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# Personal Financial Planning: Stocks

A. John inherited \$2 million in an IRA, which comprised of the entire estate from his father. He promptly withdrew the funds. The appropriate marginal tax rate was 28 percent. Was there any tax due? YES If so, how much? \$2,000,000 *.28=\$5,600,000

b. Assume it was \$2 million in stocks held in a personal account. Would your answer be the same? YES Explain.

Sophia inherited 1,000 shares of IBM that her father's parents bought for her when she was a child. The father's cost was \$2 per share at the time of purchase and \$84 per share at the time of his death. Sophia sold them at \$86 per share. Calculate the total amount of her capital gain. (Show your work).

Henry will be giving \$50,000 to each of his five children. Indicate how much of his assumed \$1 million gift tax exemption will remain.

Hilda wanted to know how much her children would be saving if she set up a bypass trust for \$300,000 rather than giving it directly to her husband. She had an illness that made it likely that she would be first to die. Assume she and her husband each had over \$2 million in assets and no change in the amount over time, as well as an estate tax of 50 percent. What would her savings be? (See Appendix II for the method of solution)

Maurice gave \$20,000 to charity each year. He had \$20,000 in stock that cost him \$24,000 to buy. Assuming he is in the 23 percent bracket for capital gains, how much will he save by donating the stock to charity?

#### Solution Preview

a. John inherited \$2 million in an IRA, which comprised of the entire estate from his father. He promptly withdrew the funds. The appropriate marginal tax rate was 28 percent. Was there any tax due? YES If so, how much? \$2,000,000 *.28=\$5,600,000.

Since John immediately cashed out the IRA inheritance, then the entire amount is considered part of his taxable income which results to an income tax of \$560,000.

b. Assume it was \$2 million in stocks held in a personal account. Would your answer be the same? YES Explain.
Yes, the answer would be different. Since the inheritance is in the form of stocks held in a personal account of the deceased, then this ...

#### Solution Summary

The solution discusses questions regarding to personal financial planning.

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