- Which of the following is correct regarding the deduction for contributions to a traditional IRA for 2025?
Answer: For a married taxpayer filing jointly who is not covered by a workplace retirement plan but whose spouse is an active participant, the noncovered spouse's traditional IRA deduction phases out for joint MAGI between $236,000 and $246,000.
IRC § 219(g) limits the traditional IRA deduction for taxpayers, and their spouses, who are active participants in employer retirement plans. For 2025, a married taxpayer filing jointly who is not an active participant but whose spouse is an active participant has a special phase-out range: the noncovered spouse's deduction is reduced for joint MAGI between $236,000 and $246,000, so Choice D is correct. Choice A misstates the endpoint: for a single active participant the range is $79,000 to $89,000, so at MAGI of $90,000 the deduction is zero, not merely reduced. Choice B misstates the married-filing-separately rule: for an MFS taxpayer who lived with the spouse at any time during the year, the $0-to-$10,000 phase-out applies if either spouse is an active participant, so the nonparticipant spouse does not get a full deduction. Choice C misstates the active-participant rule: coverage under an employer plan for any part of the year generally makes the taxpayer an active participant for the entire year, so the phase-out applies.
- Robin, age 38, is single. In 2025 she received a $14,000 distribution from her traditional IRA; her basis in the IRA was $0, and no part of the distribution was a rollover. She used $9,000 of the distribution to pay qualified higher education expenses for herself (tuition, fees, books, and required supplies) at a university where she was enrolled half-time, and she used the remaining $5,000 to buy a car. These education expenses were not paid with any tax-free scholarship or educational assistance. No other §72(t) exception applies. What amount of the distribution is subject to the additional tax for early distributions under IRC §72(t)?
Answer: $5,000
Under IRC § 72(t), a distribution from a traditional IRA received before age 59½ is subject to an additional tax unless an exception applies. Section 72(t)(2)(E) excepts distributions paid for qualified higher education expenses of the taxpayer, spouse, child, or grandchild, as defined in §72(t)(7). Robin's basis is zero, so the entire distribution is otherwise taxable. The $9,000 used for qualified higher education expenses is not subject to the additional tax; the remaining $5,000 used for the car is subject. Choice A treats the entire distribution as penalty-free because part was used for education. Choice C applies the exception in reverse, treating the car purchase as protected and the education expenses as unprotected. Choice D ignores the education exception entirely.
- Which of the following is correct regarding Roth IRA contributions for 2025?
Answer: A married couple filing jointly, both under age 50, may each contribute $7,000 to a Roth IRA even if only one spouse has earned income, provided that spouse has compensation of at least $14,000 and the couple's MAGI is below $236,000.
IRC § 408A(c), applying the § 219(c) spousal rules. For 2025 the annual IRA contribution limit is $7,000 (ages under 50), the limit applies to the combined total of traditional and Roth IRA contributions, and a married couple filing jointly may fund an IRA for each spouse using the compensation of only one spouse, if that compensation covers both contributions. The Roth phase-out for joint filers begins at $236,000 of MAGI, so the couple in Choice B may each contribute the full $7,000. Choice A misstates the single phase-out: it begins at $150,000 and ends at $165,000, so at $155,000 only a reduced contribution is allowed. Choice C misstates the combined limit: the $8,000 amount for age 52 is the maximum for all IRA contributions combined, not a separate limit for each IRA. Choice D misstates the MAGI computation: under § 408A(c)(3)(B)(i), income included in gross income because of a conversion to a Roth IRA is excluded when computing the MAGI used for the Roth phase-out, so a same-year conversion does not reduce the allowable Roth contribution.
- Which of the following is correct for Ava for 2025?
Answer: She may make the Roth IRA contribution, but she may not claim the saver's credit because she was a full-time student and is claimed as a dependent.
IRC § 408A(c)(2) and IRC § 25B(c). A Roth IRA contribution is limited to compensation, and dependency does not affect eligibility. Ava's $3,500 contribution is allowed because it equals her wages. The saver's credit is denied to a taxpayer who is a full-time student for at least five calendar months or is claimed as a dependent on another return; Ava is both. Choice B ignores those statutory bars; Choice C invents an age limit; Choice D confuses taxable income with compensation.
- How much of the bond interest is excluded from their 2025 gross income?
Answer: $340, because the qualified interest is reduced by the MAGI phaseout.
IRC § 135. The tentative exclusion is the interest times the ratio of qualified higher education expenses to redemption proceeds: $3,000 × ($8,000/$10,000) = $2,400. For joint filers, the exclusion is phased out between $149,250 and $179,250 of MAGI. Their MAGI of $175,000 removes 25,750/30,000 of the tentative exclusion, leaving $2,400 × (1 − 25,750/30,000) = $340. Choice A ignores the phaseout; Choice B uses a rough half-phaseout; Choice D is wrong because the exclusion is proportional and their MAGI is below the top of the phaseout range.
- How much of the 529 distribution must be included in the parents' gross income?
Answer: $750, because only the earnings portion of the $2,000 excess distribution is taxable.
IRC § 529(c)(3)(B) and IRC § 25A. Qualified expenses are reduced by the amount of expenses used to compute an education credit before applying a QTP distribution. Thus adjusted qualified expenses are $18,000 − $4,000 = $14,000. The distribution exceeds that amount by $2,000. Only the earnings part of the excess is taxable: $2,000 × ($6,000/$16,000) = $750. Choice A ignores the reduction for the AOTC expenses; Choice C treats the $2,000 excess as all earnings; Choice B treats the entire earnings as taxable without applying the $14,000 of remaining qualified expenses.
- A married couple, both age 55, file a joint return for 2025. The husband had $160,000 of wages in 2025; the wife had no earned income. Neither spouse contributed to any other IRA during 2025. Their modified adjusted gross income for Roth IRA purposes is $241,000. What is the maximum total amount they may contribute to Roth IRAs for 2025?
Answer: $8,000
Under IRC § 408A(c), the Roth IRA contribution limit for 2025 is $7,000 per individual, increased by the $1,000 IRA catch-up for taxpayers age 50 or older under IRC § 219(b)(5)(B). Each spouse therefore has an $8,000 pre-phase-out limit, for a combined $16,000. Because the wife had no earned income, IRC § 219(c) allows a married couple filing jointly to treat the husband's compensation as her compensation, so both spouses are eligible to contribute. For married filing jointly, the Roth IRA phase-out range is $236,000–$246,000; their MAGI of $241,000 is halfway through the range, so the combined limit is reduced by 50% to $8,000 ($4,000 per spouse), which is Choice C. Choice A ($4,000) is the husband's phased-out limit alone; it treats the wife as unable to contribute because she had no earned income, ignoring the spousal IRA rule of IRC § 219(c). Choice B applies the phase-out to $14,000, omitting both catch-up contributions. Choice D ignores the phase-out entirely.
- Which of the following is correct regarding the deduction for student loan interest for 2025?
Answer: A single taxpayer who cannot be claimed as a dependent, with modified adjusted gross income of $95,000, may deduct a reduced amount of student loan interest, because the deduction is phased out between $85,000 and $100,000 of MAGI.
IRC § 221. Up to $2,500 of interest on a qualified education loan is deductible as an adjustment to income, but for single taxpayers the deduction phases out for MAGI between $85,000 and $100,000, so a single taxpayer with MAGI of $95,000 receives a reduced deduction. Choice C is correct. Choice A misstates the dependent bar in § 221(c): the deduction is denied if another taxpayer can claim the student as a dependent, regardless of whether the student is actually claimed. Choice B misstates the refinancing rule: debt incurred solely to refinance a qualified education loan is itself a qualified education loan, and the lender's identity is irrelevant. Choice D misstates who may deduct: a parent who is the borrower on a federal PLUS loan is legally obligated on a qualified education loan for a dependent's education and may deduct the interest, subject to the same MAGI phase-out.
- Which of the following is correct for 2025?
Answer: He may not treat the November distribution as a tax-free 60-day rollover because of the one-rollover-per-year rule; unless an exception applies, it is taxable and subject to the 10% additional tax.
IRC § 408(d)(3)(B). The one-rollover-per-year limitation applies to all of an individual's IRAs in the aggregate. Because Kevin received a distribution from an IRA on May 15, 2025, and completed a 60-day rollover, he cannot treat a second IRA distribution received within one year as a tax-free rollover. The November distribution is includible unless an exception applies, and as a distribution before age 59½ it is also subject to the 10% additional tax unless an exception applies. A direct trustee-to-trustee transfer would not be barred, but the facts describe a 60-day rollover. Choice A and Choice B misstate the aggregation and measurement rules; Choice C misstates the deadline and ignores the one-year bar.
- Which of the following is correct regarding the American opportunity tax credit (AOTC) for 2025?
Answer: Qualified education expenses for the AOTC must be reduced by tax-free scholarships received for the year, and 40% of the credit, up to $1,000, is refundable even if the taxpayer has no income tax liability.
IRC § 25A(i), with the scholarship adjustment in § 25A(g)(2). The AOTC is 100% of the first $2,000 of qualified education expenses plus 25% of the next $2,000, so the maximum credit is $2,500, and 40% of it — up to $1,000 — is refundable. Qualified expenses must be reduced by tax-free scholarships before the credit is computed, so Choice A is correct. Choice B misstates the party: a student claimed as a dependent cannot claim the credit, and the expenses are treated as paid by the parent, with the phase-out applied to the parent's MAGI. Choice C misstates the year limit: the credit is limited to four tax years per eligible student, with no additional fifth year. Choice D misstates the filing-status rule: the education credits are denied entirely to married taxpayers filing separate returns, so there is nothing to allocate.
- Danielle, age 22, is single and cannot be claimed as a dependent by another taxpayer. In 2025, while in her second year of a bachelor's degree program, she had $5,800 of tuition and required fees. A $1,800 tax-free scholarship was paid directly to the university and applied to tuition; Danielle paid the remaining $4,000 herself. Her modified adjusted gross income for the American opportunity credit was $85,000. Her 2025 income tax liability before any credits was $1,000, and she has no other credits. What total amount of the American opportunity credit will Danielle be allowed to use for 2025?
Answer: $1,250
Under IRC § 25A(i), the American opportunity credit is 100% of the first $2,000 of qualified education expenses plus 25% of the next $2,000, capped at $2,500 per eligible student. Danielle's $4,000 of qualified expenses after applying the $1,800 tax-free scholarship produce the full tentative credit of $2,500. For a single taxpayer, the phase-out range is $80,000–$90,000 of MAGI; her MAGI of $85,000 is halfway through the range, so the credit is reduced to $1,250. Forty percent of that amount, $500, is refundable; the remaining 60%, $750, is nonrefundable. Her $1,000 tax liability fully absorbs the nonrefundable portion, leaving a total allowable credit of $1,250. Thus Choice C ($1,250) is correct. Choice A ($500) is only the refundable component. Choice B ($750) is only the nonrefundable component. Choice D ($2,000) is the total credit that would result if the MAGI phase-out were ignored: $1,000 refundable plus the $1,500 nonrefundable portion limited to $1,000 of tax.
- How much of their IRA contributions are deductible for 2025?
Answer: $4,200, only Lena's contribution, because Marco's deduction is eliminated and Lena's deduction is reduced by 40%.
IRC §§ 219(c), 219(g). Marco is an active participant, so his deduction phases out between $126,000 and $146,000 of MAGI; at $240,000, his deduction is zero. Lena is not an active participant, but because her spouse is, her phaseout range is $236,000 to $246,000. At $240,000, she loses 40% of the deduction, leaving 60% of $7,000 = $4,200. She may use the spousal IRA rule because combined compensation is $180,000. Choice A ignores both phaseouts; Choice B gives Lena a full deduction despite her phaseout; Choice D ignores that MAGI is below the top of Lena's range.
- Which of the following is correct regarding the elective deferral limits for employer-sponsored retirement plans for 2025?
Answer: A taxpayer age 62 participating in a 401(k) plan may defer up to $34,750 for 2025, because the $23,500 basic limit is increased by the $11,250 super catch-up for taxpayers ages 60 through 63, which replaces the regular $7,500 catch-up.
IRC § 402(g) and § 414(v). For 2025 the Section 402(g) limit on elective deferrals is $23,500, and the regular catch-up for participants age 50 or older is $7,500. Under the SECURE 2.0 rules in effect for 2025, a participant who attains age 60, 61, 62, or 63 may use the $11,250 super catch-up in place of the regular catch-up, so a 62-year-old may defer $34,750. Choice C is correct. Choice A misstates catch-up eligibility: the $7,500 catch-up is available only to participants who are at least age 50, so a 45-year-old's limit is $23,500, not $31,000. Choice B misstates aggregation: the Section 402(g) limit applies to the total of all elective deferrals an individual makes to all plans, so the taxpayer could not defer $23,500 to a 401(k) and an additional $16,500 to a SIMPLE IRA. Choice D misstates the SIMPLE catch-up: a SIMPLE IRA participant age 50 or older may make an additional $3,500 catch-up deferral, so a 55-year-old may defer $20,000.
- Which education credit, if any, may Ray claim for 2025?
Answer: Lifetime Learning Credit of $670, because the credit is 20% of his qualified tuition and fees.
IRC §§ 25A(b), 25A(c). The American opportunity credit is limited to students who are enrolled at least half-time in a program leading to a degree or other recognized credential during their first four years of postsecondary education. Ray is not degree-seeking, so the AOTC does not apply. The Lifetime Learning Credit can be claimed for any course at an eligible school to acquire or improve job skills, including graduate courses, and does not require a degree. Qualified expenses are $3,200 + $150 = $3,350, and the credit is 20% of the first $10,000, or $670, with no phaseout because his MAGI is below $80,000. Choice A applies the AOTC formula to a non-degree student; Choice C states the statutory maximum rather than the computed credit; Choice D misstates Lifetime Learning Credit eligibility.
- How much American opportunity credit may Maria claim for 2025?
Answer: $1,060, consisting of a $760 refundable credit and $300 of the nonrefundable credit used to offset tax.
IRC § 25A. Qualified education expenses are reduced by tax-free educational assistance, including Pell grants and tax-free scholarships. Qualified expenses are $7,400 ($6,500 tuition + $900 course materials) less $5,500 assistance = $1,900. The American opportunity credit is 100% of the first $2,000 of those expenses, so the tentative credit is $1,900. Forty percent, $760, is refundable; the other $1,140 is nonrefundable and is allowed only to the extent of tax liability. Because Maria's tax before credits is $300, her total current-year benefit is $300 + $760 = $1,060. Choice A incorrectly treats the entire credit as refundable; Choice C incorrectly assumes the full nonrefundable portion is allowed despite the tax-liability limit; Choice D ignores the $300 nonrefundable offset.
