In 2019, Jessica retired at the age of 65.The current 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, what amount of the distribution is taxable?

Question

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The taxable amount of the distribution is calculated based on the proportion of the total balance that was previously untaxed. Since $180,000 ($200,000 total - $20,000 nondeductible contributions) of the account is pre-tax money, the taxable portion of any distribution is proportional to this amount. The formula to calculate the taxable amount is: (Pre-tax balance / Total balance) * Distribution amount = ($180,000 / $200,000) * $50,000 = 0.9 * $50,000 = $45,000.

In 2019, Jessica Retired at the Age of 65