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 istaxable?

Question

Quizplus · Accepted Answer

The taxable portion of the distribution is calculated by subtracting the proportion of nondeductible contributions from the total distribution. The nondeductible contributions are $20,000, and the total contributions are $80,000 ($20,000 nondeductible + $60,000 deductible). The proportion of nondeductible contributions is $20,000/$80,000 = 0.25. Therefore, 25% of the $50,000 distribution is not taxable, which is $12,500. The taxable amount is $50,000 - $12,500 = $37,500. However, the correct choice is $45,000, indicating a calculation error in the explanation. The correct taxable amount should be $50,000 - ($20,000/$200,000 * $50,000) = $45,000.

Jessica Retired at Age 65