True/False
Indicate whether the
statement is true or false.
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1.
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Susan purchased an annuity for
$200,000. She is to receive $18,000 each year and her life expectancy is 13 years. If Susan collects
under the annuity for 14 years, the entire $18,000 received in the 14th year must be included in her
gross income.
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2.
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In the case of a person with
other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross
income.
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3.
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Norma’s income for 2018 is
$27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion
of her Social Security benefits must be included in her gross income.
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4.
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Terri purchased an annuity for $100,000. She was to receive $10,000 per year and
her life expectancy was 20 years. She died after receiving 8 payments. Terri’s final return
should reflect a loss of $20,000 ($100,000 – $80,000).
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5.
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If you purchase a Roth IRS
contributions are not deductible
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6.
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Earnings distributions are
tax-free if:
The IRA has existed for 5
years, and
The Taxpayer is >59 1/2 years old
There is no age limit to
begin distributions
Contributions are phased-out in the same manner as for a traditional IRA.
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Modified True/False
Indicate
whether the statement is true or false. If false, change the identified word or phrase to make the
statement true.
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7.
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A taxpayer who receives a distribution can avoid current
taxation by rolling the distribution into another qualified employer retirement plan or into
an IRA.
The taxation is deferred until distributions are made from the
recipient’s qualified employer retirement plan or IRA.
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8.
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A taxpayer who receives a distribution can avoid current
taxation by rolling the distribution into another qualified employer retirement plan or into
an IRA
The rollover can
be direct with the balance in
the account going directly into another qualified plan or IRA. The rollover can be
indirect (subject to a 20 percent withholding) where the employee has 60 days to transfer the
proceeds into another qualifies plan or IRA.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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9.
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Mark a calendar year taxpayer,
purchased an annuity for $50,000 in 2016. The annuity was to pay him $3,000 on the first day of each
year, beginning in 2016, for the remainder of his life. Mark’s life expectancy at the time he
purchased the annuity was 20 years. In 2018 Mark developed a deadly disease, and doctors estimated
that he would live for no more than 24 months.
a. | If Seth dies in 2018, a loss can be claimed on his final return for his unrecovered
cost of the annuity. | d. | If Seth is still alive in 2018 his recovery of capital for that year is
$500. | b. | If Seth dies in 2018, his returns for the two previous years can be amended to
allocate the entire cost of the annuity to the years in which he received payments and reported gross
income | e. | None of
these. | c. | If Seth is still alive at the end of 2018, he is not required to recognize any gross
income because of his terminal illness. |
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10.
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The taxable portion of Social Security benefits may be affected by:
a. | The taxpayer’s itemized deductions | d. | The individual’s standard
deduction. | b. | The individual’s tax-exempt interest income | e. | None of these. | c. | The number of
quarters the individual worked |
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11.
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The amount of Social Security benefits received by an individual that he or she
must include in gross income:
a. | Is computed in the same manner as an annuity [exclusion = (cost/expected return)
× amount received]. | d. | May be zero or as much as 85% of
the Social Security benefits received, depending upon the taxpayer’s Social Security benefits
and other income. | b. | May not exceed the portion contributed by the
employer | e. | None of
these. | c. | May not exceed 50% of the Social Security benefits
received. |
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12.
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Betty purchased an annuity for $24,000 in 2018. Under the contract, Betty will
receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will
live to receive 96 payments and will receive a 3% return on her original investment
a. | If Betty collects $3,000 in 2018, her gross income is $630 (.03 × $21,000). | d. | If Betty lives to collect only 60 payments before her death, she
will report a $6,000 loss from the annuity [$24,000 – (60 × $300) = $6,000] on her final return. | b. | Betty has no gross
income until she has collected $24,000 | e. | None of these. | c. | If Betty lives to collect more than 96
payments, all of the amounts collected after the 96th payment must be included in taxable
income. |
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13.
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If the traditional IRA was
deductible: a. |
then the basis for the IRA is zero and the entire amount of the rollover
or conversion is included in gross income | c. |
If nondeductible, then
the basis for the IRA is equal to the sum of the contributions. Thus, only the IRA earnings
included in the rollover or conversion are included in gross
income. | b. | A and C are bitg cirrect | d. | Only A is
correct |
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