Taxability of Pension Payments. Pat is a participant in a
qua lified pension plan. She retires on January 1, 2019, at age 63, and
receives pension payments beginning in January 2019. Her pension payments,
which will be received monthly for life, amount to $1,000 per month. Pat
contributed $30,000 to the pension plan on a pre-tax (or tax-deferred) basis,
and the number of anticipated payments based on Pat’s age of 63 years is 260
months (see IRS tab le in Chapter 1:3) from the date she starts receiving
payments.
a. What gross income will Pat recognize in 2019 and each
year thereafter?
b. How would your answer to Part a change if Pat made
contributions to the plan on an after-tax basis? c. If, in Part b, Pat dies in
December 2020 after receiving pension payments for two full years, what tax
consequences occur in the year of death?
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