Paul Gordon and his wife, Maxine, are in their mid-forties. They live in an upper middle-class...

  

Transcribed Image Text:

Paul Gordon and his wife, Maxine, are in their mid-forties. They live in an upper middle-class neighborhood of Wilmington, Delaware. Paul is a 25% owner and Chief Executive Officer of XYZ Corporation that produces and markets printer's ink in southeastern Pennsylvania, New Jersey, and Delaware. Maxine is completing her 20th year as a kindergarten teacher in Wilmington, Delaware. They have two children, Michelle, age 15, and Graham, age 10. They own their home in suburban Wilmington. The XYZ Corporation currently has 100 employees, whose annual earnings extend from $15,000 to $156,000. Although Paul has been approached by several pension planning organizations operating in the Wilmington area, Paul has not been successful in persuading the other stockholders of the desirability of establishing either a pension plan or a profit- sharing plan. Maxine Gordon earns one-third of Paul's $156,000 annual salary. Their adjusted gross income for the year is $227,900. Happily, Maxine and her fellow teachers were participating in a 401(k) plan established by the school district several years ago. Maxine has been pleased to see the cash values accumulating to her credit on a tax-sheltered basis under the 401(k) plan. She thought it was irrational that the XYZ Corporation did not have a similar plan for its employees. Paul and Maxine have made contributions to an IRA in prior years, but have not done so for several years. Paul believes that, for many reasons, a profit-sharing plan would be preferable to a pension plan from the point of view of both the corporation and its employees. However, he is aware that the 25% maximum employer contribution requirement would limit the retirement benefits for himself and the other high-salaried owner-employees. In fact, Paul felt that a defined benefit pension plan would be more attractive to some of the older employees than either a defined contribution pension plan or a profit-sharing plan. The XYZ Corporation had a contributory group term life insurance plan that provided a death benefit equal to one year's compensation for each employee. The employees resented the fact that a part of each monthly premium for the group life coverage was withheld from their paychecks. The corporation felt that the employees would be more likely to recognize the value of the group benefit if the employees paid a part of the cost of the coverage. Question 26 Paul and Maxine would like to purchase a lot and build a new three-bedroom house. Which of the following statements concerning the use of the money locked up their IRAs to help finance the building of the new home is correct? O Any distribution from their IRAs before age 65 would be a premature distribution, subject to a 10% penalty O Federal income tax, but no 10% penalty fee, will be imposed on a distribution from Paul's IRA that is a part of a series of equal periodic payments based on Paul's life expectancy 1 pts. O If Paula and Maxine borrow half the value of their IRA accounts using the IRA account balances as security for the loan, the entire IRA account balances will be includible in their gross income for that year O Paul and Maxine will not incur the 10% penalty for a premature distribution if they withdrew (not borrow) $10,000 from their IRAs to pay part of the cost of building the new home Question 27 O The exchange of a life insurance policy for an annuity policy O The exchange of a life insurance policy for another life insurance policy O The exchange of an annuity policy for a life insurance policy O The exchange of an annuity policy for another annuity policy The Internal Revenue Code provides for 3 types of tax-free exchanges of life insurance and annuity contracts under 1035 exchange? Which of the following is not an allowed 1035 like- kind exchange? Question 28 1 pts O Lifetime joint income with his wife (age 71) O Lifetime income with a 5-year certain added on O Life annuity O Lifetime joint income with his son (age 49) 1 pts Your client is a 70-year-old man about to retire. If he annuitizes the benefit from his retirement plan, which of the following will achieve the highest payment in his first year of retirement? Paul Gordon and his wife, Maxine, are in their mid-forties. They live in an upper middle-class neighborhood of Wilmington, Delaware. Paul is a 25% owner and Chief Executive Officer of XYZ Corporation that produces and markets printer's ink in southeastern Pennsylvania, New Jersey, and Delaware. Maxine is completing her 20th year as a kindergarten teacher in Wilmington, Delaware. They have two children, Michelle, age 15, and Graham, age 10. They own their home in suburban Wilmington. The XYZ Corporation currently has 100 employees, whose annual earnings extend from $15,000 to $156,000. Although Paul has been approached by several pension planning organizations operating in the Wilmington area, Paul has not been successful in persuading the other stockholders of the desirability of establishing either a pension plan or a profit- sharing plan. Maxine Gordon earns one-third of Paul's $156,000 annual salary. Their adjusted gross income for the year is $227,900. Happily, Maxine and her fellow teachers were participating in a 401(k) plan established by the school district several years ago. Maxine has been pleased to see the cash values accumulating to her credit on a tax-sheltered basis under the 401(k) plan. She thought it was irrational that the XYZ Corporation did not have a similar plan for its employees. Paul and Maxine have made contributions to an IRA in prior years, but have not done so for several years. Paul believes that, for many reasons, a profit-sharing plan would be preferable to a pension plan from the point of view of both the corporation and its employees. However, he is aware that the 25% maximum employer contribution requirement would limit the retirement benefits for himself and the other high-salaried owner-employees. In fact, Paul felt that a defined benefit pension plan would be more attractive to some of the older employees than either a defined contribution pension plan or a profit-sharing plan. The XYZ Corporation had a contributory group term life insurance plan that provided a death benefit equal to one year's compensation for each employee. The employees resented the fact that a part of each monthly premium for the group life coverage was withheld from their paychecks. The corporation felt that the employees would be more likely to recognize the value of the group benefit if the employees paid a part of the cost of the coverage. Question 26 Paul and Maxine would like to purchase a lot and build a new three-bedroom house. Which of the following statements concerning the use of the money locked up their IRAs to help finance the building of the new home is correct? O Any distribution from their IRAs before age 65 would be a premature distribution, subject to a 10% penalty O Federal income tax, but no 10% penalty fee, will be imposed on a distribution from Paul's IRA that is a part of a series of equal periodic payments based on Paul's life expectancy 1 pts. O If Paula and Maxine borrow half the value of their IRA accounts using the IRA account balances as security for the loan, the entire IRA account balances will be includible in their gross income for that year O Paul and Maxine will not incur the 10% penalty for a premature distribution if they withdrew (not borrow) $10,000 from their IRAs to pay part of the cost of building the new home Question 27 O The exchange of a life insurance policy for an annuity policy O The exchange of a life insurance policy for another life insurance policy O The exchange of an annuity policy for a life insurance policy O The exchange of an annuity policy for another annuity policy The Internal Revenue Code provides for 3 types of tax-free exchanges of life insurance and annuity contracts under 1035 exchange? Which of the following is not an allowed 1035 like- kind exchange? Question 28 1 pts O Lifetime joint income with his wife (age 71) O Lifetime income with a 5-year certain added on O Life annuity O Lifetime joint income with his son (age 49) 1 pts Your client is a 70-year-old man about to retire. If he annuitizes the benefit from his retirement plan, which of the following will achieve the highest payment in his first year of retirement?

Answer rating: 100% (QA)

1 The answer is B According to the appropriate formula and after applying it th... View the full answer