Question

Problem 4-51 (Algorithmic) (LO. 4) Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $31,500 to her employer's qualified pension fund, all of which was taxable when earned. She elects to receive her retirement benefits as an annuity of $3,150 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 2019 and collected six annuity payments that year. What is her gross income from the annuity payments in the first year? х Feedback Check My Work Annuity contracts generally require the purchaser (the annuitant) to pay a fixed amount for the right to receive a future stream of payments. No income is recognized by the annuitant at the time the cash value of the annuity increases because the taxpayer has not actually received any income. The tax accounting problem associated with receiving payments under an annuity contract is one of apportioning the amounts received between recovery of capital and income. b. Assume that Pam lives 25 years after retiring. What is her gross income from the annuity payments in the twenty-fourth year? 0 X Feedback Check My Work Incorrect C. Assume that Pam dies after collecting 160 payments. She collected eight payments in the year of her death. What are Pam's gross income and deductions from the annuity contract in the year of her death? Income from the annuity payments: $ 0 X Loss deduction: S dl X

Answer 1

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Date Amount a) Calculation of the income from the Annuity Payments in the first year. Particular Total contribution to qualifed Pension $ 31,500 Number of anticipated monthly annuity $210 Payment (b) Exclusion per Payment lalb) $150 Collections ($31,300* 6 Payment) $18900 Lesso exclusion for capital Melovery $900 ($ 1507 6 Payment) Income from the annuity payment in $ 18000 Fiyat Year fund (0) Therefore, the income from the Annuity Payments in the first year $ $18,000 Scanned by TapScanner

Date bi (alculation of the Income from the annuite Payments in the Twenty-Jowith Year Particular Amount 210 Months is equal to 17 years and 5 Months. 3,150 Retirement benefits as an Annuityla $35 Number of Payments in a ) 12 Income from the annuity Dayments in $37,800 the 24 year Catb) Therefore, the income from the annuite payments in the Twenty-fourth years is $37,800 Scanned by TapScanner

Date es Calcution of the Income from the . annuity payments and loss deduction Particulars Amount Total amount Collected (4.3150/60) $.504,000 Investment in Contract $31500 lesso Capital received ($150*/bo) $ 24,000 Loss Reduction ($31500-$14000) $ 75.00 Income from the annuity payments $ 24,000 [($31508)-($150*))] Therefore, the Income from the annuity Payments : $24,000 Therefore, the loss deduction : $7,500 Scanned by TapScanner

EXHIBIT 4.2 Number of Anticipated Monthly Annuity Payments under the Simplified Method Age Number of Anticipated Monthly Payments 360 55 and under 56-60 61-65 66-70 71 and over 310 260 210 160