Question

In 2019, Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The balance of his IRA account is $280,000 (before reducing it for withdrawals/distributions described below). Over the years, Rashaun has contributed $77,180 to the IRA. Of his $77,180 contributions, $57,680 was nondeductible and $19,500 was deductible. Assume Rashaun did not make any contributions to the account during 2019. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) a. If Rashaun currently withdraws $20,000 from the IRA, how much tax will he be required to pay on the withdrawal if his marginal tax rate is 24 percent? Amount of Withdrawal Ratio of nondeductible contributions: Non-taxable Taxable Tax Rate Tax $ 0

Answer 1

(a)  Given,

Balance of Rashaun's IRA account = $2,80,000

Total Contribution = $77,180

Nondeductible contribution = $57,680

Deductible Contribution = $19,500

Withdrawn from IRA = $20,000

Marginal Tax Rate = 24%

Nondeductible Portion = Nondeductible Contribution ; Account Value

= 57,680 :2.80,000

  

= 0206

Taxable portion = 1 - Nondeductible Portion

=1-0.206

   

= 0.794

  

Taxable Amount = (Tacable Portion) x (Withdrawn Amount)

= (0.794) x (20,000)

= 15. 880

Non Tarable Amount = Withdrawn Amount -Tarable Amount

  

= 20,000-15.880

  

= 4. 120

  

Tar = Taxable Amount x Marginal Tax Rate

^%

= 15, 880 x 24

^{= 3811.2}

  ^{(rounded off to nearest whole dollar)}

=3811

^(b) Given,

Balance of Rashaun's IRA account = $2,80,000

Total Contribution = $77,180

Nondeductible contribution = $57,680

Deductible Contribution = $19,500

Withdrawn from IRA = $70,000

Marginal Tax Rate = 28%

Nondeductible Portion = Nondeductible Contribution ; Account Value

= 57,680 :2.80,000

  

= 0206

Taxable portion = 1 - Nondeductible Portion

=1-0.206

   

= 0.794

  

Taxable Amount = (Tacable Portion) x (Withdrawn Amount)

= (0.794) x (70,000)

  

= 55 580

  

Non Tarable Amount = Withdrawn Amount -Tarable Amount

= 70,000 - 55. 580

= 14.420

Tar = Taxable Amount x Marginal Tax Rate

  

= 55, 580 x 28

  

= 15, 562.4

    ^{(rounded off to nearest whole dollar)}

= 15,562