Exam Question 15 of 25 Setect the best answer Saccha\'s employer maintains a pen

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Exam Question 15 of 25 Setect the best answer Saccha's employer maintains a pension plan and a profit sharing plan in the current year, Saccha separates from the company and receives a total distribution from both plans. Saccha was born in 1930 and participated in both plans for the last 20 years What tax method or mathods as avaitable to Saccha for the had distributions received from both plans? A. Capital gain enat 20%)trutrnent kw both pians B. Ordinary income onily for the pension plan ordinary income onty for the o shing pan C. Ordinary income only for the pension pkan TYA only for the proft sharing an D. TYA only for the penion plan odinary income only for the prott sharing pan Submit Answers m, Question gn

Explanation / Answer

Ans (B) is correct . Ordinary income only for the pension plan, ordinary income only for profit sharing plan. These contribution are currently not included in employee taxable income.The employee will not pay income tax on money contributed on their plan account as long as that money remains in the profit sharing plan will be taxable in the year of retirement.When you contribute to the profit-sharing plan on behalf of your participating employees, those employer contributions are not currently included in the employees' taxable income. The employees will not pay income tax on the money contributed to their plan accounts as long as that money remains in the plan. Similarly, funds held in the profit-sharing plan grow on a tax-deferred basis. This means that any earnings from plan investments are not included in the employees' taxable income as long as they remain in the plan.

Of course, when a participating employee begins to receive distributions from the profit-sharing plan (such as during retirement), he or she will be subject to federal (and possibly state) income tax on both plan contributions and related investment earnings.

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