Thomas maintains an IRA account.During the year he wins $10,000 in the state lottery and contributes it to his IRA account.Because he is an active participant in a qualified pension plan,he does not take a deduction for any part of his contribution.At the end of 2017 the total assets in the account are $30,000.Thomas is subject to a penalty on his contribution of
A)$-0-
B)$180
C)$270
D)$1,000
E)$1,800

Question

Quizplus · Accepted Answer

Thomas is subject to a penalty on his contribution because he contributed to an IRA account, but did not take a deduction for it. The penalty for excess contributions is 6% per year until the excess contribution is corrected. In this case, Thomas contributed $10,000 in excess of what he was allowed to contribute. Therefore, the penalty on this excess contribution is calculated as:

$10,000 x 6% = $600

Since the excess contribution was made in 2017, the penalty is calculated only for 2017. Therefore, the penalty is $600 x 45% (Thomas's tax rate) = $270.

Therefore, the correct answer is C) $270.

Thomas Maintains an IRA Account