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Retirement and Partnership Basis

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1. Frank & Jane are married and file a joint return. Both are active participants in their employer qualified retirement plans. Their total AGI in 2007 is $87,000 and they earn salaries of $46,000 & $40,000.

A. What amount can Frank & Jane contribute to traditional IRAs in 2007?

B. What amount can they deduct for their contributions in part (a)?

C. What amount can Frank & Jane contribute to ROTH IRAs in 2007?

D. What amount can they deduct for their contributions in part (c)?

E. What amount can Frank & Jane contribute to Americans Education Savings Accounts for their 3 children?

2. As of January 1, 2006 Tom had a basis of $36,000 in his 25% capital interest in the X Men Partnership. He and the partnership use the calendar year for tax purposes. In 2006 the partnership incurred an operating loss of $200,000 and in 2007 the partnership had a profit of $100,000.

A. How much if any loss may Tom recognize for 2006?

B. How much income must Tom recognize for 2007?

C. What basis will Tom have in his partnership interest as of January 1, 2007?

D. What basis will Tom have in his partnership interest as of January 1, 2008?

E. How would the answer be different in part (a) if Tom had contributed and additional $25,000 to the partnership in 2006?

3. Jackson has been an active participant in a defined benefit plan for 26 years. He retired in 2007 and during his last 5 years of employment, he earned $38,000, $58,000, $66,000, $114,000 and $126,000. These earnings represent his highest income years.

A. Calculate Jackson's maximum allowable benefit for 2007 from this qualified plan.

B. What would Jackson's maximum allowable benefit be if his average compensation for his three highest years is $220,000?

4. Rita, age 40 lost her job at a Aging plant in 2007. At the time of her termination, Rita had $50,000 invested in her 401k account. On Dec. 1st 2007, she received a distribution of $40,000 (50,000 - 10,000 witholding).

A. How much should be included in Rita's 2007 gross income assuming she deposited the $40,000 into a Vanguard Money Market account?

B. How much should be included in Rita's 2007 gross income assuming she deposited the $40,000 into her traditional IRA account at her bank?

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This solution contains questions and responses covering partnership basis and retirement contributions.

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1. Frank & Jane are married and file a joint return. Both are active participants in their employer qualified retirement plans. Their total AGI in 2007 is $87,000 and they earn salaries of $46,000 & $40,000.

A. What amount can Frank & Jane contribute to traditional IRAs in 2007? It is calculated as follows from the Quickfinder $103,000 - $87,000 = $16,000 and for MFJ it can be up to $20,000 before the limitations and phase out begins. That amount is $4,000 for Frank and an additional $4,000 for Jane.

B. What amount can they deduct for their contributions in part (a)? They can each deduct the full $4,000.

C. What amount can Frank & Jane contribute to ROTH IRAs in 2007? They can each contribute $4,000 to the ROTH IRA.

D. What amount can they deduct for their contributions in part (c)? ROTH IRA contributions are not deductible for taxes.

E. What amount can Frank & Jane contribute to Americans Education Savings Accounts for their 3 children? Frank and Jane can contribute up to $2,000 for each child ...

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