Liberty Tax Service Online Basic Income Tax Course. Lesson 9

Liberty Tax Service Online Basic Income Tax Course. Lesson 9

HOMEWORK CHAPTER 8 HOMEWORK 1: Circle the following items that can be deducted on Schedule A. Vaccinations Braces Maternity clothes Bottled water Country club donation Republican party donation Splints Cremation Vasectomy Slim Fast Speeding fine Passport fee Diaper service Hearing aid Psychiatrist Life insurance premiums Athletic club membership Prescription vitamins Orthopedic shoes Special mattress needed for back injury Prenatal car Purely cosmetic surgery Acupuncture Chiropractor Organ donor expenses Labor union donation Colombian relief donation YMCA donation

HOMEWORK CHAPTER 8 Homework 1 – Answer
The following items are deductible on Schedule A: Vaccinations, Splints, Vasectomy, Psychiatrist, Orthopedic Shoes, Prenatal Care, Acupuncture, Organ Donor Expenses, Braces, Hearing Aid, Prescription Vitamins, Special Mattress for back injury, Chiropractor, and YMCA Donation.

HOMEWORK CHAPTER 8 HOMEWORK 2:
Dominic D. (SSN , born 11/4/1971) and Lucille L. D’Andrio (SSN , born 10/11/1976) are married and live at 42 County Line Rd., Branson, MO Dominic is a computer technician and Lucille is a department clerk. They have one child, Bryan (SSN , born 4/28/1995). They provide all of the support for Bryan. They will file jointly and plan to itemize their deductions. Their itemized deductions in 2007 were $11,996 and they filed a joint return. Their 2007 state income tax deduction was $1,798 and the sales tax deduction they could have taken was $844. Their W-2 forms and other tax information are attached.

HOMEWORK CHAPTER 8 Family health insurance $1,800
Contact lens (Lucille) Car loan interest Salvation Army donation (cash) 275 Tolls for medical visits Real estate tax 1,800 Stop-smoking program (doctor recommended for Dominic) Nonprescription drugs Braces for Bryan (total bill $4,000)

HOMEWORK CHAPTER 8 Tuition (private school) $3,000
Gas and oil for medical purposes Mileage for medical purposes 1,000 miles (all from 7/1/08 to 12/31/08 Prescription drugs Goodwill clothing donation FMV (original cost $3,200) Political campaign contribution Prepare a return for the D’Andrios.

HOMEWORK CHAPTER 8

HOMEWORK CHAPTER 8 Homework 2 – Answer

HOMEWORK CHAPTER 8

Chapter 9: Retirement Benefits
Chapter Content Types of Retirement Plans Pensions, Annuities and Designated Roth Accounts Simplified Method Lump-Sum Distributions Minimum Distributions Rollovers Early Distributions Disability and Retirement Commercial Annuities IRAs Traditional IRAs Roth IRAs SIMPLE and SEP IRAs Retirement Savings Contribution Credit Key Ideas

Objectives Learn About the Different Types of Retirement Plans Determine the Taxable and Nontaxable Parts of Pensions and Annuities Use the Simplified Method Learn About Lump-Sum Distributions and Rollovers Learn How Disability Affects Your Retirement Plan Distinguish Between the Different Types of IRAs and Understand Their Benefits Learn about the Retirement Savings Contributions Credit

The tax law encourages employers to contribute to the RETIREMENT PLANS of their employees. Employers claim a current deduction for their contributions into these retirement funds. Employees benefit by having the money added to the retirement account tax-deferred. Interest, dividends, and appreciation added to the value of the account is not taxed you start withdrawing the money.

Retirement Benefits Common types of retirement plans include pensions, annuities, and IRAs. Reporting retirement benefits. Most are reported to on Form 1099-R. Appendix B defines the boxes used on Form 1099-R You report total pension and annuity income on line 16a of Form 1040. Taxable portion is entered on line 16b of Form 1040 (if fully taxable report only on line 16b). If more than one plan, figure taxable part of each separately; only enter totals on Form 1040.

Retirement Benefits Report IRA distributions on lines 15a and 15b of Form 1040 (if fully taxable report only on line). Among other items, box 7 of Form 1099-R gives the distribution code. Report IRA distributions on lines 15a and 15b of Form 1040 (if fully taxable report only on line 15b). Additional tax on IRAs and other retirement plans is reported on line 59 of Form 1040.

Retirement Benefits

Retirement Benefits Form 1040, Page 1

Retirement Benefits Generally, pensions and annuities provide cash payments to you after retirement. The term of the payments may be for life or for a fixed time period. A withdrawal (distribution) generally cannot be taken before the normal retirement age as specified in your plan without a penalty being charged. Some plans allow for early retirement.

Retirement Benefits A pension provides specific payments to an employee or survivor (the beneficiary) after retirement from work. The payments are made regularly and are for past services with an employer. An annuity provides payments under a contract from an employer or an insurance company, trust company, or an individual. Payments are made at regular intervals over a period of more than one full year.

Retirement Benefits Your cost in a retirement plan is everything that you paid into the plan that was not deducted or excluded from income. For example, your 401(k) contributions which reduced your wages for income tax are not considered part of your cost in the plan. Cost also includes amounts your employer paid that were taxable to you when paid.

EMPLOYEE PENSIONS AND ANNUITIES
Pension is fully taxable if you did NOT pay any part of the cost of your employee pension or annuity and or you deferred part of your pay while you worked. Pension is partially taxable if you did contribute to the cost of the plan. Generally figure tax-free and taxable parts of annuity payments using the Simplified Method. You MUST use the Simplified Method if your annuity starting date is after November 18, 1996 and payments are from a qualified plan. Pensions and annuities may be either partially or fully taxable depending upon the extent of your contribution to the plan. An employee pension is fully taxable if you did NOT contribute to the cost of the pension plan or annuity and your employer did not withhold part of the cost of the contract from your pay while you worked. An employee pension is partially taxable if you did contribute to it. The amount you put into the pension (your cost) was taxed as part of your wages at the time you contributed and is therefore nontaxable at retirement. (It is not taxed again.)

THE SIMPLIFIED METHOD Using the Simplified Method, you figure the tax-free part of each monthly annuity payment by dividing your cost by the total number of expected monthly payments. This is either defined in the contract or figured on the annuitants’ ages on the starting date and determined from a table.

THE SIMPLIFIED METHOD Simplified Method must be used if:
Annuity starting date is after November 18, 1996 and, Payments are from qualified employment plan or tax-sheltered annuity and, At time pension or annuity payments began, you were under age 75 or were entitled to fewer than 5 years of guaranteed payments.

THE SIMPLIFIED METHOD If pension starts after December 31, 1986, exclude nontaxable pension amount until pension cost is recovered; when recovered, entire pension income is taxable. Use Simplified Method Worksheet to figure tax-free portion of payments from qualified plan. If your pension starts after December 31, 1986, you exclude the nontaxable pension amount until the pension cost is recovered. When the pension cost is recovered, the entire pension income is taxable

THE SIMPLIFIED METHOD For annuity starting dates beginning in 1998, you use Table 9-2 of the Simplified Method Worksheet to figure the tax-free portion of joint and survivor annuity payments from a qualified plan. Under this recovery method, the total number of monthly annuity payments is based on the combined ages of the annuitants at the birthdays preceding the annuity starting date. If your annuity starting date began before 1998, the total number of payments is based on your age at that date.

THE SIMPLIFIED METHOD

THE SIMPLIFIED METHOD Civil Service and Railroad Retirement Board use forms different from Form 1099-R. The Civil Service and Railroad Retirement Board use their own version of Form 1099-R. Civil Service has added a “Taxable Annuity” box to its Form CSA 1099R for more recent retirees. If the box is empty, or for Form RRB 1099-R, you generally must figure the tax-free and taxable parts of your annuity payments using the Simplified Method.

THE SIMPLIFIED METHOD

ELECTIVE DEFERRALS TO A QUALIFIED RETIREMENT PLAN
You can choose to have part of your compensation contributed by your employer to a retirement fund. Contribution not included in wages subject to income tax. Annual limits apply depending on plan. If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. It is not included in wages subject to income tax at the time contributed.

Elective deferrals include elective contributions to retirement plans such as: Cash or deferred arrangements (section 401(k) plans). The Thrift Savings Plan for federal employees. Salary reduction simplified employee pension plans (SARSEP). Savings incentive match plans for employees (SIMPLE plans). Tax-sheltered annuity plans (403(b) plans). Section 457 plans. For 2008, you generally should not have deferred more than a total of $15,500 ($20,500 for employees age 50 or older) of contributions to the plans listed in (1) through (5) above. You should not have deferred more than the lesser of your compensation or $15,500 ($20,500 for employees age 50 or older) of contributions to the plan listed in (6) above (section 457 plan).

A tax law for years after 2005 allows your 401(k) and 403(b) accounts to include a separate designated Roth account. Designated Roth contributions are treated as elective deferrals (subject to the same limits) except that the contributions are still included in income for the year earned and are considered your cost, as discussed earlier. A qualified distribution from a Roth account (five years after year of contribution) is not includable in income, neither the cost nor the earnings.

LUMP-SUM DISTRIBUTIONS
Taxable in year received. Reported on Form 1099-R. Some qualify for special tax treatment under Form 4972. A lump-sum distribution is the distribution or payment in one tax year of your entire balance from all of your employer’s qualified plans of one kind (for example pension, stock bonus, or profit-sharing plans). Generally, payments are taxable in the year you receive them.

LUMP-SUM DISTRIBUTIONS
Special tax treatments: Code A in box 7 of Form 1099-R indicates that it is a lump-sum distribution and it qualifies for special tax treatments such as the 10-year tax option. Code G indicates a direct tax-free rollover into a traditional IRA.

MINIMUM DISTRIBUTIONS
If required to receive a minimum distribution, must begin by April 1 of calendar year that follows calendar year in which you reach age 70 1/2 or retire. If you do not receive the minimum distribution, an excise tax may be imposed You are required to receive a minimum distribution from many retirement plans. You must begin to receive distributions from your qualified retirement plan by April 1 of the year that follows the later of the calendar year in which you reach age 70 ½, or the calendar year in which you retire. A minimum distribution can be either the entire amount in the plan or a regular periodic distribution in an amount large enough to use up the entire amount over your life expectancy, the joint life expectancies of yourself and a designated surviving beneficiary, or a shorter period of time. If you do not receive the minimum distribution, an excise tax may be imposed. The tax is 50% of the difference between the minimum distribution and the amount actually distributed for the tax year. For more detail, refer to Chapter 17.

ROLLOVERS Transfer of assets from one qualified retirement plan to another. You must complete rollover by 60th day following day you receive it. A direct rollover is more advantageous because plan administrator will not withhold tax from your distribution. If you have the distribution paid to you, plan administrator must withhold income tax of 20% from taxable distribution. You do not pay tax on the amount you rollover. If you change jobs, your retirement plan may also end with your employment and the employer may issue you a distribution. You may receive the total distribution of your retirement fund or you may transfer it into another qualified retirement plan called a rollover. The simplest rollover is for the administrator of the old plan to transfer the assets directly to your new plan. If you receive the distribution, you must complete the rollover by the 60th day after the day received. The direct rollover option is generally to your advantage because no tax must be withheld. If you choose to receive the distribution, it is taxable in year you receive it unless you roll it over to a new plan or a traditional IRA within 60 days. The plan administrator must withhold income tax of 20% from the taxable distribution paid to you. This means that in order to have a full rollover you would have to replace the 20% withheld from other funds. In addition, if you fail to transfer the distribution to a new qualified retirement plan within the allowed time, the distribution is taxable.

EARLY DISTRIBUTIONS If receiving distribution prior to reaching age 59 ½ it is usually subject to additional tax of 10%. 1. Applies to taxable part of distribution. You may decide to receive a cash distribution of some or all of your money in a retirement plan prior to reaching age 59 ½. If you do, you are usually subject to an additional tax of 10% on the taxable part of the distribution

EARLY DISTRIBUTIONS If distribution code 1 is shown in box 7 of Form 1099-R: 1. Multiply taxable part by 10% 2. Enter result on line 60 of Form 1040 3. Write “no” on dotted line if no Form is required If distribution code 2, 3, or 4 is shown in box 7 of Form 1099-R, and you qualify for an exception to the 10% tax, you do not have to file Form 5329. File Form 5329 if you owe the tax and also owe any other additional tax on distribution. If distribution code 1 (early distribution) is shown in box 7 of Form 1099-R, multiply the taxable part of the early distribution by 10%, enter the result on line 60 of Form 1040 and write “NO” on the dotted line.

EARLY DISTRIBUTIONS Exceptions in which 10% tax does not apply include distributions: After date on which you reach age 59 1/2 To beneficiary or to estate on or after death of plan participant Made because you are totally and permanently disabled Made as part of series of substantially equal periodic payments over life expectancy or joint life expectancy of you and beneficiary Paid to the extent of deductible medical expenses over 7.5% of AGI Made to you after you separated from service after reaching 55 years of age (employer plans only) Made from an IRA to pay qualified higher education expenses Made from an IRA for first-time home buyer

DISABILITY INCOME Taxed as wages until you reach minimum retirement age. Employer reports it on Form W-2 or Form 1099-R. 1. If on Form 1099-R, box 2a shows taxable amount. 2. Box 7 shows code number 3. Report all taxable disability income on line 7 of Form 1040 until reaching minimum retirement age. After reaching minimum retirement age, report as taxable pension . Generally, if you retire on disability, you must report your pension or annuity as income. Your disability payments are taxed as wages until you reach the minimum retirement age set by your employer. Minimum retirement age is generally the earliest age at which you may receive a pension, whether or not disabled. Your employer may report disability income on a Form W-2 or on a Form 1099-R. If your employer reports your disability income on a Form 1099-R, box 2a shows the taxable amount. Box 7 should show a code 3 for disability. You report all your taxable disability income on line 7 of Form 1040 until you reach minimum retirement age. After you reach the minimum retirement age, report your disability income as a taxable pension. If the disability payments are partially taxable, use lines 16a and 16b of Form If the payments are fully taxable, enter the taxable amount on line 16b (without making an entry on line 16a).

INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs)
An Individual Retirement Arrangement (IRA) is a personal savings plan that offers you tax advantages to set aside money for your retirement. You may be able to deduct your IRA contribution in part or fully and amounts in IRA are not taxed until distributed, or, in some cases, not taxed at all if distributed by the rules.

Traditional IRAs Earnings on contributions not taxed until withdrawn. In 2006 Rick contributed $2,000 to his traditional IRA at his bank. His IRA statement showed $45 interest earned in 2008 and added to his traditional IRA. He does not pay tax on the interest until he withdraws it.

2. Reported on Form 1099-R, with distribution code shown in box 7, IRA box checked. 3. Report IRA distributions on lines 15a and 15b of Form 1040 (fully taxable only on line 15b). 4. Deductions are reported on line 32 of Form 1040. 5. Can deduct contributions on 2008 return if made April 15, 2009. 6. To contribute to traditional IRA, you must be under age 70 1/2 and have taxable compensation. Traditional IRAs distributions are reported on Form 1099-R and the IRA box should be checked. IRA distributions are reported on lines 15a and 15b of Form Traditional IRA deductions are reported on line 32 of Form You may deduct traditional IRA contributions on your 2007 tax return you make them in 2008 or by April 15, Contributions do not have to be made before your return is filed. You may also file an amended return showing the contributions. To contribute to a traditional IRA you must: be under age 70 ½, and have taxable compensation.

7. Contributions to traditional IRA cannot exceed the smaller of your total taxable compensation or $5,000 ($6,000 if 50 or older) in 2008. 8. If you have earned income, you may establish traditional IRA for spouse but must file MFJ. When two separate IRAs, no more than $5,000 ($6,000 if 50 or older) contributed to either one. a. Total combined contribution to both IRAs cannot exceed smaller of your and your spouse’s total taxable compensation or $10,000 ($11,000 if one 50 or older, $12,000 if both 50 or older) b. Contribute to spousal IRA until reaching age 70 1/2 If you have more than one traditional IRA, you must combine all of them and treat them as one when figuring the amount that you can contribute for the year. Contributions to a traditional IRA cannot exceed the smaller of: your total taxable compensation, or $5,000 ($6,000 if age 50 or older on December 31) If you have earned income, you may establish a traditional IRA for your spouse but you must be filing a joint tax return. Your spouse does not need to have earned income. When there are two separate IRAs, no more than $5,000 ($5,000 if age 50 or older) may be contributed to either one. The total combined contributions to both IRAs cannot exceed the smaller of: Your and your spouse’s total taxable compensation, or $10,000 ($11,000 if one of you is age 50 or older, or $12,000 if both of you are age 50 or older)

INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs) – Problem 1
David and Robyn are filing a joint return. David is 52 and Robyn is 48. David earned $56,000 during the year. Robyn does not work outside the home. David can contribute $6,000 to a traditional IRA for himself. How much can he contribute to an IRA for Robyn? a. $6,000 b. $5,000 c. $4,000

David and Robyn are filing a joint return. David is 52 and Robyn is 48. David earned $56,000 during the year. Robyn does not work outside the home. David can contribute $6,000 to a traditional IRA for himself. How much can he contribute to an IRA for Robyn? b. $5,000

Richard is 73 and earned $12,000 during the year. His wife, Geraldine, is 68. Can Richard make an IRA contribution for himself? Yes or No?

Richard is 73 and earned $12,000 during the year. His wife, Geraldine, is 68. Can Richard make an IRA contribution for himself? No Because he is over age 70 ½.

Richard is 73 and earned $12,000 during the year. His wife, Geraldine, is 68. Richard cannot make an IRA contribution for himself because he is over age 70 ½ but he can make an IRA contribution for his wife. How much of a contribution can be made for Geraldine? a. $5,000 b. $6,000 c. $9,000

Richard is 73 and earned $12,000 during the year. His wife, Geraldine, is 68. Richard cannot make an IRA contribution for himself because he is over age 70 ½ but he can make an IRA contribution for his wife. How much of a contribution can be made for Geraldine? b. $6,000

If you are covered by a pension plan at work, your traditional IRA contributions may or may not be deductible depending on filing status and AGI. See Table 9-3.

If you are not covered by a retirement plan at work, your deductible traditional IRA contributions may still be limited if your spouse is covered by a retirement plan. See Table 9-4.

Deductibility of IRA contributions is covered in Chapter 16. Excess contributions, early withdrawals, and excess accumulations may be subject to additional taxes and penalties (see Chapter 17). Distributions must begin by April 1 of year following calendar year in which you reach age 70 1/2.

Roth IRAs A Roth IRA is an individual retirement plan that generally is subject to the rules that apply to a traditional IRA. 1. Distributions reported on Form 1099-R with “J”, “Q” or “T” in box 7. 2. Differences between Roth IRA and traditional IRA are: a. Can contribute to Roth IRA regardless of age . b. Can leave amounts in Roth IRA as long as you live. c. Cannot deduct contributions to Roth IRA. 3. Qualified distributions are tax-free if meet requirements. Roth IRA distributions are reported on Form 1099-R in box 7 with a “J” for early distributions, “Q” for a qualified distribution, or “T” for distributions where it may or may not be qualified but the recipient is age 59 ½ or meets another exception to the 10% additional tax. One of the differences between a Roth IRA and a traditional IRA is that you may contribute to a Roth IRA regardless of your age (even after age 70 ½). Another difference is that you are able to leave amounts in your Roth IRA as long as you live. But, in a Roth IRA, you cannot deduct contributions as you can in a traditional IRA. If you meet the requirements of a Roth IRA, qualified distributions are tax-free.

4. Use Table 9-5 to determine if you can contribute to a Roth IRA. 5. If contributing only to Roth IRA, maximum limit is lesser of $5,000 ($6,000 if age 50 or over) or taxable compensation. 6. Use Table 9-5 and Publication 590 to determine if contribution limit is reduced.

Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified AGI is less than the amount shown for your filing status in Table 9-5. Compensation is the same as defined for a traditional IRA. If a contribution is made only to a Roth IRA, the maximum contribution limit is the lesser of $5,000 ($6,000 if age 50 or older) or your taxable compensation. There are limits based on your modified AGI which can reduce your allowable contribution. Table 9-5 shows the limitations based on filing status and modified AGI.

7. If contributing to both Roth IRA and traditional IRA, your contribution limit for Roth IRAs must be reduced by all contributions for year to all IRAs other than Roth IRAs. 8. If exceed allowable limit of contributions to Roth IRA, subject to 6% excise tax. 9. Can convert traditional IRA to Roth IRA; will be taxed as if distributed and not subject to 10% additional tax (typically code 2 is shown in box 2 of Form 1099-R). If you contribute to both Roth and traditional IRAs, your contribution limit for Roth IRAs must be reduced by all your contributions for the year to all IRAs other than Roth IRAs. If you exceed the allowable limit of your contributions to a Roth IRA, you are subject to a 6% excise tax. You can convert a traditional IRA to a Roth IRA. This will be treated as a taxable distribution but not subject to the 10% additional tax (regardless of age). Any part of the conversion from a traditional IRA to a Roth IRA that represents your basis is not taxable. Box 7 of Form 1099-R will generally show code “2” for the conversion.

10. Can convert traditional IRA to Roth IRA when both of following are met: a. Modified AGI is not more than $100,000 b. You do not file MFS

Qualified distributions from a Roth IRA are not taxable and, therefore, you will not include them in the gross income on your return. A qualified distribution is any payment or distribution that meets the following requirements: It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and The payment or distribution is made: - On or after the date you reach age 59 ½, - Because you are disabled, - To a beneficiary or to your estate after your death, or - To pay up to $10,000 of certain qualified first- time homebuyer amounts.

A distribution is not a qualified one if you receive it within the 5-taxable-year period or you withdraw excess contributions or earnings on it before the due date of your return. A 10% additional tax is imposed on premature taxable distributions. Each conversion will have a separate 5-taxable-year period before it is qualified. It is important to remember that, with Roth IRAs, you can always have your original contributions distributed tax-free even if the distribution is not qualified.

Example: Fred contributed $3,000 to his Roth IRA in both 2006 and In 2008, he took a distribution of $6,200. The amount taxable (and potentially subject to the 10% additional tax) is $200 ($6,200 - $6,000). Had he withdrawn only $6,000, then none of the distribution would have been taxable nor subject to the 10% additional tax.

RETIREMENT SAVINGS CONTRIBUTION CREDIT
Tax credit of up to $1,000 ($2,000 if married filing jointly). For making contributions to an employer-sponsored plan or an IRA. Cannot claim if AGI more than $26,500 ($39,750 if H of H, $53,000 if MFJ). Cannot claim if under age 18 at the end of 2008, dependent on another return or full-time student. Complete Form 8880 and enter credit on Form 1040, line 51. You may be able to take a nonrefundable tax credit of up to $1,000 ($2,000 if married filing jointly) for making eligible contributions to an employer-sponsored retirement plan or to an IRA. The credit is a percentage of the qualifying contributions, with the highest rate for taxpayers with the least income. You cannot claim the credit if any of the following applies: The amount of your AGI is more than $26,500 ($39,750 if head of household, $53,000 if married filing jointly) You were under age 18 at the end of 2008 You are claimed on another person’s tax return You were a full-time student by IRS definition (any part of 5 calendar months of 2008) Eligible contributions include contributions to a traditional or Roth IRA and salary reduction contributions to most employer-sponsored retirement plans, now including Roth-designated accounts. Your eligible contributions may be reduced by certain taxable and nontaxable distributions made after 2005 and before the due date of your tax return. To claim the credit, complete Form 8880, Credit for Qualified Retirement Savings Contributions, and enter the credit on line 51 of Form 1040.

Retirement Benefits KEY IDEAS
Pensions or annuities may have a tax-free portion if you make after-tax contributions to the plan. To determine the taxable portion of the annuity payments, use the Simplified Method if your annuity starting date is after November 18, 1996 and your annuity payments are from a qualified plan. For annuity starting dates beginning in 1998, there are special table amounts for joint and survivor annuities. Taxable pension or annuity income is entered on line 16b of Form 1040.

Retirement Benefits Key Ideas
Federal income tax on pension or annuity income can be withheld, or you may choose to pay estimated tax. If you are age 70 ½ years or older by the end of the tax year, you cannot make traditional IRA contributions for that year Traditional IRA contributions generally cannot be more than your taxable compensation or $5,000 ($6,000 if age 50 or older), whichever amount is smaller. Elective deferrals to a qualified employer retirement plan are not included in wages subject to income tax.

Retirement Benefits Key Ideas
If you have earned income, you can contribute to a traditional IRA for a spouse who has little or no earned income, but the total amount contributed to both traditional IRAs cannot exceed your taxable compensation or $10,000 ($11,000 if one of you is age 50 or older, $12,000 if both of you are age 50 or older) whichever amount is smaller. You may be subject to additional tax for contributing more to a traditional IRA than allowed, making traditional IRA withdrawals before age 59 ½, or for not withdrawing enough traditional IRA funds after age 70 ½. Taxable IRA distributions are entered on line 15b of Form 1040.

Retirement Benefits CLASSWORK 1: True or False.
The taxable portion of pension income is entered on line 15b of Form 1040. (2) You report IRA distributions on line 32 of Form 1040. (3) A pension is fully taxable if you did not contribute to the plan. (4) If you retire on disability and have reached the minimum retirement age, you report your pension distributions on line 16b of Form 1040 if they are fully taxable. (5) You cannot contribute to a Roth IRA if you are over age 70 ½.

(6) An early distribution is generally one taken prior to reaching age 59 ½. (7) The Simplified Method is used to figure the tax-free portion of each monthly annuity payment by dividing the cost by the total number of expected monthly payments. (8) The maximum retirement savings contribution credit that can be claimed for a single taxpayer is $1,000. (9) Qualified distributions from a Roth IRA are not taxable. (10) You must begin taking minimum distributions from a Roth IRA when you turn age 59 ½ .

(11) A lump-sum distribution is a payment you are required to receive after you reach age 70 ½. (12) To avoid a required 20% federal withholding, you must make a rollover of a retirement plan within 60 days after you receive the distribution. (13) Contributions you make to a traditional IRA are always deductible. (14) A contribution to an IRA for a taxpayer age 43 cannot exceed $5,000. (15) Taxable compensation for a traditional IRA includes alimony payments received.

The taxable portion of pension income is entered on line 15b of Form F (2) You report IRA distributions on line 32 of Form F (3) A pension is fully taxable if you did not contribute to the plan. T (4) If you retire on disability and have reached the minimum retirement age, you report your pension distributions on line 16b of Form 1040 if they are fully taxable. T (5) You cannot contribute to a Roth IRA if you are over age 70 ½. F

(6) An early distribution is generally one taken prior to reaching age 59 ½. T (7) The Simplified Method is used to figure the tax-free portion of each monthly annuity payment by dividing the cost by the total number of expected monthly payments. T (8) The maximum retirement savings contribution credit that can be claimed for a single taxpayer is $1, T (9) Qualified distributions from a Roth IRA are not taxable. T (10) You must begin taking minimum distributions from a Roth IRA when you turn age 59 ½ . F

(11) A lump-sum distribution is a payment you are required to receive after you reach age 70 ½. F (12) To avoid a required 20% federal withholding, you must make a rollover of a retirement plan within 60 days after you receive the distribution. F (13) Contributions you make to a traditional IRA are always deductible. F (14) A contribution to an IRA for a taxpayer age 43 cannot exceed $5, T (15) Taxable compensation for a traditional IRA includes alimony payments received. T

Retirement Benefits CLASSWORK 2: In which box of Form 1099-R would you find the following? Also give the code number or letter, if applicable. federal income tax withheld taxable amount of the distribution early distribution to which a 10% penalty tax applies direct rollover to traditional IRA

Retirement Benefits CLASSWORK 2: In which box of Form 1099-R would you find the following? Also give the code number or letter, if applicable. 5. distribution from Roth IRA in first 5 years 6. disability distribution 7. amount of your contributions to the retirement plan 8. total amount of distribution NOTE: For questions 2, 3, 4, 5, and 6, the amount would appear in box 1.

Retirement Benefits CLASSWORK 2: In which box of Form 1099-R would you find the following? Also give the code number or letter, if applicable. federal income tax withheld Box 4 taxable amount of the distribution Box 2a early distribution to which a 10% penalty tax applies Box 7, Code 1 direct rollover to traditional IRA Box 7, Code G

Retirement Benefits CLASSWORK 2: In which box of Form 1099-R would you find the following? Also give the code number or letter, if applicable. 5. distribution from Roth IRA in first 5 years Box 7, Code J 6. disability distribution Box 7, Code 3 7. amount of your contributions to the retirement plan Box 5 8. total amount of distribution Box 1 NOTE: For questions 2, 3, 4, 5, and 6, the amount would appear in box 1.

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Liberty Tax Service Online Basic Income Tax Course. Lesson 9

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