Tax preparation

Question

Elise worked for 30 years for her employer. She has decided to retire. Elise is 60 years old. She contributed $15,000 pre-tax to her qualified employee pension plan. Elise will receive from the plan a monthly check of $1,000 for the rest of her life and her husband’s life. Elise’s husband is 65.

a. What is the taxable portion of Elise’s monthly payment? (4 pts)

Answer 1

THE FACT PATTERN IS VERY SHORT. IF THESE CONTRIBUTIONS WERE MADE TO A 401K OR TRADITIONAL IRA, THERE WAS A TAX BENEFIT RECEIVED IN THE YEAR OF THE CONTRIBUTION.

ALL WITHDRAWALS WOULD BE FULLY TAXABLE.

IF THESE CONTRIBUTIONS WERE TO A ROTH 401K OR A ROTH IRA, THEN WITHDRAWALS ARE TAX FREE (IN MOST CASES).