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Scott and Allison are married and file a joint tax return. Scott is a graduate student...


Scott and Allison are married and file a joint tax return. Scott is a graduate student who works part time and earned $15,000 in 2015. He is not eligible to participate in his employer’s retirement plan because he is a part-time worker. Allison is a high school teacher who earned $60,000 in 2015 and is an active participant in the school district’s retirement plan. Assume you are a financial planner and the couple asks for your advice. Based on the preceding facts, answer each of the following questions.

a. Is Scott eligible to establish and deduct contribu-tions to a traditional IRA? Explain your answer.

b. Is Allison eligible to establish and deduct contributions to a traditional IRA? Explain your answer.
c. Assume that Scott graduates and the couple’s modi-fied adjusted gross income is $130,000 in 2015. Both Scott and Allison participate in their employers’ retirement plans. Can either Scott or Allison, or both, establish a Roth IRA? Explain your answer.
d. Explain to Scott and Allison the advantages of a Roth IRA over a traditional IRA.

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Expert Solution

Answer :

(a). Scott earned $15,000 in 2015 and Allison earned $60,000 in 2015, so the total income of both of then in 2015, is $75,000. Scoott is eligible to estabilish a tradiation IRA as his spouse, is enrolled in school's retirment plan. Accounting to IRA specifications, if a married couple is filing jointly with the spouse covered under retirment plan with a income group of less than $184,000 then a full deduction upto the amount of your contribution limit is allowed to them.

(b). Total income of Scott and Allison is $75,000 in 2015

Allison is eligible to establish and deduct contribution to a traditional IRA as specified by IRA rules, according to which, if a married couple is jointly filing with a income range of $98,000 or less, then they are allowed a full deduction upto the limit of their contribution amount.

(c). Modified adjusted gross income (MAGI) is $13000 in 2015

Yes, they both can establish a Roth IRA as their income range dont fall in the range of $186,000 - $196,000. So they can contribute upto $5,500 only.

(d). Advantages of Roth IRA are as follows

  • Roth IRA are not tax dedutible and withdrawals are also tax free.
  • It have less restrictions then traditional IRA.
  • Transactions under it, donot incure a tax liability
  • Contributions can still be made to it, even if the person qualifies for a retirment plan.
  • Assets under Roth IRA can be passed on to heirs.

Kindly Up-vote Thank You !!!

ekkarill92 answered 1 year ago
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