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Chapter 9 - Question 8 : Help me to explain this question. Thank you Jordan contributed...

Chapter 9 - Question 8 :

Help me to explain this question. Thank you

Jordan contributed $5,000 each year to her Roth IRA for eleven years. At age 57, Jordan’s IRA was worth $100,000 consisting of $55,000 in contributions, $25,000 in conversions from her 401(k) plan last year, and earnings of $20,000. What are the tax consequences if Jordan takes a complete distribution of the Roth IRA at age 57, once she has retired, to travel around the world?

A.            Only $20,000 is subject to the 10 percent early withdrawal penalty.

B.            $20,000 is subject to income tax but no penalty.

C.            $45,000 is subject to the 10 percent early withdrawal penalty and $20,000 is subject to income tax.

D.            None of the distribution is taxable or subject to a penalty.

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Answer #1

B.            $20,000 is subject to income tax but no penalty.

The earnings from Roth IRA will be subject to income tax if withdrwal is before the age of 59. Contributions are non taxable., The conversion will not be subject to tax.

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