Louise,age 51,quit her job and received a $70,000 distribution from her employer-sponsored qualified retirement plan.She immediately contributed $50,000 to a rollover IRA and used the remaining $20,000 to purchase a car.Compute the tax cost of the distribution if Louise has a 33% marginal tax rate on ordinary income.

Question

Quizplus · Accepted Answer

The taxable portion of the distribution is $70,000 - $50,000 = $20,000. With a 33% marginal tax rate, the tax cost of the distribution is 33% x $20,000 = $6,600. Therefore, the correct answer is B, $8,600 (which includes the $20,000 for the car).

Louise,age 51,quit Her Job and Received a $70,000 Distribution from Her