Max retired in 2016 at age 62.During the year he received distributions of $9,000 from his IRA.He made nondeductible contributions of $20,000 to the IRA in prior years and has never received a nontaxable distribution.As of December 31,2016,the value of his IRA was $150,000.Calculate the taxable portion of Max's distribution.

Question

Quizplus · Accepted Answer

To calculate the taxable portion of Max's distribution, we need to use the pro-rata rule:
(Total Amount of Nondeductible Contributions/Total Balance of all Traditional IRAs) x Distribution = Nontaxable Amount

Total Balance of all Traditional IRAs = $150,000
Total Amount of Nondeductible Contributions = $20,000
Total Balance of Deductible Contributions = $130,000

($20,000/$150,000) x $9,000 = $1,200 (nontaxable amount)
$9,000 - $1,200 = $7,800 (taxable amount)

Therefore, the taxable portion of Max's distribution is $7,868.

Max Retired in 2016 at Age 62