Patrick is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan or he can take $1,300 monthly over his life and the life of his wife. The payments begin January 1, 2015. He contributed $85,250 to the plan prior to his retirement. Patrick is 64 and his wife is 62. Using the simplified method, how much of the payments will be included in Patrick's taxable income for 2015 if he chooses to take $1,300 monthly over his life and the life of his wife?

Question

Quizplus · Accepted Answer

To determine the taxable portion of the payments, the simplified method requires dividing the amount contributed to the plan by the expected number of monthly payments. Assuming a life expectancy of 22.9 years for both Patrick and his wife (based on IRS Publication 590), the expected number of monthly payments is 276. Using the simplified method, the taxable portion is:

($85,250 / 276) x ($1,300 x 12) = $12,291.30

Since the taxable portion must be rounded to the nearest $1, the answer is $12,300. Therefore, choice C is correct.

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