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Chapter 9 - Question 7 : I don't know to answer. Thank you Oliver is a...

Chapter 9 - Question 7 :

I don't know to answer. Thank you

Oliver is a 45-year old executive who earns $375,000 from his job at Acme Arrows (AA) and contributes the maximum amount to the 401(k) plan. He wants to make a contribution to a Roth IRA for the current year. Assume that Oliver has a traditional IRA with a balance of $10,000 that was funded entirely with pre-tax contributions. Which of the following is correct?

A.            Oliver cannot contribute to a Roth IRA because he is an active participant in his company’s retirement plan.

B.    Oliver cannot execute the backdoor Roth strategy because he has a balance in a traditional IRA.

C.            Oliver could execute the backdoor Roth strategy but would have to recognize approximately $3,500 for income tax purposes if he contributed $5,500 to a traditional IRA.

D.            If Oliver executed a backdoor Roth strategy, he has the option of recharacterizing the conversion if the value of the assets decreased prior to the filing of his return (including extensions).

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Answer #1

Based on the above statement it seems that Option D. stands correct. Now prior to executing the filing of returns including extensions (if any), Oliver has the option of re-characterizing the conversion of any decrease in value of assets.

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