In 2018,Jessica retired at the age of 65.The current 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,what amount of the distribution is taxable?
A)$0
B)$5,000
C)$37,500
D)$45,000
E)$50,000

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 out of a total $80,000 contributions ($20,000 nondeductible + $60,000 deductible), which is 25%. Therefore, 75% of the distribution is taxable: 75% of $50,000 is $37,500. However, the correct calculation should consider the entire account balance, not just contributions. The nondeductible portion is $20,000/$200,000 = 10%. Thus, 90% of $50,000 is taxable, which is $45,000.

In 2018,Jessica Retired at the Age of 65