Pierre retired in 2015 at age 62. During the year he received distributions of $27,000 from his IRA. He made nondeductible contributions of $60,000 to the IRA in prior years and has never received a nontaxable distribution. As of December 31, 2015, the value of his IRA was $450,000. Calculate the taxable portion of Pierre's distribution.

Question

Quizplus · Accepted Answer

To calculate the taxable portion of the distribution, we must calculate the amount of Pierre's IRA that consists of nondeductible contributions:

$60,000 nondeductible contributions / $450,000 IRA balance = 0.133

So 13.3% of the IRA is nondeductible contributions.

Next, we multiply the total distribution by this percentage to find the nontaxable portion:

$27,000 distribution x 0.133 = $3,591.00 nontaxable portion

Finally, we subtract the nontaxable portion from the total distribution to find the taxable portion:

$27,000 distribution - $3,591.00 nontaxable portion = $23,409.00 taxable portion

Therefore, the taxable portion of Pierre's distribution is $23,604, which is answer choice D.

Pierre Retired in 2015 at Age 62