[Anonymous]

Jon Mosley, who retired 10-31-12, receives a monthly pension of $900 payable for life. His life expectancy at the date of retirement is 20 years. The first payment was received on November 15, 2012. During his years of employement, Mosley contributed $24,000 to the cost of his company’s pension plan. How much of the pension amounts received may Mosley exclude from taxable income for 2012, 2013, and 2014?

Answer: $200 in 2012, $1,200 in 2013, and $1,200 in 2014.

Annuities and pensions are excluded from taxable income to the extent that they represent a return of capital. Moseley’s contribution of $24,000 will be recovered pro rata over the life of the annuity. Under this rule, $100 per month ($24,000/240 months) is excluded from income.

Received Excluded Included

2012 $ 1,800 $ 200 $1,600

2013 $10,800 $1,200 $9,600

2014 $10,800 $1,200 $9,600

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Where does it say in the question that Jon Mosley will receive the entire $24,000 in 3 years?

[Anonymous]

He isn't receiving the entire 24,000 in 3 years.

Jon is getting paid $900 a month from his annuity pension plan.

But he contributed $24,000 and they estimated his life expectancy to be 20 years.

So his return of contribution is going to be recovered over 240 months (aka. 20 years) -> which is 100 per month.

So each month he will get $900 -> $100 of it would be nontaxable because it is a return of his contribution, while the rest (800) is taxable.

Hope that helps and answered your question.

[Anonymous]

He isn't receiving the entire 24,000 in 3 years.

Jon is getting paid $900 a month from his annuity pension plan.

But he contributed $24,000 and they estimated his life expectancy to be 20 years.

So his return of contribution is going to be recovered over 240 months (aka. 20 years) -> which is 100 per month.

So each month he will get $900 -> $100 of it would be nontaxable because it is a return of his contribution, while the rest (800) is taxable.

Hope that helps and answered your question.

[Anonymous]

I see. But nonetheless, where did the answer come up with these numbers when it said Mosley will be able to exclude from taxable income: $200 in 2012, $1,200 in 2013, and $1,200 in 2014?

[Anonymous]

I see. But nonetheless, where did the answer come up with these numbers when it said Mosley will be able to exclude from taxable income: $200 in 2012, $1,200 in 2013, and $1,200 in 2014?

[Anonymous]

He contributed 24,000 to his pension plan.

24,000/20 years= 1200 per year./12= . or 100 per month

Question said he retired on 10/31/12…

2012= November and December (200)

2013= 1200 (Full year)

2014= 1200 (full year)

hope this helps

[Anonymous]

He contributed 24,000 to his pension plan.

24,000/20 years= 1200 per year./12= . or 100 per month

Question said he retired on 10/31/12…

2012= November and December (200)

2013= 1200 (Full year)

2014= 1200 (full year)

hope this helps

[Anonymous]

Ah, now I understand that part. And just curious, for the person who is retiring is getting his payments over 20 years from his $24,000 contribution, why amortize all of that in the next 3 years (and why is he receiving 2400, 10,800, and 10,800 in the next 3 years)

[Anonymous]

Ah, now I understand that part. And just curious, for the person who is retiring is getting his payments over 20 years from his $24,000 contribution, why amortize all of that in the next 3 years (and why is he receiving 2400, 10,800, and 10,800 in the next 3 years)

[thehip41]

Take a step back. You are combining a few steps.

Step 1. He retired in October of 2013

Step 2. First check November 2013

3. Gets 900 a month.

4. Determine how much of that 900 is taxable and how much is return of capital.

How to determine that? We contributed $24,000. We are going to receive benefits for 20 years.

24,000 / 20 years = $1,200/year

1,200 year/ 12 months = $100/month of return of capital

So now we know a few pieces of information:

We are receiving $900 dollars a month; and $100 of that is return of capital.

Back to the question, how much is excluded in 2012, 2013, 2014:

We received benefits for this many months

2012 – 2 months

2013 12 mo

2014 12 mo

so we excluded $100 per month because it's a return of capital

so the answer is

2012 – 2 months x $100 = $200

2013/2014 $1200 each

Total excluded is $2600

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[thehip41]

Take a step back. You are combining a few steps.

Step 1. He retired in October of 2013

Step 2. First check November 2013

3. Gets 900 a month.

4. Determine how much of that 900 is taxable and how much is return of capital.

How to determine that? We contributed $24,000. We are going to receive benefits for 20 years.

24,000 / 20 years = $1,200/year

1,200 year/ 12 months = $100/month of return of capital

So now we know a few pieces of information:

We are receiving $900 dollars a month; and $100 of that is return of capital.

Back to the question, how much is excluded in 2012, 2013, 2014:

We received benefits for this many months

2012 – 2 months

2013 12 mo

2014 12 mo

so we excluded $100 per month because it's a return of capital

so the answer is

2012 – 2 months x $100 = $200

2013/2014 $1200 each

Total excluded is $2600

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Author]

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