Question

Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $94,500 to her employer's qualified pension fund, all of which was taxable when earned. She elects to receive her retirement benefits as an annuity of $9,450 per month for the remainder of her life.

a. Assume that Pam retired in June 2019 and collected six annuity payments that year. What is her gross income from the annuity payments in the first year?

$

b. Assume that Pam lives 25 years after retiring. What is her gross income from the annuity payments in the twenty-fourth year?

$

c. Assume that Pam dies after collecting 160 payments. She collected eight payments in the year of her death. What are Pam's gross income and deductions from the annuity contract in the year of her death?

Income from the annuity payments: $

Loss deduction: $

Answer 1

Answer:-

a) Calculation of the Income from the Annuity Payments in the first year

Particulars	Amount
Total contribution to qualified pension fund (a)	$94,500
Number of anticipated monthly annuity payments (b)	210
Exclusion per payment (a/b)	$450
Collections ($9,450 * 6 Payments)	$56,700
Less:- Exclusion for capital recovery ($450 * 6 Payments)	$2,700
Income from the annuity payments in the first year	$54,000

Therefore, the Income from the Annuity Payments in the first year is $54,000

b) Calculation of the Income from the annuity payments in the Twenty-fourth years

Particulars	Amount
210 Months is Equal to 17 years and 5 Months
Retirement benefits as an Annuity (a)	$9,450
Number of payments in a year (b)	12
Income from the annuity payments in the 24 years (a*b)	$113,400

Therefore, the Income from the annuity payments in the Twenty-fourth years is $113,400

c) Calculation of the Income from the annuity payments and loss deduction

Particulars	Amount
Total amount collected ($9,450 * 160 payments)	$1,512,000
Investment in contract	$94,500
Less:- Capital received ($450 * 160 payments)	$72,000
Loss Deduction ($94,500 - $72,000)	$22,500
Income from the annuity payments [( $9,450*8)-($450*8)]	$72,000

Therefore, the Income from the annuity payments: $72,000

Therefore, the Loss deduction: $22,500

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