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NINJA Question –
Loving the Ninja MCQ and sim work so far for REG- but has anyone come across explanations for some of the sims in Ninja that just seem fishy? Overall they are pretty good, but I have seen more than one question now where the explanation references information that is nowhere to be found in the original problem.
For example, simulation 33 (AGI) asks you to compute AGI for a taxpayer, and there is a line for early withdrawal penalties from the IRA account. I put in a zero because there was no information in the problem about withdrawals, but the explanation says it should be zero because the taxpayer withdrew IRA money for use in qualified education expenses.
Here’s the problem in question:
Keisha Patel (age 41) is an employee in ABC Consulting Group. She lives in the suburbs and commutes to work daily by taking the train. Her salary is $10,000 per month. As one of the company benefits, employees are able to pick up a transit pass for the month. In Keisha’s case, her transit pass has a value of $260 per month. Keisha has a son, Timothy, who is age 15 and a daughter, Mandy, who is age 19. Timothy lives with his father, Keisha’s former spouse. Mandy resides on campus but is supported by her mother. Keisha gives her former spouse $2,500 per month as part of the divorce decree (child support and alimony) until Timothy turns 18, and then the amount drops to $1,300 per month (alimony only).
Keisha is requesting that you, as one of the company’s tax accountants, handle her tax material for the current year. Complete the abbreviated 2014 Form 1040 – AGI section for Keisha. Record your answers in the shaded cells appearing in the form below. If the value of a cell is zero, you must enter a zero (“0”) to receive credit for your answer. Use dollar amounts only (i.e., no cents).
Be aware that Keisha just realized that she contributed $4,000 to her traditional IRA and she found a receipt for paying $1,500 of interest on her student loan. Keisha’s total income on line 22 is $142,585.
And then the explanation for penalty on early withdrawal of savings:
Although Keisha is younger than age 59-1/2, she does not incur an early withdrawal penalty because the monies were used for her daughter’s higher education costs (see IRC Section 72(t)(2)(E)). Qualified higher education expenses include tuition, fees, books, supplies and equipment for the taxpayer, taxpayer’s spouse, or child.
But if the distribution had been subject to the early withdrawal penalty, it would not have gone on this line. Rather, the taxpayer would file Form 5329, which computes the early distribution excise tax, and then the tax amount would be carried over to line 60 of Form 1040.)
Line 30 is used traditionally for penalties assessed on early withdrawals from a CD or other investment instrument.
I get that the answer is trying to clarify that this line should not even be used for early IRA withdrawal penalties, but the extra info provided about using her withdrawal for her daughter’s education expense threw me off. I have seen a couple other problems where the explanation drops info out of nowhere and I’m left scratching my head.
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