Tom Speeder is a new client. From reviewing his client questionnaire, you were able to gather the following facts. He is 50 years old and was recently hired as a middle-level manager with a car manufacturer. Tom's salary for the current year is $200,000. In his initial meeting with you, Tom indicates that he would like you to look into an idea he has that will help him maximize his investment portfolio. He tells you that his new company offers its employees the ability to participate in a Section 401(k) plan. He believes it would be to his benefit to maximize his contribution to the company's 401(k) plan that provides for matching employer contributions up to $3,000 annually. The plan provides for a maximum annual employee contribution of no greater than that provided by the IRC.
It is January, and Tom has indicated to you that he would like to accelerate the maximum contributions to the plan by contributing his entire monthly paycheck until he funds the entire amount. Although he can spread his contributions out over the year, he believes that if he front loads his contributions, be will increase the growth of his portfolio given that all earnings are tax free.
After further discussions with Tom, you discover that in addition to his salary he receives the following employment benefits:
• $100,000 group term insurance for which the employer pays the premiums (totaling $200/year).
• Health insurance, for which the employer pays the $ 100 in monthly premiums.
• As part of the company's Employee Educational Assistance Plan, tuition payments to a local university for one academic course a year. For the current year, Tom plans to take a course on organizational behavior that he is interested in and believes will help him better understand his work environment. The university offers both undergraduate and graduate courses in this subject. Tom may take either and will wait to determine which is offered at the more convenient time.
a. What Code section addresses the research question?
b. Does your study of the relevant Code section help you to refine or add to the initial research question(s)?
c. Does the Code adequately address the research question? If so, what are your conclusions, and on what are they based?