1. Can Mary set up an IRA and deduct the contribution from her income that is subject to federal income taxation? Does the same apply to Jason? Could Marys or Jasons children have IRA accounts?
2. Can Mary or Jason set up a Keogh account and deduct the contribution from income that is subject to federal income taxation? Could their children establish Keogh accounts?
3. Is there any reason why Mary or Jason should prefer a 401(k) or Keogh retirement account to an IRA?
4. Is the income generated by Marys 401(k) account subject to current federal income taxation? If Jason created a retirement account, would the income be subject to current federal income taxation?
5. If either Mary or Jason were to withdraw funds from their retirement accounts, would they pay federal income taxes and penalties?
6. If Mary or Jason purchased stock outside of a retirement account, should the purchases emphasize income or capital gains? Would purchasing stock outside a retirement account be a desirable strategy?
7. Would the purchase of an annuity offer tax benefits that are similar to a retirement account?
8. Would the funds in Marys or Jasons retirement accounts be subject to federal estate taxation?
9. What general strategies would you suggest to an individual seeking to accumulate funds for retirement?
|Your financial planning practice services several sophisticated individuals who have accumulated a substantial amount of assets but who are naive concerning potential strategies to reduce taxes. To increase their awareness, one client suggested that you offer a complimentary seminar to explain fundamental means for reducing taxes. Your immediate reaction was that each individuals tax situation differs, so the seminar would be of little benefit. On further reflection, however, you thought a focused presentation could be beneficial, especially if you limit the discussion to one topic, retirement planning, and cover other tax strategies such as capital gains or estate planning only to the extent that they affect retirement planning. To illustrate the differences in retirement planning, you selected two very different case studies. Mary Brost is a single parent with one teenage son. She has a well-paying, secure job that offers a 401(k) plan, life insurance, and other benefits. While Ms. Brost has sufficient resources to finance her sons college education, he works in a local CPA office that provides him with sufficient spending money, including the cost of insurance for his car.|