Question

Problem 4-52 (LO. 4) Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer's qualified pension fund. She elects to receive her retirement benefits as an annuity of $3,000 per month for the remainder of her life. Click here to access Exhibit 4.1 and Exhibit 4.2. a. Assume that Pam retired in June 2018 and collected six annuity payments that year. What is her income from the annuity payments in the first year? b. Assume that Pam lives 25 years after retiring. What is her income from the annuity payments in the twenty-fourth year? c. Assume that Pam dies after collecting 160 payments. She collected eight payments in the year of her death. What are Pam's income and deductions from the annuity contract in the year of her death? Income from the annuity payments: $ Loss deduction: $

Answer 1

PageNo ① Answers 1. Income from annuity payments in the first year. Exclusion per paymerit = employee's investment . number of anticipated Payments. The age of employee at annuity & tonting date işe 66-40. number of anticipated payment & = 20 Exclusion per payment = 42,000 210 = 200 Collections in 2018 '= 6 paymentą x 3000 .: = 18000 Exclusion for Capital recovery - (200 x 6) := 1200

Pageno Include grod& imcome = Collections in 2018 - Exclusion for Capital Recovery = 18000 - 1200 = 16800 The annuity Payments for the firęt year = $ 16,800 Include in gross income = 3000 x 12 = 36000 The annuity Payments in 24thyeon= $36000 c) Income from the annuity Payments and loss deduction Investment in contract 42.000 Total amount collected (160 X$3000 = $480000) Less: Capital recovered Ca00 x 160 =$32000) (22000) uncovered cost clos&in final year return $10,000

Pageno Income from collections in final year = 3000 X8 - 24000 ( 24000 collected -8 <$200) = 24000 - 1600 22,400 Income from Collections in timal year = $ 22,400