Jason, a 55-year-old corporate executive, wants advice as to when he can retire. His current salary is

$240,000 and he receives an annual bonus of $300,000; he also has annual stock options and restricted

stock awards valued at $100,000. His employer contributes to a cash balance pension plan as and

matches his contributions to a 401(k). Jasons Roth IRA has a balance of $240,000. The Roth IRAs

balance consists of the $100,000 conversion Jason made 3 years ago Jason from an old qualified plan

and $50,000 of contributions (he has paid into over the years since its establishment many years ago),

the rest is earnings. Jason, owns a whole life insurance policy with a $500,000 death benefit and is

considering the purchase of a term policy with a $2,000,000 death benefit. He and his wife, Brenda, also

age 55, believe they can live on an after-tax income of $180,000. Assume a federal income tax rate of

35%.

Jason and Brenda come to you because their neighbor has been telling them he must take a certain

amount of his account or he will be tax and penalized 50% on the missed distribution. They are very

concerned because they do not want to incur a 50% penalty.

You explain the mechanics of RMD calculations to them. Then they ask you what their RMD would be at

age 70.

1.

Assuming that Brenda dies in 23 years and that Jason survives her, which of the following

options is correct regarding required minimum distributions from her IRA

?

A. Jason may postpone distributions from Brendas IRA until she would have been 70

and the he must take distributions from the IRA over his life expectancy.

B. Jason may postpone distributions from Brendas IRA until she would have been 70

and then he must take distributions from the IRA over no more than five years.

C. Jason must begin taking distributions by the end of the year following the year of

Brendas death

D. Jason must begin taking distributions by the end of the year of Brendas death.

2. Time passes and Jason dies, widowing Brenda at age 53. She comes to you for help deciding

between taking a lump-sum distribution from her husbands pension plan of $263,500 now or

selecting a life annuity starting when she is age 65 (life expectancy at 65 is 21 years) of $2,479/

month. Current 30yr treasuries are yielding 6 percent annually.

What would you advise her

:

1. If she takes the lump-sum distribution, she will receive $263,500 in cash now and be

able to reinvest for 34yrs, creating an annuity of $4,570/mo.

2. If she takes the lump-sum distribution she will be subject to the 10% early withdrawal

penalty.

A. 1 only

B. 2 only

C. Both 1 & 2

D. Neither 1 nor 2

3 Jason and Brenda are in your office completing their annual review. They tell you they took a

$130,000 distribution from Jasons Roth IRA in May of this year to go on a dream vacation, make car

repairs and to help their granddaughter pay for school tuition.

They have asked you if there would be any tax or penalty owed on the distribution. What do you

advise them?

A. There would be no tax due and no penalty

B. The entire distribution would be taxed at their ordinary income tax bracket and there

would be a 10% early withdraw penalty

C. $50,000 would be taxed at ordinary income tax levels

D. There would be no tax due, but a penalty of $8,000

4

Brenda wants to contribute to her existing IRA account. What do you advise her?

A. She may contribute to the IRA and deduct her contribution

B. She may not contribute to the IRA because she is an active plan participant

C. She may contribute to the IRA but may not deduct the contribution

D. She may not contribute to the IRA because her earnings are too high