SEE - Special Enrollment Exam Quiz: Retirement And Social Security Income
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Retirement And Social Security IncomeQuestion 1 of 13

Gerald, age 67 and single, applied for Social Security retirement benefits in January 2025. He received a lump-sum payment of $12,000 representing benefits for the last six months of 2024, plus $24,000 of monthly benefits for 2025. Gerald's modified adjusted gross income, excluding Social Security benefits, was $28,000 in 2025 and $26,000 in 2024.

Gerald wants to minimize the tax on his Social Security benefits. Which of the following is correct regarding the $12,000 lump-sum payment?

Gerald may elect on his 2025 return to compute the taxable portion of the $12,000 using his 2024 modified AGI and the base amounts applicable to 2024, and to compute the taxable portion of the $24,000 of 2025 benefits using his 2025 figures.
Gerald must include the entire $12,000 in 2025 gross income because the payment was actually received in 2025, and no election is available for lump-sum benefits attributable to an earlier year.
Gerald may elect to split the $12,000 between 2024 and 2025 in any proportion he chooses and then recompute the taxable portion of his Social Security benefits separately for each year, reporting both on the 2025 return.
Gerald may make the election only by filing an amended 2024 return that reports the $12,000 as Social Security income for 2024, because the election must be made for the year to which the benefits relate.
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Retirement And Social Security Income

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Question 1

Gerald, age 67 and single, applied for Social Security retirement benefits in January 2025. He received a lump-sum payment of $12,000 representing benefits for the last six months of 2024, plus $24,000 of monthly benefits for 2025. Gerald's modified adjusted gross income, excluding Social Security benefits, was $28,000 in 2025 and $26,000 in 2024.

Gerald wants to minimize the tax on his Social Security benefits. Which of the following is correct regarding the $12,000 lump-sum payment?

  1. Gerald may elect on his 2025 return to compute the taxable portion of the $12,000 using his 2024 modified AGI and the base amounts applicable to 2024, and to compute the taxable portion of the $24,000 of 2025 benefits using his 2025 figures. (correct answer)
  2. Gerald must include the entire $12,000 in 2025 gross income because the payment was actually received in 2025, and no election is available for lump-sum benefits attributable to an earlier year.
  3. Gerald may elect to split the $12,000 between 2024 and 2025 in any proportion he chooses and then recompute the taxable portion of his Social Security benefits separately for each year, reporting both on the 2025 return.
  4. Gerald may make the election only by filing an amended 2024 return that reports the $12,000 as Social Security income for 2024, because the election must be made for the year to which the benefits relate.
Explanation: IRC §86(e) permits a taxpayer who receives a lump-sum Social Security payment attributable to a prior year to elect, on the return for the year of receipt, to compute the taxable portion of that payment using the earlier year's modified AGI and the base amounts for that year. Gerald's 12,000paymentisattributableto2024,sotheelectionletshimusehis2024modifiedAGI(12,000 payment is attributable to 2024, so the election lets him use his 2024 modified AGI (26,000) and the base amounts for 2024; his $24,000 of 2025 benefits are figured separately with 2025 figures, and both amounts are reported on the 2025 return. The election reduces the tax here because Gerald's 2024 income was lower than his 2025 income. Choice B is wrong because §86(e) exists precisely to prevent a lump-sum received in a later year from being taxed entirely with the later year's income. Choice C describes a proportional-allocation election, which the statute does not provide; the election recharacterizes the lump-sum under the earlier-year computation rather than splitting the payment. Choice D is wrong because the election is made on the current-year (2025) return and does not require, or permit, amending the 2024 return.

Question 2

Harold died in March 2025 at age 70, before he was required to begin taking required minimum distributions from his traditional IRA. He named his son, Marcus, age 45, as sole beneficiary. Marcus is not an eligible designated beneficiary and does not qualify for any exception to the distribution rules.

Which of the following correctly describes the required distribution treatment of the inherited IRA for Marcus?

  1. Marcus must take annual distributions over his own life expectancy, beginning in 2026, and may leave any balance to his own beneficiaries.
  2. Marcus must withdraw the entire account within five years of Harold's death, and he may take the balance at any time on or before December 31, 2030.
  3. Marcus must withdraw the entire account by December 31, 2035, and he is not required to take annual distributions during the ten-year period. (correct answer)
  4. Marcus must take annual distributions over his own life expectancy during the ten-year period and must withdraw the entire account by December 31, 2035.
Explanation: IRC §401(a)(9)(B)(ii), as amended by the SECURE Act, requires a designated beneficiary who is not an eligible designated beneficiary to receive the entire inherited account by the end of the tenth calendar year following the employee's death. Because Harold died in 2025, Marcus must be fully distributed by December 31, 2035. Since Harold died before his required beginning date, Marcus is not required to take annual distributions during the ten-year period; the final regulations require interim annual distributions only where the employee died on or after the required beginning date. Choice A describes the pre-SECURE stretch rule, which allowed a designated beneficiary to distribute over his own life expectancy; that rule no longer applies to deaths after 2019. Choice B states the 5-year rule, which applies when there is no designated beneficiary, such as when the account passes to an estate; Marcus is a designated beneficiary. Choice D combines life-expectancy installments with the ten-year deadline; that combination applies to a designated beneficiary of an employee who died on or after the required beginning date, not to Harold's death before that date.

Question 3

Elena and Mateo are married and file a joint return for 2025. Elena, age 41, earned $90,000 from her job and is an active participant in her employer's 401(k) plan. Mateo, age 39, had no earned income in 2025 and is not an active participant in any employer plan. Their modified adjusted gross income is $240,000. Mateo contributed $7,000 to a traditional IRA on December 1, 2025.

What is the maximum amount Mateo may deduct on the couple's 2025 return for his IRA contribution?

  1. $2,800
  2. $0
  3. $4,200 (correct answer)
  4. $7,000
Explanation: IRC §219(c) allows a married taxpayer with little or no earned income to contribute to a traditional IRA based on the spouse's compensation, so Mateo's contribution is allowed even though he had no earned income. Under IRC §219(g)(3), because Elena is an active participant in an employer plan but Mateo is not, the deduction phase-out for a joint return applies to the $236,000–$246,000 modified AGI range. The couple's MAGI of $240,000 exceeds the $236,000 threshold by $4,000, or 40% of the $10,000 range, so the $7,000 limit is reduced by 40%: $7,000 × 60% = 4,200.ChoiceA(4,200. Choice A (2,800) applies the 40% phase-out fraction as the deductible portion rather than as the reduction. Choice B ($0) applies the $126,000–146,000rangethatbelongstoataxpayerwhoispersonallyanactiveparticipant,whichisElena′ssituation,notMateo′s,ordeniesthespousalIRAentirelybecauseMateohadnoearnedincome.ChoiceD(146,000 range that belongs to a taxpayer who is personally an active participant, which is Elena's situation, not Mateo's, or denies the spousal IRA entirely because Mateo had no earned income. Choice D (7,000) ignores the spouse-coverage rule, which attributes Elena's plan coverage to the couple for purposes of Mateo's deduction phase-out.

Question 4

Quinn, age 61, retired from his employer in 2025 and received a lump-sum distribution from the employer's qualified retirement plan consisting entirely of employer stock. The plan's cost basis in the stock was $20,000, and the stock had a fair market value of $50,000 on the distribution date. Quinn did not roll over any portion of the distribution. In 2027, he sold all of the stock for $60,000.

Which of the following correctly states the federal income tax treatment of the distribution and the later sale?

  1. $50,000 of ordinary income in 2025, and $10,000 of long-term capital gain in 2027.
  2. $20,000 of ordinary income in 2025, and $40,000 of long-term capital gain in 2027. (correct answer)
  3. $30,000 of ordinary income in 2025, and $10,000 of long-term capital gain in 2027.
  4. $20,000 of ordinary income in 2025, and $10,000 of long-term capital gain in 2027.
Explanation: IRC §402(e)(4) provides that net unrealized appreciation (NUA) in employer securities distributed as part of a lump-sum distribution is not taxed at distribution; the amount taxable in 2025 is the plan's cost basis of $20,000, taxed as ordinary income. The 30,000NUA(30,000 NUA (50,000 − $20,000) is deferred until Quinn sells the stock. On the 2027 sale, the entire gain over the $20,000 basis, $40,000, is long-term capital gain: the NUA retains the plan's holding period, and the additional $10,000 of appreciation was held more than one year after distribution. Quinn is 61, so no early-distribution penalty applies. Choice A taxes the full $50,000 fair market value at distribution and then uses $50,000 as the basis at sale, ignoring NUA deferral. Choice C taxes the $30,000 appreciation at distribution and reports only the $10,000 post-distribution appreciation at sale, misstating the amount taxable at distribution. Choice D taxes the $20,000 basis at distribution but treats the NUA as permanently tax-free by giving the stock a $50,000 basis at sale; NUA is deferred, not excluded, and is taxed as long-term capital gain when the stock is sold.

Question 5

Nadia, age 52, had never owned a Roth IRA before 2023, when she converted her traditional IRA, worth $40,000, to a Roth IRA. She included the entire $40,000 in gross income in 2023. In October 2025, she withdrew $40,000 from the Roth IRA to buy a sailboat. She made no other contributions to, or distributions from, the Roth IRA and does not meet any statutory exception to the additional tax on early distributions.

What are the federal income tax consequences of Nadia's 2025 withdrawal?

  1. $40,000 is includible in gross income, and no additional tax applies.
  2. $40,000 is includible in gross income, and a $4,000 additional tax applies.
  3. No amount is includible in gross income, and no additional tax applies.
  4. No amount is includible in gross income, and a $4,000 additional tax applies. (correct answer)
Explanation: IRC § 408A(d)(3)(F) provides that when a Roth IRA distribution is attributable to a conversion that was includible in gross income and occurs within the 5-taxable-year period beginning with the year of conversion, §72(t) applies as if the distribution were includible in gross income. Nadia converted in 2023, so the five-year period runs through 2027; the October 2025 withdrawal falls inside it. She is 52 and no exception applies, so the 10% additional tax applies to the $40,000 conversion amount, or $4,000. The conversion was already taxed in 2023, so withdrawing that principal is not includible in gross income again; the ordering rules of IRC § 408A(d)(4) attribute the withdrawal to the conversion before any earnings, which is why the full $40,000 is penalized but not re-taxed. Choice A treats the already-taxed conversion proceeds as ordinary income and ignores the penalty. Choice B makes both errors: it taxes the conversion proceeds a second time and adds the penalty. Choice C ignores the special 5-year conversion rule and treats the withdrawal as a fully qualified tax-free event.

Question 6

Daniel, age 35, is married to Priya. Daniel and Priya file married filing separately for 2025 and lived together for the entire year. Daniel had $8,000 of wages in 2025, his only income and his only compensation. What is the maximum amount Daniel may contribute to his Roth IRA for 2025?

  1. $0
  2. $1,400 (correct answer)
  3. $5,600
  4. $7,000
Explanation: IRC § 408A(c)(3). For a married taxpayer filing separately who lived with his spouse at any time during the year, the Roth IRA contribution phase-out range is $0 to $10,000 of modified AGI; a married taxpayer who lived apart from his spouse for the entire year uses the single taxpayer phase-out range. Daniel lived with Priya all year, so his $8,000 modified AGI falls within the $0-to-$10,000 range. Before the phase-out, Daniel's limit is $7,000, the 2025 regular IRA limit, because he is under 50 and his $8,000 compensation exceeds $7,000. The phase-out reduces the limit by 7,000×(7,000 × (8,000 ÷ $10,000) = $5,600, leaving $7,000 − $5,600 = $1,400. This reduced limit is also below Daniel's 8,000compensation,sothecompensationlimitdoesnotreduceitfurther.ChoiceA(8,000 compensation, so the compensation limit does not reduce it further. Choice A (0) treats the married-filing-separately phase-out as an all-or-nothing cutoff; the range is a phase-out, so a reduced contribution remains. Choice C ($5,600) reports the phase-out reduction as the contribution limit instead of subtracting it from the 7,000regularlimit.ChoiceD(7,000 regular limit. Choice D (7,000) ignores the married-filing-separately phase-out and would be correct only if Daniel had lived apart from Priya for the entire year.

Question 7

Rashid, age 60 and single, received a $10,000 distribution from his traditional IRA in 2025. His total basis in traditional IRAs from nondeductible contributions was $25,000, and the total value of all of his traditional IRAs on December 31, 2025, was $90,000. He made no other IRA contributions or distributions during 2025. What amount of the $10,000 distribution must Rashid include in gross income for 2025?

  1. $0
  2. $2,500
  3. $7,500 (correct answer)
  4. $10,000
Explanation: IRC § 408(d)(2); Form 8606. A distribution from a traditional IRA that contains basis from nondeductible contributions is partly nontaxable. The nontaxable portion is the distribution multiplied by the ratio of the taxpayer's total IRA basis to the total value of all of his traditional IRAs - the December 31 balance plus the amount of distributions taken during the year. Rashid's total IRA value is $90,000 + $10,000 = $100,000, so the nontaxable portion is 10,000×(10,000 × (25,000 ÷ $100,000) = $2,500, and the taxable portion is $10,000 - $2,500 = 7,500.ChoiceA(7,500. Choice A (0) treats the distribution as a full recovery of basis, but the basis must be prorated across the total value of all traditional IRAs. Choice B (2,500)isthenontaxableportion,nottheamountincludedinincome.ChoiceD(2,500) is the nontaxable portion, not the amount included in income. Choice D (10,000) ignores Rashid's basis and would be correct only if he had no nondeductible contributions.

Question 8

Rosa and Miguel, both age 68, are married filing jointly for 2025. Rosa received $16,000 in Social Security retirement benefits, and Miguel received $12,000. Their other 2025 income consisted of a fully taxable pension of $24,000, a taxable IRA distribution of $8,000, and $4,000 of interest on municipal bonds that is exempt from federal income tax. What amount of their Social Security benefits is taxable on their 2025 Form 1040?

  1. $5,100
  2. $9,000
  3. $11,100 (correct answer)
  4. $23,800
Explanation: IRC § 86. Taxable Social Security benefits are computed on the Social Security Benefits Worksheet in the Form 1040 instructions. Provisional income is adjusted gross income determined without Social Security benefits, plus tax-exempt interest, plus one-half of the benefits. Rosa and Miguel's provisional income is 50,000(50,000 (24,000 pension + $8,000 IRA distribution + $4,000 municipal bond interest + $14,000, which is one-half of their $28,000 total benefits). Because $50,000 exceeds the $44,000 second-tier amount for married filing jointly, the taxable amount is the lesser of 85% of the benefits or the two-part formula: 85% of the excess over $44,000, plus the lesser of $6,000 or 50% of the excess over 32,000.Thatformulais8532,000. That formula is 85% × (50,000 - $44,000) = $5,100, plus 6,000(because506,000 (because 50% × (50,000 - $32,000) = $9,000, limited to $6,000), for a total of $11,100. The 85% cap is 85% × $28,000 = $23,800, and 11,100isthelesseramount.ChoiceA(11,100 is the lesser amount. Choice A (5,100) omits the 6,000first−tieramountandincludesonlythe856,000 first-tier amount and includes only the 85% of the excess over the second-tier amount. Choice B (9,000) stops at the uncapped 50% first-tier amount and ignores the 85% second-tier computation. Choice D ($23,800) applies 85% directly to the total benefits, skipping the income-based worksheet.

Question 9

Rosa, age 53, purchased a nonqualified deferred annuity in 2015 for $40,000. She has never elected to receive annuity payments. In 2025, when the account value was $52,000, she withdrew $10,000 to pay for a family vacation. She has received no other distributions from the contract and does not meet any exception to the additional tax on early distributions.

What are the federal income tax consequences of Rosa's 2025 withdrawal?

  1. $2,300 is includible in gross income, and a $230 additional tax applies.
  2. $10,000 is includible in gross income, and a $1,000 additional tax applies. (correct answer)
  3. $10,000 is includible in gross income, and no additional tax applies.
  4. No amount is includible in gross income because the withdrawal is a return of Rosa's $40,000 investment.
Explanation: IRC §72(e)(2)(B) provides that a distribution from a deferred annuity contract before the annuity starting date is includible in gross income to the extent the distribution does not exceed the excess of the cash surrender value immediately before the distribution over the investment in the contract. The excess is 12,000(12,000 (52,000 − $40,000), so the full $10,000 withdrawal is from accumulated earnings and is taxable. IRC §72(q) then imposes the 10% additional tax because Rosa is 53 and no exception applies: $10,000 × 10% = $1,000. Choice A uses the pro-rata exclusion ratio (basis ÷ account value) and taxes $2,300; the pro-rata method applies to payments received as an annuity, not to a withdrawal taken before the annuity starting date, where earnings are treated as withdrawn first. Choice C ignores §72(q), which reaches nonqualified annuities, not just retirement plans. Choice D reverses the statutory ordering by treating the withdrawal as a return of investment first; the investment in the contract is recovered only after the accumulated earnings are distributed.

Question 10

A single taxpayer, age 38, was an active participant in her employer's 401(k) plan throughout 2025. Her taxable compensation for 2025 was $52,000, and her modified adjusted gross income for IRA purposes was $85,500. She contributed $7,000 to a traditional IRA in 2025. What amount of the contribution may she deduct on her 2025 return?

  1. $1,050
  2. $2,450 (correct answer)
  3. $4,550
  4. $7,000
Explanation: IRC § 219(g). Because the taxpayer was an active participant in a qualified plan, her traditional IRA deduction is phased out over the 2025 single range of $79,000–$89,000 of modified AGI. Her MAGI of $85,500 is $3,500 below the top of the range, so she may deduct 35% of her $7,000 contribution, or $2,450. Choice A would result from using a prior year's lower phase-out range; the 2025 single covered range is $79,000–$89,000. Choice C is the amount of the phase-out reduction (65% of the contribution), not the deductible amount. Choice D ignores the active-participant phase-out entirely.

Question 11

Which of the following is correct regarding the base amounts used to determine the taxability of Social Security benefits for 2025?

  1. A married taxpayer filing separately who lived apart from the spouse for all of 2025 uses a base amount of $25,000. (correct answer)
  2. A married taxpayer filing separately who lived with the spouse at any time during 2025 uses a base amount of $25,000.
  3. Married taxpayers filing jointly use a base amount of $44,000 before any Social Security benefits become taxable.
  4. A taxpayer using the qualifying surviving spouse filing status uses a base amount of $32,000.
Explanation: IRC § 86(c)(1). For 2025, the base amounts are $32,000 for married filing jointly; $25,000 for single, head of household, qualifying surviving spouse, and married taxpayers filing separately who lived apart for the entire year; and $0 for a married taxpayer filing separately who lived with the spouse at any time during the year. Accordingly, Choice A correctly states the rule for a married taxpayer filing separately who lived apart from the spouse for all of 2025. Choice B misstates the married-separate rule: living with the spouse at any time during the year puts the taxpayer on a $0 base amount and the 85% inclusion path. Choice C treats the $44,000 second-tier threshold as the point where benefits first become taxable for joint filers. Choice D misstates the base for a qualifying surviving spouse, which is $25,000; the $32,000 base applies only to taxpayers filing jointly.

Question 12

Assuming each taxpayer's employer plan permits catch-up contributions, which of the following taxpayers is eligible to make a 2025 super catch-up contribution of $11,250 in addition to the regular $23,500 elective deferral limit?

  1. A participant in a 401(k) plan who attains age 64 during 2025.
  2. A participant in a 403(b) plan who attains age 59 during 2025.
  3. A participant in a 401(k) plan who attains age 61 during 2025. (correct answer)
  4. A participant in a SIMPLE IRA who attains age 62 during 2025.
Explanation: IRC § 414(v). Choice C is correct. For 2025, the regular age-50 catch-up limit is $7,500, and a participant who attains age 60, 61, 62, or 63 during the taxable year may make an increased super catch-up contribution of $11,250 to a 401(k), 403(b), or governmental 457(b) plan; the comparable super catch-up limit for a SIMPLE IRA is $5,250. Choice A attains age 64 during 2025, outside the 60–63 window, so is limited to the regular $7,500 catch-up. Choice B attains age 59 during 2025, below age 60, so is not eligible for the super catch-up. Choice D misstates the SIMPLE amount: a participant who attains age 62 during 2025 is eligible for the $5,250 SIMPLE super catch-up, not $11,250.

Question 13

A single taxpayer, age 45, had $2,500 of taxable compensation in 2025. Her modified adjusted gross income for Roth IRA purposes was $157,500. What is the maximum amount she may contribute to a Roth IRA for 2025?

  1. $1,250 (correct answer)
  2. $2,500
  3. $3,500
  4. $7,000
Explanation: IRC §§ 408A(c)(2) and 408A(c)(3). The 2025 Roth IRA limit is first capped at the lesser of $7,000 or taxable compensation, here $2,500. For a single taxpayer the limit is then phased out over $150,000–$165,000 of MAGI; at $157,500 the phase-out is 50%, so the maximum contribution is $2,500 reduced by 50%, or $1,250. Choice B applies the compensation cap but ignores the phase-out. Choice C applies the 50% phase-out to the full $7,000 limit and ignores the compensation cap. Choice D ignores both the phase-out and the compensation cap.