Question

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. The number of anticipated monthly annuity payments from the IRS table is 210.
Click here to access Exhibit 4.1 and Exhibit 4.2.

a. Assume that Pam retires in June 2015 and collects six annuity payments this 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

Answer:

Explanation:

Income from the annuity payments in the first year?

Exclution per payment = Total contribution to pension fund/ Number of anticipated monthly annuity payments = 42,000/210 = 200

Collects payments in 2015 = 6*3,000=18,000

Exclusion for capital recovery = 6*200 = 1,200

Net Income = 18,000-1,200 = 16,800

What is her income from the annuity payments in the twenty-fourth year?

3,000*12 = 36,000

What are Pam's income and deductions from the annuity contract in the year of her death?

Income from annuity payments = 3000 x 8 months = 24000

Loss deductions = 3000 x 4 months = 12000