Pierre retired in 2017 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 31,2017,the value of his IRA was $450,000.Calculate the taxable portion of Pierre's distribution.

Question

Quizplus · Accepted Answer

To determine the taxable portion of Pierre's distribution, we need to use the pro-rata rule. This rule takes into account the total amount of nondeductible contributions made to the IRA and the current value of the account.
 
First, we need to calculate the total amount of nondeductible contributions made by Pierre up to December 31, 2016 (i.e., prior years):
 
$60,000 (nondeductible contributions)
 
Next, we need to calculate the total balance of Pierre's IRA as of December 31, 2017:
 
$450,000 (IRA balance as of Dec. 31, 2017)
 
Then, we divide the nondeductible contributions by the total balance to determine the percentage of the distribution that is nontaxable:
 
 $60,000 ÷ $450,000 = 0.1333 (rounded to four decimal places)
 
Finally, we multiply this percentage by the distribution amount to determine the nontaxable portion:
 
0.1333 × $27,000 = $3,604.10 (rounded to the nearest cent)
 
Therefore, the taxable portion of Pierre's distribution is:
 
$27,000 − $3,604.10 = $23,395.90 (rounded to the nearest cent)
 
The closest answer is D) $23,604, which is the correct answer.

Pierre Retired in 2017 at Age 62