Keisha (50 years of age) is considering whether to participate in her company's Roth 401(k) or traditional 401(k). This year, she plans to invest either $4,000 in a Roth 401(k) or $5,000 in a traditional 401(k). Keisha plans on leaving the contribution in the retirement account for 20 years when she will receive a distribution of the entire balance in the account. Her employer does not have a matching program for employee contributions to retirement accounts. Assume Keisha can earn a 6 percent before tax return in either account and that she anticipates that in 20 years her tax rate will be 30%.

1) What would be Keisha's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k) account?

2) What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k) account? (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

Topic: Defined Contribution Plans

Learning Objective: 13-02 Explain and determine the tax consequences associated with employer-provided defined contribution plans, including traditional 401(k) and Roth 401(k) plans.

2) Joan recently started her career with PDEK Accounting, LLP which provides a defined benefit plan for all employees. Employees receive 1.5 percent of the average of their three highest annual salaries for each full year of service. Plan benefits vest under a 5-year cliff schedule. Joan worked 4 years at PDEK before leaving for another opportunity. She received an annual salary of $49,000, $52,000, $58,000 and $65,000 for years one through four, respectively. Joan earned $35,000 of her $70,000 annual salary in year five. What is the vested benefit Joan is entitled to receive from PDEK for her retirement?

Topic: Defined Benefit Plans

Learning Objective: 13-01 Describe the tax and nontax aspects of employer-provided defined benefit plans from both the employer's and the employee's perspective.

3) Alison Jacobs (single) purchased a home in Las Vegas, Nevada for $400,000. She moved into the home on September 1, year 0. She lived in the home as her primary residence until July 1 of year 4 when she sold the home for $675,000. If Alison's tax rate for long term capital gain is 15% what amount of tax will Alison pay on the $275,000 gain?

Topic: Exclusion of Gain on Sale of Personal Residence

Learning Objective: 14-02 Compute the taxable gain on the sale of a residence.

4) Lebron Taylor purchased a home on July 1, 2018 for $500,000. Lebron paid for the entire purchase price with cash. On January 1, 2019, Lebron needed additional cash for purposes unrelated to his home so he took out a loan secured by the residence for $150,000. During 2019, he made interest only payments of $4,500 on the loan. What amount of the $4,500 interest expense can Lebron deduct in 2019?

Topic: Home Mortgage Interest Deduction

Learning Objective: 14-03 Determine the amount of the home mortgage interest deduction.

5) Several years ago, Chara acquired a home that she vacationed in part of the time and she rented part of the time. During the current year Chara:

• Personally stayed in the home for 14 days,
• Rented it at full fair market value to her parents for eight days,
• Rented it to her sister for five days at half price,
• Rented it to her friend at a discounted rate for three days,
• Rented it to another friend at fair market value for six days,
• Rented the home to third parties for 42 days at the market rate,
• Did repair and maintenance work for three days to keep the home ready for renters, and
• Marketed the property and made it available for rent for 120 days during the year even though it was not rented during this time.

How many days of personal use and how many days of rental use did Chara experience on the property during the year?

Topic: Rental Use of the Home; Home Mortgage Interest Deduction

Learning Objective: 14-01 Determine whether a home is considered a principal residence, a residence (not principal), or a nonresidence for tax purposes.; 14-03 Determine the amount of the home mortgage interest deduction.

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