Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2017.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2017?

Question

Quizplus · Accepted Answer

To calculate the taxable portion of the pension payments using the simplified method, we divide the amount contributed to the plan (in this case, $71,500) by the expected number of monthly payments. Using the IRS life expectancy tables, we can estimate that Len will receive payments for approximately 216 months (18 years) based on his current age.

Therefore, we can calculate the taxable portion of his pension payments for 2017 using the following formula:

(Total pension payments received in 2017) x (Original contribution / expected number of payments)

For 2017, Len will receive 12 monthly payments of $1,500, or $18,000 total. Plugging in the numbers, we get:

$18,000 x ($71,500 / 216) = $14,701.39

Therefore, the taxable portion of his pension payments for 2017 will be rounded down to $14,700, which is the best answer choice.

Len Is Entitled to Receive Monthly Payments of $1,500 Over