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6 October, 05:54

Jessica retired at age 65. On the date of her retirement, the balance in her traditional IRA was $200,000. Over the years, Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account. If Jessica receives a $50,000 distribution from the IRA on the date of retirement, what amount of the distribution is taxable?

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  1. 6 October, 09:37
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    The taxable amount of the distribution is $45,000.

    Explanation:

    The balance in Jessica's account is $200,000.

    The non-deductible contributions made is $20,000.

    The deductible contributions made is $60,000.

    The amount of distribution received is $50,000.

    Non taxable amount percentage

    = (non deductible contributions/balance in account) * 100

    = ($20,000/$200,000) * 100

    =10%

    Taxable amount will thus be 100-10=90% of the distribution

    =$50,000 * (90/100)

    =$45,000.
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