terest only) on their new home? How much will they be able to invest in their retirement accounts and education accounts after selling the old house and buying the new house? If the Jacksons purchase the new house one year from today, what will be the balance on their mortgage when they retire? What is the income tax consequence of their sale and purchase strategy?
terest only) on their new home? How much will they be able to invest in their retirement accounts and education accounts after selling the old house and buying the new house? If the Jacksons purchase the new house one year from today, what will be the balance on their mortgage when they retire? What is the income tax consequence of their sale and purchase strategy?
Chapter8: Taxation Of Individuals
Section: Chapter Questions
Problem 38P
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The Jacksons are considering selling their current residence, buying a small home near Avery’s parents for $220,000 with a $100,000 30-year mortgage at 3.5%, and investing the net proceeds in their retirement accounts and education accounts. They assume they will incur 2% in transaction costs for the purchase and 6% for the sale. They have asked you the following:
- What will be their payment (principal and interest only) on their new home?
- How much will they be able to invest in their retirement accounts and education accounts after selling the old house and buying the new house?
- If the Jacksons purchase the new house one year from today, what will be the balance on their mortgage when they retire?
- What is the income tax consequence of their sale and purchase strategy?
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The Jeffersons are considering contributing to their traditional IRAs this year. They have also heard an expert on PBS say that Roth IRAs may be appropriate for them. They want to know:
- Should they contribute to a traditional IRA, a Roth IRA, both types of IRA accounts, or neither IRA account? (If you select neither IRA account, you must recommend an alternative retirement account to start saving for retirement.)
- How much can they contribute to an IRA this year?
- Explain your choice addressing the major tax advantages of the contribution strategy that is most appropriate. What tax rules should the client be aware of regarding contributions and distributions? Cover how contributions, earnings and withdrawals are taxed at various ages and situations important to the Jeffersons.
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