income tax concept unit 8
Using your text, complete the following. In these problems, apply your knowledge of the rules and laws associated with retirement and other tax-deferred plans and annuities.
· Problem 54, page 11-38.
· Problem 55, page 11-38.
· Problem 59, page 11-39.
· Problem 61, page 11-39.
· Problem 63, page 11-40.
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54. Determine the maximum contribution that can be made to a Keogh plan in each of the following cases. In all instances, the individual is self-employed, and the self-employment tax reduction has already been taken. a. Self-employment income of $54,000. b. Self-employment income of $54,000 and wage income of $30,000. c. Self-employment income of $125,000. d. Self-employment income of $290,000. |
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55. Ken is a self-employed architect in a small firm with four employees: himself, his office assistant, and two drafters, all of whom have worked for Ken full time for the last four years. The office assistant earns $30,000 per year and each drafter earns $40,000. Ken’s net earnings from self-employment (after deducting all expenses and one-half of self-employment taxes) are $310,000. Ken is considering whether to establish a SEP plan and has a few questions: a. Is he eligible to establish a SEP plan? b. Is he required to cover his employees under the plan? Why or why not? c. If his employees must be covered, what is the maximum amount that can be contributed on their behalf? d. If the employees are not covered, what is the maximum amount Ken can contribute for himself? e. If Ken is required to contribute for his employees and chooses to contribute the maximum amount, what is the maximum amount Ken can contribute for himself? (Hint: Calculate the employee amounts first.) Ignore any changes in Ken’s self-employment tax. |
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59. Lance is single and has a traditional IRA into which he has made deductible contributions for several years. This year he changed employers and is now an active participant in his employer’s pension plan. His AGI is $95,000. He wants to make a nondeductible contribution to his IRA in the current year. What advice would you give Lance? |
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61. Using the simplified method, determine the tax-free amount of the following distributions from a qualified pension plan. Contributions, if any, are made with previously taxed dollars. a. Person A, age 59, made no contributions to the pension plan and will receive a $500 monthly check for life. b. Person B, age 66, made contributions of $23,000 to the pension plan and will receive a monthly check of $1,300 for life. c. Person C, age 64, made contributions of $19,000 to the pension plan and will receive monthly payments of $1,200 over her life and the life of her 67-year-old husband. d. Person D, age 55, made contributions of $32,000 to the pension plan. He will receive quarterly payments of $5,000 over his life and the life of his 58-year-old wife. |
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63. Determine the tax-free amount of the monthly payment in each of the following instances. Use the life expectancy tables. a. Person A is age 57 and purchased an annuity for $82,000. The annuity pays $600 per month for life. b. Person B is 73 and purchased an annuity for $80,000. The annuity pays $950 per month for life. c. Person C is 68 and purchased an annuity for $40,000 that pays a monthly payment of $550 for 10 years. |