Which of the Following Best Describes Distributions from a Traditional

question 154

Multiple Choice

Which of the following best describes distributions from a traditional defined contribution plan?

• A)Distributions from defined contribution plans are fully taxable as ordinary income.
• B)Distributions from defined contribution plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
• C)Distributions from defined contribution plans are fully taxable as capital gains.
• D)Distributions from defined contribution plans are partially taxable as capital gains and partially nontaxable as a return of capital.

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Definitions:

Cost Method

A method of accounting where the investment is recorded at its acquisition cost, without subsequent change to market value.

Equity Method

An accounting technique used for recording investments in associate companies where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor's share of net assets of the investee.

Stock Investments-Long

Investments in stock securities intended to be held for a long-term period for capital appreciation, dividend income, or both.

Common Stock

Equity securities representing ownership in a company, entitling holders to vote and share in the company's profits.