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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?

Restricted Property. In 2019, Bear Corporation transfers 100
shares of its stock to its employee Patrick. The stock is valued at $10 per
share on the issue date. The stock is subject to the following restrictions:
• Patrick cannot transfer the stock by sale or other
disposition (except in the event of death) for a five-year period.
• The stock must be forfeited to Bear Corporation if Patrick
voluntarily terminates his employment with the company within a five-year
period.
In the year 2024, the Bear stock is worth $100 per share
when the restrictions expire.
a. Assuming that no Sec. 83(b) election is made, what are
the tax consequences to Patrick and Bear Corporation in 2019?
b. What are the tax consequences to Patrick and Bear
Corporation if Patrick makes a valid Sec. 83(b) election in 2019?
c. What are the tax consequences to Patrick and Bear
Corporation if Patrick forfeits the stock back to the company in 2020 when the
stock is worth $20 per share if an election was made under Sec. 83(b)? What wou
ld happen if no Sec. 83(b) election were made?
d. What are the tax consequences to Patrick and Bear
Corporation upon the lapse of the restrictions in the year 2024 if an election
has been made under Sec. 83(b)? What would the results be if no Sec. 83(b)
election were made?
e. What are the tax consequences to Patrick and Bear Corporation
if Patrick sells the Bear stock in the year 2025 for $120 per share if a Sec.
83(b) election is made? if no Sec. 83(b) election is made?

Roth IRA. Chatham Mae is single, age 35, and wants to make a
contribution to an IRA for the year ended December 31, 2019. She is an active
participant in a qualified retire – ment plan sponsored by her employer. Her
AGI for 2019 is $128,000 before considering any IRA contribution.
a. What type of IRA, if any, is Chatham Mae eligible to make
a contribution to for 2019? 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 contributes a total of $12,000 over
six years to a Roth IRA. In 2025, 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 homebu yer)?
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 2019. What are the tax consequences of this rollover in 2019?

Coverdell Education Savings Accounts . Jack and Katie have
five grandchildren, ages 19, 16, 15, 12, and 10. They have established
Coverdell Education Savings Accounts (CESA) for each of the grandchildren and
would like to contribute the maximum amount allowable to each CESA for the 2019
taxable year. Jack and Katie’s AGI for 2019 is $196,000.
a. How much can Jack and Katie contribute to each
grandchild’s CESA in 2019?
b. Assume that the 19-year-old granddaughter is a freshman
in college and makes a withdrawal of $7,000 from her CESA during the year 2019.
Her college expenses for 2019 were as follows:
The extra amount withdrawn was used as a down payment on a
car that the granddaugh – ter purchased during the year. She needed the car in
order to drive to school rather than having to either ride the bus or ride with
a friend. What are the tax consequences of the $7,000 distribution to the
granddaughter?

H.R. 10 Plans. Paula is a self-employed doctor and 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 $200,000 during the current year and increase slightly
in 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? ls the amount reported as a for AGI or from AGI deduction?
c. ls 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?