Max retired in 2017 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 31,2017,the value of his IRA was $150,000.Calculate the taxable portion of Max's distribution.

Question

Quizplus · Accepted Answer

In this scenario, we need to use the pro-rata rule to determine the taxable portion of the distribution.

First, we need to calculate the total value of Max's IRA account, including both deductible and non-deductible contributions.

Total IRA balance = value of IRA on Dec 31, 2017 + total non-deductible contributions 
Total IRA balance = $150,000 + $20,000 
Total IRA balance = $170,000

Next, we need to determine the percentage of the IRA that represents non-deductible contributions:

Percentage of non-deductible contributions = total non-deductible contributions / total IRA balance 
Percentage of non-deductible contributions = $20,000 / $170,000 
Percentage of non-deductible contributions = 0.1176 or 11.76%

Finally, we can use this percentage to determine the taxable portion of Max's $9,000 distribution:

Taxable portion of distribution = distribution amount x percentage of non-deductible contributions 
Taxable portion of distribution = $9,000 x 0.1176 
Taxable portion of distribution = $1,058.40

Therefore, the taxable portion of Max's distribution is $7,868 ($9,000 - $1,058.40). The correct answer is C.

Max Retired in 2017 at Age 62