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, all of which was taxable when earned. She elects to receive her retirement benefits as an annuity of $4,200 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

Answer 1

A. $24,000

B. $50,400

Step-by-step explanation:

A. Calculation for her gross income from the annuity payments in the first year

First step is to calculate the exclusion per payment

Exclusion per payment= $42,000/210

Exclusion per payment= $200

Now let calculate her Gross income

Collections in 2019 $25,200

(6 annuity payments*$4,200)

Less Exclusion for capital recovery ($1,200)

(6 annuity payments*$200)

Gross income $24,000

($25,200-$1,200)

Therefore her gross income from the annuity payments in the first year will be $24,000

B. Calculation for her gross income from the annuity payments in the twenty-fourth year

Gross income=$4,200 × 12 annuity payments

Gross income= $50,400

Therefore her gross income from the annuity payments in the twenty-fourth year will be $50,400