1. On February 15, 2013, Jamal, who is single and age 30, establishes an IRA and contributes $5,000 to the account. Jamal's adjusted gross income is $88,000 in 2013 and $83,000 in 2014. Jamal is an active participant in an employer-sponsored retirement plan in 2013, but not in 2014.
a) What amount of the contribution is deductible? In what year is it deductible?
b) How is the deduction (if any) reported (i.e., for AGI or from AGI)?
c) How would your answer change, if at all, if Jamal were not an active participant in an employer-sponsored retirement plan in 2013?
d) How would your answer change if Jamal were married and files a joint return with his spouse, who has no earned income? (Assume their combined AGI is $60,000.)
2. Phil, age 30, is married and files a joint return with his spouse. On February 15, 2014, Phil establishes an IRA for himself and a spousal IRA for his spouse with a $10,000 contribution, $5,000 for himself and $5,000 for his wife. Phil's spouse earned $1,000 in 2014 from a part time job and their combined AGI is $55,000. Neither Phil nor his spouse is an active participant in an employer-sponsored retirement plan.
a) What amount of the contribution is deductible?
b) To what year can the contribution apply? (Assume that an election is made to treat Phil's spouse as having no compensation.)
c) Is the deduction reported as for AGI or from AGI?
d) How would your answer to Part a) change, if at all, if Phil and his spouse were active participants in an employer-sponsored retirement plan?
e) If a portion of the contribution is nondeductible in Part d, is it possible for Phil to make a deductible and a nondeductible contribution in the same year? Explain.
f) How would your answer to Part a) change if Phil and his spouse's combined AGI were $95,000 in 2014 and Phil was an active participant in an employer-sponsored retirement plan?
3. Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2014. She is an active participant in a qualified retirement plan sponsored by her employer. Her AGI for 2014 is $104,000 before considering any IRA contribution.
a) What type of IRA, if any, is Chatham Mae eligible to make a contribution to for 2014? If she is eligible to contribute to an IRA, what is the maximum amount that she can contribute to the IRA?
b) Assume Chatham Mae makes contributions of $2,000 per year for six years to a Roth IRA. In 2020, she withdraws $15,000 to pay off her car loan. Her financial advisor suggested she withdraw the money from the IRA for two major reasons: (1) to eliminate her debt and (2) no tax would be due on distributions from a Roth IRA after five years. Chatham Mae wants to verify the accuracy of her advisor's advice. What would be the tax consequences of this withdrawal? Alternatively, what if Chatham Mae withdrew the $15,000 to purchase a house (she is a first time homebuyer)?
c) Alternatively, to part b above assume Chatham Mae has a traditional deductible IRA that has a balance of $50,000. She has been able to deduct all of her contributions to the IRA in prior years. Her financial advisor has recommended that she rollover the funds from her traditional IRA to a Roth IRA in 2014. What are the tax consequences of this rollover in 2015?
4. Paula is a self employed doctor who is considering whether to establish a defined contribution H.R. 10 plan. Paula's only employee is a full time nurse who has been employed by Paula for seven years. Paula's net earnings from self- employment (before the H.R. 10 plan contribution but after the deduction for one- half of self employment taxes paid) is expected to be $100,000 during the current year and in the future years.
a) If the H.R. 10 plan is established, what is the maximum amount Paula can contribute for the nurse's benefit?
b) What is the maximum amount Paula can contribute for herself? Is the amount reported as for AGI or from AGI deduction?
c) Is Paula's nurse required to be included in the plan?
d) What are the tax consequences if Paula makes a premature withdrawal from the plan before reaching age 59 ½?