Mrs. Lee, age 70, withdrew $40,000 from her traditional IRA this year. The balance in the account at year-end was $96,600, which included $28,000 of nondeductible contributions. Compute the taxable portion of the $40,000 withdrawal.

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The taxable portion of the withdrawal is calculated by determining the ratio of deductible contributions (and earnings) to the total balance, then applying that ratio to the withdrawal amount. Here, the total balance before withdrawal was $136,600 ($96,600 + $40,000), with $28,000 being nondeductible contributions. Thus, deductible contributions and earnings amount to $108,600 ($136,600 - $28,000). The ratio of deductible contributions and earnings to the total is $108,600 / $136,600. Applying this ratio to the $40,000 withdrawal gives a taxable amount of approximately $31,801.

Mrs Lee, Age 70, Withdrew $40,000 from Her Traditional IRA