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. 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

Answer 1

$16,800

Step-by-step explanation:

Pam's income from annuity payments can be calculated by deducting exclusion for capital recovery from the collection in 2018. To find exclusion per recovery we need to divide total contribution from qualified funds in the number of anticipated monthly annuity payments.

Total contribution from qualified funds = $42,000

The number of anticipated monthly annuity payments = 210

Exclusion per recovery = $42,000/210

Exclusion per recovery = $200

Collection in 2018 ($3,000 x 6) = $18,000

Exclusion ($200 x 6) = $1,200

Income in the first year = $18,000 - $1,200

Income in the first year = $16,800

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