Discussion:Insolvency with interest in a Pension

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Discussion Forum Index --> Tax Questions --> Insolvency with interest in a Pension


Sid50 (talk|edits) said:

30 December 2010
Client is retired and receives monthly pension income. I am trying to figure to what extent he is insolvent. For assets, it says to list the interest in a pension. What would I list as the asset? The present value of the future payments?

R2 (talk|edits) said:

30 December 2010
Some practitioners are using divorce software to value defined benefit plans.

DaveFogel (talk|edits) said:

30 December 2010
Yes, the present value of the future payments based on the client's life expectancy. If you will send me an email (dfogel@surewest.net), I'll send back an Excel spreadsheet that you can use to make this calculation.

Fsteincpa (talk|edits) said:

28 March 2013
I have a client with a $10,000 credit card cancellation.

She works for Fed-Ex and has a decent pension. She is vested and it's not a defined benefit plan. Including the amount makes her ineligible and not insolvent.

Is there any way around including a pension amount in this calculation? I'm thinking not, but will always hold out hope for a loopyhole.

Jake (talk|edits) said:

28 March 2013
It always seemed to me that including the entire amount of an IRA or 401k as an asset was unfair - if th taxpayer withdrew that to pay dents he/she would get maybe 70 cents on the dollar after federal and state income tax. If under 59-1/2 also subject to a 10% early WD penalty. But who ever said taxes were fair - or even logical.

Jake (talk|edits) said:

28 March 2013
It just hit me - if you go bankrupt because of credit card debt isn't IRA and 401k money protected?

Ckenefick (talk|edits) said:

28 March 2013
We would hope so. But how many times do you see someone tap their IRA's/401k's/Etc. to stay afloat...and then they declare bankruptcy anyway? Not sure a *great* move.

Fsteincpa (talk|edits) said:

28 March 2013
Ok, so, if we go bankrupt, the pension/IRA is protected, but in the insolvency calculation it's not?

And yes, Chris, I have a friend who did just that, got sick, MS or something similar, he's finally on SSI. He was a welder, made good union coin, got sick could no longer work as the heat made his diseaes worse. He used all of his pension to keep up the house, waiting for his SS disability to kick in and couldn't make any more payments. Finally went bankrupt after everything is gone and I have been helping him with a short sale.

But, for this calc, it does seem I have to take it into account though? And even if I used just half, she is still solvent. Insolvent if i don't use it, but it sure looks like I have to.

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