXCEPT

Self-employment income.

Partnership income of an active partner providing services to the partnership.

Taxable alimony.

Rental income from a property in which the taxpayer has active participation.

9. Ms. Seburn had the following during the current year:

Taxable alimony received	$ 4,000
Wages	12,000
Net loss from self-employment	(10,000)
Interest income	3,000

For the purpose of an IRA, Ms. Seburn had compensation for the current year of

$2,000

$6,000

$16,000

$19,000

10. Taxable compensation for IRA purposes excludes all of the following EXCEPT

Pension or annuity income.

Deferred compensation.

Alimony and separate maintenance payments.

Earnings and profits from rental income, interest income, and dividend income.

11. Which of the following individual retirement accounts does NOT meet Internal Revenue Code requirements?

Savings incentive match plans for employees.

Simplified employee pension.

Employer and employee association trust accounts.

Individual savings bonds.

12. Which of the following is compensation for the purpose of contributions to individual retirement accounts?

Deferred compensation received.

Foreign earned income excluded from income.

Pension or annuity income.

Taxable alimony and separate maintenance.

13. Gary and Mabel have been married for many years and file jointly. Gary was born February 21, 1947. Mabel was born April 10, 1951. They each received Social Security benefit payments throughout 2025. Gary earned $17,000 as a part-time security guard in 2025; he was not covered by any type of retirement plan. Mabel has been retired for many years. Gary and Mabel expect their 2025 adjusted gross income not to exceed $126,000. What is the amount of Gary and Mabel’s largest allowable IRA deduction for 2025 (assume the proper amount claimed as a deduction was paid timely)?

$16,000

$14,000

$8,000

$7,000

14. Morris, a single taxpayer, is not covered by a qualified plan at his place of employment. He wishes to establish an IRA and contribute $7,000 for 2025. An IRA may be invested in all of the following accounts EXCEPT

Bank CD.

Mutual fund.

Annuity.

Artwork.

15. Margaret will receive Social Security benefits at retirement but has no other retirement plan coverage. Her present and past employers have not had retirement plans available. In 2025, she files as single, and her earnings are $82,000. Also in 2025, she contributes $7,000 to a traditional IRA. How much of the $7,000 contribution may she deduct?

$4,900

$7,000

$2,100

16. Which of the following statements is false with respect to setting up a traditional individual retirement account (IRA)?

An IRA cannot be set up with joint ownership of husband and wife.

A taxpayer cannot roll over assets from his IRA to his spouse’s IRA.

A taxpayer may be eligible to set up an IRA for a spouse regardless of whether the spouse received compensation.

An individual who files a joint return and is not covered by an employer retirement plan can deduct the entire contribution to an IRA, regardless of the amount of his or her adjusted gross income, even if the spouse is covered by an employer’s plan.

17. In December 2022, Gail worked for ABC Co. and participated in its retirement plan. On February 1, 2025, Gail was employed by XYZ Corp., which has a qualified retirement plan. On March 1, 2025, the ABC Co. plan administrator distributed to Gail her vested share of the plan. Gail was 42 years old at the time of distribution. Which of the following will allow Gail to avoid paying taxes and penalties on her withdrawal?

Deposit the plan funds in a local bank.

Contribute the distribution to the XYZ Corp. plan within 60 days.

Donate the plan funds to a charity.

None of the answers are correct.

18. Joe Smith never married and had no children. When he died, he left all of his assets, including his traditional IRA, to his nephew, David. What is David allowed to do with the inherited IRA?

He could make additional direct contributions to the IRA, treating it as his own.

He could roll over amounts out of the inherited IRA to another IRA tax-free.

He could make additional contributions, which were rollovers from Roth IRAs.

None of the answers are correct.

19. Kimberly, age 30, a full-time student with no taxable compensation, married Michael, age 30, during 2025. For the year, Michael had taxable compensation of $35,000. He plans to contribute and deduct $7,000 to his traditional IRA. If he and Kimberly file a joint return, how much may each deduct in 2025 for contributions to their individual traditional IRAs and what is the compensation Kimberly uses to figure her contribution limit?

IRADeduction

$7,000

Compensation forKimberly to FigureIRA Contribution Limit

$28,000

IRADeduction

$7,000

Compensation forKimberly to FigureIRA Contribution Limit

$35,000

IRADeduction

$5,500

Compensation forKimberly to FigureIRA Contribution Limit

$35,000

IRADeduction

$2,000

Compensation forKimberly to FigureIRA Contribution Limit

$35,000

20. Edwin and Donna were married. Edwin had established a traditional IRA to which he made contributions and had taken no distributions. The total value of the IRA was $50,000, of which $20,000 was nondeductible contributions. As the spousal beneficiary, which of the following applies to Donna?

Edwin’s $20,000 basis in the IRA may be treated as basis to Donna.

When Donna receives the distribution, she may not roll it over to her own traditional IRA.

Donna must begin receiving periodic distributions by December 31 of the 10th year following Edwin’s death.

Donna is not eligible to make deductible contributions to the IRA as the spousal beneficiary.

21. Alice and Mike file a joint return for 2025 on April 15, 2026. Alice, who is a nonworking spouse, is 49. Both Alice and Mike contributed $2,000 each to a traditional IRA, although they qualified to contribute the maximum amount. They filed their return timely. On June 1, 2026, Mike’s mother gave each of them $1,000. What additional amount of the gift may Alice and Mike contribute to each of their IRAs for the year 2025?

$1,000

$500

$4,000

22. In 2025, MaryAnn, a nonworking spouse, files a joint return with Jack, who is not covered by a pension plan at work. Their AGI is $50,000, and Jack plans to contribute $5,500 to a traditional IRA. MaryAnn, who is 51, wishes to contribute to an IRA. What is the maximum amount she can contribute?

$7,000

$6,500

$8,000

23. A contribution to a traditional individual retirement plan (IRA) is deductible for tax year 2025 in which of the following situations?

The individual’s employer does not have a retirement plan at any time during 2025.

The contribution is made on August 15, 2026, under a properly filed and accepted extension.

The individual is covered by a retirement plan but does not have any compensation in 2025.

All of the answers are correct.

24. Sam received a total distribution of $40,000 from his employer’s 401(k) plan consisting of $25,000 in cash and land with a fair market value of $15,000. If Sam decides to keep the land, what is the total amount that he can roll over to his traditional IRA?

Sam may substitute $15,000 of his own funds for the property and consider his rollover to be $40,000 in cash.

Sam can roll over only $15,000, the value of the land he received.

Sam can roll over the $25,000 cash received into his IRA.

Sam is required to sell the land before any part of the distribution can be rolled over.

25. Dave, age 40, had a traditional IRA with a $40,000 balance at the beginning of 2025. All of Dave’s contributions have been tax deductible. On July 1, 2025, Dave borrowed $20,000 from the IRA account. Which of the following would be a correct statement regarding the tax consequences of this transaction?

This would not be a prohibited transaction, provided that the loan called for periodic payments and an interest rate at least equal to the applicable federal rate (AFR).

Dave would be required to include $20,000 in income as a distribution in 2025.

Dave would be required to include $40,000 in income as a distribution in 2025.

Dave would not have to include the $20,000 in income if it were used for qualified higher education expenses.

26. Minnie’s tax return for 2025 shows the following income:

$800 wages
$6,490 unemployment compensation
$1,000 alimony (2018 divorce)
$8,000 rental income from apartment buildings she owns

What is Minnie’s earned income for the purpose of determining how much she can contribute to an IRA?

$800

$7,290

$1,800

$16,290

27. Betty, who is single, had income in 2025 totaling $2,500. She is 35 years of age, and the income she received consisted of $2,000 earned from clerical work and $500 from interest income. What was the maximum amount of money that she could have contributed during the year to a traditional IRA?

$2,500

$2,000

$500

28. Celeste, who is single, worked recently for a telephone company in France and earned $1,500 for which she claimed the foreign-earned income exclusion. In addition to that, she earned $1,200 as an employee of an answering service while she was in the U.S. She also received taxable alimony of $400 for the year (divorce executed before 2019). What is her maximum amount of allowable contribution to a traditional IRA for the year 2025?

$1,600

$3,100

$1,200

$1,900

29. The use of IRA funds in prohibited transactions can result in additional taxes and penalties. Which of the following is NOT a prohibited transaction in a traditional IRA?

Borrowing money from the IRA.

Selling property to an IRA.

Inheriting your spouse’s IRA.

Using an IRA as security for a loan.

30. Which of the following is a true statement regarding a rollover distribution from a qualified plan to a traditional IRA?

To be an eligible rollover, you must rollover the entire distribution from the qualified plan.

You can deduct the distribution rolled over up to the amount of the allowable deductible contribution limit for the year.

If you chose the direct rollover option, the payer must generally withhold 20% of it for income tax.

A hardship distribution from a qualified plan is not an eligible rollover distribution.

31. After many years as a bachelor, Buddy, age 50, married Penny, age 63. Penny’s only income was $10,800 of Social Security. They filed a joint return for year 2025 with a modified adjusted gross income of $160,000. Buddy is covered by a retirement plan at work, where he receives compensation of $146,000. He wishes to contribute to an IRA for himself and for Penny. Which of the following will provide them the greatest allowable tax benefit?

He may contribute $8,000 to each IRA but only take a deduction for the $8,000 to his IRA.

He may contribute $8,000 to each IRA but take no deduction for either IRA.

He may contribute $8,000 to each IRA and take a deduction of $8,000 for each IRA.

He may contribute $8,000 to each IRA but only take a deduction for the $8,000 to Penny’s IRA.

32. With regard to a spousal IRA, which of the following statements is false?

Spouses can own an IRA account jointly.

The taxpayers must be married at the end of the tax year.

A joint return must be filed.

The compensation of the two spouses must be equal to or greater than the amount of the combined IRA contributions.

33. George, a single taxpayer under age 50, has W-2 income of $31,000. During the 2025 tax year, he contributed $7,500 to his traditional IRA. What is the amount of George’s excess contributions?

$7,500

$7,000

$500

None of the answers are correct.

34. On April 15, 2026, Mr. Thomas filed Form 4868, Application for Automatic Extension of Time to File, extending the due date for filing his 2025 income tax return to October 15, 2026. By what date must he make his IRA contribution to qualify for an IRA deduction on his 2025 return?

December 31, 2025.

April 15, 2026.

June 30, 2026.

October 15, 2026.

35. George, single and age 40, is covered by a pension plan at work. For 2024, George could have contributed and deducted $7,000 to his individual retirement account but could only afford to contribute $2,000, which he did on April 14, 2025. After April 15, 2025, George contributed $7,000. Since his modified AGI for 2025 was over $79,000, George computed that his reduced IRA deduction for 2025 was $600. Which of the following is NOT an option available for George?

He can deduct $5,600 in 2025 since he had a carryover from the immediately preceding tax year.

He can withdraw the nondeductible $6,400 contribution by April 15, 2026.

He can leave the entire contribution in the IRA and elect to treat the entire $7,000 as a nondeductible contribution.

He can leave the entire contribution in the IRA as a $600 deductible contribution and a $6,400 nondeductible contribution.

36. For traditional individual retirement accounts (IRAs) for tax year 2025, which of the following is true?

The modified AGI limitation range for joint filers was not changed.

The Roth IRA contribution is deductible for a spousal IRA.

Contributions may be made up to the due date of the return including extensions.

If your spouse is covered by a retirement plan and you are not, your traditional IRA deduction is not limited if your modified AGI on a joint return is less than $236,000.

37. Ricky, age 35, and Lacy, age 51, are married and file a joint return. Ricky is covered by an employer plan. In 2025, Ricky had compensation of $50,000 and Lacy had compensation of $2,000. Their modified AGI was $280,000. What is the amount of the deductible contribution that can be made for Lacy to her traditional IRA for 2025?

$2,000

$7,000

$8,000

38. Peter and Jill are married and file a joint return. In 2025, Jill was a media relations manager for a large firm and earned $184,000; Peter owns a graphic design business that showed a net profit of $500 for 2025. In 2025, Jill was covered by an employer’s plan and Peter was not. Their adjusted gross income was $241,000. What is the maximum deductible amount that Peter can contribute to a traditional IRA?

$500

$3,500

$7,000

39. Elvin is single, age 35, and has total wages of $83,000. His adjusted gross income is also $83,000 before any IRA contribution. Elvin works for the Murphy Corporation, which sponsors a retirement plan that Elvin participates in. In addition, Elvin contributes $7,000 to his IRA account. What amount can Elvin deduct on his 2025 income tax return?

$7,000

$4,200

$2,800

40. In 2025, Ruth and Lester were both under age 50. Ruth worked full-time as a county magistrate and was covered by a retirement plan at work. Lester owns some rental property for which he does minor repairs but provides no extraordinary services. Lester had to serve on a jury during 2025. Ruth and Lester’s income for 2025 was composed of the following:

Ruth’s salary	$70,000
Lester’s net rental income	8,000
Lester’s jury duty pay	58
Joint taxable investment income	6,000

Ruth and Lester will file a joint return and timely contribute to their respective IRAs the maximum amount for which they can claim a deduction. What is the amount of Ruth and Lester’s largest allowable IRA deduction for 2025?

$14,000

$7,000

$8,000

41. Which of the following are examples of prohibited transactions with a traditional IRA?

Selling property to it.

Using it as security for a loan.

Buying property for personal use with your IRA funds.

All of the answers are correct.

42. Lenny and Norma file a joint return for tax year 2025. Lenny is covered by a retirement plan but Norma is not. Norma wishes to make a contribution to a traditional IRA, and her earnings alone are $1,500. The combined earnings on the joint return are $236,000 (the same as the AGI). Which of the following is true?

Norma may make a nondeductible contribution of $1,500.

Norma may make a deductible contribution of $7,000.

Norma may not make any contribution.

Norma may make a deductible contribution of $1,500 and a nondeductible contribution of $5,500.

43. For 2025, Mr. and Mrs. White filed a joint income tax return. Mr. White’s salary was $39,000, Mrs. White’s was $20,000, and their modified adjusted gross income was $130,000. Mr. White was covered by his employer’s retirement plan. Mrs. White’s employer did not have a retirement plan. Mr. White contributed $7,000 to an individual retirement account (IRA), and Mrs. White contributed $1,500 to an IRA. What is the maximum IRA deduction each is entitled to take for 2025?

Mr. White

$7,000

Mrs. White

$250

Mr. White

$5,600

Mrs. White

$1,500

Mr. White

$7,000

Mrs. White

$1,500

Mr. White

Mrs. White

$1,500

44. On April 8, 2025, Alan received a lump-sum distribution of $30,000 cash and stock worth $20,000 from his employer’s retirement plan. The stock was not stock of his employer. Alan sold the stock for $30,000, and on June 3, 2025, he rolled over $60,000 in cash to an individual retirement account ($30,000 from the original distribution and $30,000 from the sale of the stock). What is the amount of gain to be included in Alan’s gross income for 2025?

$5,000

$10,000

$20,000

45. Joyce was recently divorced. Per a court order, she must transfer her IRA to her former spouse. To avoid paying taxes on the withdrawal, which of the following is the best choice?

Transfer assets via direct rollover into a whole-life insurance policy.

Pay taxes on the transfer because tax consequences cannot be avoided.

Withdraw funds and deposit them into another qualified plan.

Make a direct transfer of the IRA assets.

46. Joe and Denise are married and both under age 50. They each have an IRA. During the current year, Joe earned $2,500 and Denise earned $40,000. Neither is covered by an employer retirement plan. What is the maximum amount they can contribute to the two IRAs for the year?

$7,000

$8,000

$14,000

$16,000

47. Bill correctly filed as single for 2025. The only income he earned was $89,500 as a construction engineer, and he was covered by a retirement plan at work. What is Bill’s maximum IRA deduction for 2025?

$200

$800

$7,000

48. P was eligible for, and set up as his only retirement plan, an individual retirement account (IRA) for Year 1 on January 27, Year 2. On February 15, Year 2, P contributed $1,700 to his account. Mr. P’s income for Year 1 consisted of the following:

Wages	$9,000
Interest income	3,000
Dividend income	2,100

What is P’s deduction for Year 1?

$1,350

$1,700

$7,000

49. Mr. Knox wants to make contributions to an IRA (spousal IRA) for his wife. For Mr. Knox to be eligible to make such contributions, all of the following requirements must be met EXCEPT

They must file a joint return for the tax year.

He must have compensation that must be included in his income for the tax year.

They must be married at the end of the tax year.

His wife must have no taxable compensation for the tax year.

50. An investment by an IRA in which of the following assets will NOT be treated as a distribution?

A painting valued at $7,000.

Gold bullion exceeding the minimum fineness required to satisfy a regulated futures contract.

An antique table determined by an appraiser to be worth over $14,000.

A stamp that is appraised at over $7,000 and is over 25 years old.

51. Larry and Marge Strong are married and living together. They have decided to file joint federal income tax returns for 2025. Larry is an active participant in his employer’s pension plan. Marge is not an active participant in any plan. Each contributed $7,000 to an individual retirement account (IRA) on February 1, 2026. Larry and Marge have a combined adjusted gross income of $238,000. The deductible portion of Marge’s compensation to her IRA is

$1,400

$5,600

$7,000

52. For the year, Charles and Mary, both under age 50, filed a joint income tax return. Charles earned $35,000 and Mary earned $250 for that year. Mary contributed $7,000 to a spousal IRA. What is the maximum amount Charles can contribute to his own IRA?

$250

$7,000

$8,000

53. Which of the following would be an allowable investment for a traditional IRA?

Stamps that have been issued by the United States Postal Service.

An oil painting certified by an art expert as being an authentic original by a Dutch master artist.

One-ounce silver coins minted by the U.S. Treasury Department.

All of the answers are correct.

54. Generally, which of the following is a prohibited transaction concerning your traditional IRA?

Withdraw funds for qualified higher education expenses.

Pledge your IRA account as security for your mortgage.

Withdraw funds for qualified medical expenses.

Withdraw funds to purchase your first home.

55. In 2025, Ivan was over age 73. The balance at the beginning of 2025 of his traditional IRA was $41,000. All of his IRA contributions had been tax deductible. The required minimum distribution for 2025 was $3,000. If Ivan only took a distribution of $1,000, what is the amount of excise tax that Ivan would have to pay on the excess accumulation?

$120

$200

$500

$2,400

56. Martin, age 35, made an excess contribution to his traditional IRA in 2025 of $1,000, which he withdrew by April 15, 2026. Also in 2025, he withdrew the $50 income that was earned on the $1,000. Which of the following statements is true?

Martin must include the $50 in his gross income in 2025.
Martin would have to pay the 6% excise tax on the $1,050.
Martin would have to pay the 10% additional tax on the $50 as an early distribution.
Martin would have to pay the 10% additional tax on the $1,000 because he made a withdrawal.

I only.

I, II, and III only.

III and IV only.

I and III only.

57. With regard to excess contributions to a traditional IRA, which of the following statements is false?

A taxpayer may deduct from gross income, in the first year available, the amount of the excess contribution in the IRA, from the preceding years up to the difference between the maximum amount that is deductible in the year and the amount actually contributed during the year.

If a taxpayer has an excess contribution in his or her IRA as a result of a rollover, and the excess occurred because the taxpayer had incorrect information required to be supplied by the plan, the taxpayer can withdraw the excess contribution.

If the excess contribution for a year is not withdrawn by the date a taxpayer’s return is due, the taxpayer is subject to an 8% tax.

Generally, an excess contribution is the amount contributed to an IRA that is more than the smaller of the following amounts: (1) a taxpayer’s taxable compensation or (2) $7,000 ($8,000 if age 50 or older).

58. Sunnie is single and does not actively participate in her employer’s pension plan. She received taxable compensation of $4,500 in Year 1 and $5,500 in Year 2. Her modified adjusted gross income was $26,000 in both years. For Year 1, she contributed $7,000 to her IRA but deducted only $4,500 on her income tax return. For Year 2, she contributed $3,000 but deducted $5,500 on her income tax return. Based on this information, which of the following statements is true?

Sunnie must pay an excise tax on the excess contribution for Year 1 and also for Year 2 since she did not withdraw the excess.

Sunnie must pay an excise tax for Year 1 on the $2,500 excess contribution made in Year 1, but since she properly treated the Year 1 excess contribution as part of her Year 2 deduction, she does not owe the excise tax for Year 2.

Sunnie will be assessed a 10% tax for early withdrawals when she withdraws the excess contribution.

Sunnie should claim an IRA deduction of only $3,000 for Year 2.

59. Gina, who is single, received taxable compensation of $1,700 in 2024 and $2,500 in 2025. She did not actively participate in a pension plan. She contributed $2,000 in 2024 and $2,000 in 2025 to her IRA. On March 18, 2025, she withdrew $300 of her 2024 contribution plus the interest accumulated on it from her IRA and did not deduct that amount on her 2024 tax return. Based on this information, what is the amount of her excess contributions subject to the 6% tax?

$300

$500

$800

60. Generally, the excess contribution to an IRA is subject to a tax. Which of the following is true?

You will not have to pay the 6% tax if you withdraw the excess contribution and any income earned on the excess contribution before the date your tax return for the year is due, including extensions.

The 6% tax is due on both the excess contributions and any income earned on the excess contribution.

You will not have to pay the 6% tax if you withdraw the excess contribution and the earnings on the excess contribution are less than 6%.

You will not have to pay the 6% tax if you withdraw only the earnings on the excess contribution for the current year and subsequent years as well.

61. Vernon, age 74, had compensation of $2,500 in 2025. He made a $3,000 contribution to his traditional IRA during 2025. The balance of the IRA account at the end of 2025 was $10,000. Vernon did not withdraw any amount of the contribution by the due date of the 2025 return. What would be the tax as a result of an excess contribution for 2025?

$50

$30

$150

62. Maria has a traditional IRA from which she has taken a taxable distribution of $8,000. Under which of the following circumstances will the distribution be subject to the 10% penalty for premature distributions?

Maria’s AGI is $30,000 and she had $13,000 in unreimbursed deductible medical expenses which exceed the allowable percentage of her adjusted gross income.

Maria’s granddaughter is a sophomore in college and Maria paid her tuition expenses of $10,000.

Maria is age 57. The distribution is not part of a series of equal periodic payments. She has no qualifying expenses or condition.

The distribution was made pursuant to an IRS levy on Maria’s IRA.

63. In which situation must a taxpayer pay the additional 10% tax on a premature distribution from his or her IRA?

Taxpayer, age 45, became totally disabled.

Taxpayer, age 50, died, and the IRA was distributed to his beneficiaries.

Taxpayer, age 30, withdrew his entire balance in an IRA and invested it in another IRA at another bank 45 days after the withdrawal from the first bank.

Taxpayer, age 40, used the distribution to pay emergency medical bills for his wife. The medical bills equal 5% of the couple’s AGI.

64. Owners of traditional individual retirement accounts (IRAs) are required to begin receiving distributions no later than which of the following?

By April 1 of the year following the year in which the owner reaches age 73.

By April 1 of the year in which the owner reaches age 73.

By January 1 of the year in which the owner reaches age 73.

By April 1 of the year following the year in which the owner reaches age 59 1/2.

65. Winston turned 73 on June 1, 2025. What date must he receive his minimum distribution by?

April 15, 2026.

December 31, 2025.

June 30, 2025.

None of the answers are correct.

66. John failed to take required minimum distributions from his traditional IRA. The excess accumulation is subject to a penalty of

10%

15%

25%

67. If distributions from your traditional IRA are less than the minimum required distribution for the year, you may have to pay an excise tax for that year on the amount not distributed as required. The excise tax is how much?

10%

40%

25%

None of the answers are correct.

68. Diane, single and age 49, made a $5,000 contribution to her traditional IRA in 2025. Her compensation for 2025 was $4,000. She filed a Form 4868 for an extension until October 15, 2026, to file her 2025 return. In order to avoid the 6% additional tax on excess contributions, Diane must do which of the following?

Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by December 31, 2025.

Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by April 15, 2026.

Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by October 15, 2026.

File an election to deduct the $1,000 on her 2026 return by attaching a statement to her 2025 return.

69. Gerald, age 50, withdrew $10,000 from his IRA to pay for the graduate school expenses of his son. His son’s educational expenses were $10,000, and he received a $2,000 scholarship from the university to help reduce these expenses. What amount of the withdrawal from the IRA is subject to the 10% early withdrawal tax?

$10,000

$8,000

$2,000

70. A taxpayer has an excess accumulation in her IRA for the year. It is due to a reasonable error, and the taxpayer has taken steps to remedy the insufficient distribution. Which of the following statements best describes the course of action this taxpayer should take with regard to the excise tax on an excess accumulation?

Do not pay the penalty tax with the return. Instead, attach a statement to the return explaining the situation and wait for the IRS to respond.

Pay the penalty tax that is due with the return, attach a written statement to the return explaining the situation, and wait for the IRS to approve by sending a refund of the penalty tax that was paid.

Avoid having to pay the tax or send a statement by withdrawing the excess accumulation by the due date of the tax return.

Pay the penalty in full. There is no relief from the penalty tax for reasonable cause.

71. Generally, an employee must begin receiving distributions from his or her traditional IRA no later than which of the following dates?

Six months after his or her 70th birthday.

December 31 of the year in which the employee reaches age 73.

April 1 of the year in which the employee reaches age 73.

April 1 of the year following the year in which the employee reaches age 73.

72. Frank wants to borrow from his qualified plan for some improvements to his principal residence. Frank’s present value of his vested accrued benefit is $80,000. How much can Frank borrow from his plan without receiving treatment as a distribution?

$10,000

$40,000

$50,000

$80,000

73. Which of the following is true regarding contributions to a Roth IRA?

Contributions may be made regardless of age, provided other requirements are met.

Contributions may be deducted if you are within certain income limits.

Contributions may be deducted if you are not covered under a retirement plan.

Contributions may not be deducted, but earnings are taxable when distributed.

74. Which of the following amounts may be converted directly to a Roth IRA, provided all requirements are met?

Amounts in a SIMPLE IRA, and the 2-year participation period has been met.

Amounts in a traditional IRA inherited from a person other than a spouse.

Hardship distribution from a 401(k) plan.

Required minimum distributions from a traditional IRA.

75. In general, a taxpayer over age 50 may make which of the following in a given tax year?

An $8,000 contribution to a Roth IRA.
An $8,000 contribution to a traditional IRA.

I only.

II only.

I and II.

I or II.

76. What is the maximum amount that Darlene, who is single, may contribute to a Roth IRA in 2025? She has modified AGI of $153,000 and is under 50 years of age.

$7,000

$5,600

$1,400

77. Which of the following statements regarding Roth IRAs is false?

Contributions are nondeductible.

Qualified withdrawals are free from income tax.

Individuals are allowed to make contributions at any age.

An individual may place $7,000 into a Roth IRA in addition to other IRA contributions.

78. Jamal and Ronee Smith are married and filed a joint return for 2025. Jamal is 45 years old, and Ronee is 46 years old. Jamal earned a salary of $60,000 in 2025 from his job at Sunshine Corporation. Ronee earned $8,000 from her part-time job at Rain Corporation. On May 1, 2025, Jamal contributed $7,000 to a Roth IRA for himself. What is the maximum contribution Ronee may make in 2025 to her Roth IRA?

$1,000

$7,000

$8,000

79. Generally, which of the following rules apply to both traditional IRAs and Roth IRAs?

Non-rollover contributions are generally limited to $7,000 each year or 100% of compensation, whichever is less.

Contributions are always nondeductible.

Contributions may not be made for the tax year in which you reach age 70 1/2, or for years thereafter.

Contribution phaseout limits are the same for both traditional IRA and Roth IRAs.

80. Mark established a Roth IRA at age 40 and contributed $3,000 per year to the account for 20 years. He met the income limits for contributing to the account and was therefore eligible to hold a Roth IRA. Mark now wishes to withdraw the $100,000 of accumulated funds from his Roth IRA. What is the amount of the distribution that is included in Mark’s gross income?

$40,000

$60,000

$100,000

81. Tony and Janet are married filing a joint return. In 2025, Tony’s taxable compensation is only $1,500, and Janet’s compensation is $58,500. Tony contributed all $1,500 of his earnings to a Roth IRA. Neither Tony nor Janet is covered by a retirement plan. What is the maximum amount the couple may deduct for traditional IRA contributions for the two of them if they are both under age 50?

$12,500

$14,000

$5,500

82. For a Roth IRA to have a qualified distribution, the distribution must satisfy a 5-year holding period and must be made on or after the date the individual attains age 59 1/2. Which of the following is NOT an exception to the attaining age 59 1/2 requirement?

Distribution made to a beneficiary (or the individual’s estate) on or after the individual’s death.

Distribution attributable to the individual being disabled.

Distribution used to pay for “qualified first-time homebuyer expenses.”

Distribution used to pay for qualified education expenses.

83. Joe has a traditional IRA with a basis of $8,800. In 2025, this was his only IRA. On December 31, 2025, he converted $44,000 of the $88,000 total value of the IRA to a Roth IRA. He files as head of household and his AGI, without the conversion, is $62,000. What amount of income will be included on Joe’s 2025 return as the result of this conversion?

$8,800

$35,200

$39,600

$44,000

84. Scott McTavish made a rollover contribution from his traditional IRA to a newly created Roth IRA on December 1, 2023. Also, on February 1, 2025, he made another rollover contribution from an employer IRA to the same account. Which of the following is true?

He may not withdraw the funds tax-free earlier than December 1, 2028.

He may not withdraw funds tax-free earlier than February 1, 2030.

He must make the February 1, 2025, rollover contribution into a separate Roth IRA account to properly identify another 5-year holding period.

He may not withdraw the funds tax-free earlier than January 1, 2028.

85. Thad Manning is a single taxpayer under age 50. For the year, Thad earned a salary of $240,000 from his job at Rocky Top Corporation. This was his only source of income for the year. What is the maximum contribution Thad can make to a Roth IRA for the year?

$4,200

$7,000

$8,000

86. If neither you nor your spouse is covered by an employer retirement plan for any part of the year, the maximum allowable deduction for contributions to a Roth IRA is

$8,000 (if age 50 or older).

$7,000

$7,000 or $8,000 if age 50 or older.

87. A Sec. 529 is an account for qualified higher education expenses. What is the primary purpose of a Sec. 529 qualified tuition program?

To provide a tax benefit for a savings account for post-secondary education.

To apply and establish a qualified financial aid program from the federal government.

To provide the taxpayer with a tax-exempt method for contribution of funds for tuition expenses.

To provide for a beneficiary’s qualified higher education expenses.

88. Which of the following is a true statement regarding Sec. 529 plans?

Contributions to the plan are deductible.

$10,000 may be distributed to pay for qualified student loans.

Contributions are limited to $5,000 per tax year.

Distributions may not be used for the student’s room and board.

89. Which of the following is an eligible educational institution for the Sec. 529 Qualified Tuition Program?

Postsecondary educational institution.

University or college.

Vocational school.

All of the answers are correct.

90. Qualified higher education expenses under a Sec. 529 plan include all of the following EXCEPT

Tuition and fees.

Room and board.

Foreign student exchange programs.

Computer and related peripheral equipment.

91. Under a Sec. 529 plan, up to $10,000 per year may be used by a designated beneficiary to pay

Qualified student loans.

Tuition at a public, private, or religious elementary or secondary school.

Expenses associated with apprenticeship programs.

Services for a special needs beneficiary.

92. Each of the following beneficiaries withdrew $7,000 from their Sec. 529 plan to pay for qualified expenses to attend an eligible educational institution. Withdrawals were made during the same calendar year as the expenses were paid. Under which circumstance may taxes and penalties be imposed on the student’s withdrawal?

Steve’s college tuition bill of $7,000 was reduced by $1,500 in grants and financial aid, requiring payment of $5,500. Steve recontributed $1,500 to his Sec. 529 plan within 40 days.

Allison used $3,000 of her withdrawal to pay her brother’s student loan.

Jackson received a refund of $2,500 tuition expenses when he withdrew from college mid-semester to care for his father. Jackson recontributed the refund to his Sec. 529 plan within 30 days.

Sybil paid $5,000 for her daughter’s enrollment at a qualified private secondary school and used the remaining $2,000 to pay for childcare.

93. Annual contributions to a Sec. 529 Qualified Tuition account for a designated beneficiary are limited to

No limit.

$2,500.

$5,000.

$10,000.

94. All of the following are true statements regarding Sec. 529 plans EXCEPT

Eligible education costs are determined without regard to scholarships, grants, and other financial aid received by the beneficiary.

Earnings in a Sec. 529 account are not subject to federal income taxes.

Qualified higher education expenses include amounts for certified apprenticeship programs.

Distributions for eligible expenses from a qualified tuition program are tax-free.

95. Paul, a full-time graduate student at a state university, incurred the following expenses related to his attendance in the current year:

Off-campus housing	$7,800	Utilities	$3,200
Books, fees, and supplies	2,500	Computer entertainment software	700
Internet access	350

Paul’s tuition was paid through scholarships. Annual housing allowance for the university is $10,000. How much of Paul’s expenses may be paid with Sec. 529 funds?

$2,500

$10,300

$12,850

$14,550

96. Which of the following is a true statement regarding Sec. 529 plans?

Taxes and penalties can be avoided if unneeded money withdrawn is recontributed within 30 days.

The purpose of the plan is to provide for a beneficiary’s qualified higher education expenses.

The interest on student loan debt may not be paid with plan funds.

Contributions are deductible for federal tax purposes.

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