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. He believes that if he front-loads his contributions as opposed to evenly spreading out his contributions, he will maximize the growth of his portfolio and the earnings will be 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 for one academic course as chosen by the employee. 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 one and will wait to determine which is offered at the most convenient time.
a. Write a memo to your supervisor communicating your research results.
b. Write a letter to Tom communicating your research results.
c. Assume that Tom takes a deduction for the educational expenses on his tax return. The IRS has just sent a letter indicating that it will not allow the deduction. Write a protest letter on behalf of the client.