Question

, Jim, who is age 39, converts a $74,500 traditional IRA to a Roth IRA in 2015. He also contributes $5,500 to a Roth IRA in 2015 for the tax year 2015. If Jim takes a $90,000 distribution from his Roth IRA in 2016 when the account is worth $100,000, how much of distribution is subject to income tax and how much of distribution is subject to 10% penalty?

Answer 1

Adjusting opening balance = $74,500

Adjusting closing balance = $100,000 + $90,000

= $190,000

Contribution is $5,500

So calculate -

Net Income = $5,500 * ($190,000 - $74,500)/$74,500

= $5,500 * ($115,500/$74,500)

= $8,526.85

Federal Tax Income = ($8,526.85*28/100) + ($90,000*10/100)

= $2,387.52 + $9,000

= $11,387.52