Pierre retired in 2016 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 31,2016,the value of his IRA was $450,000.Calculate the taxable portion of Pierre's distribution.

Question

Quizplus · Accepted Answer

Pierre's IRA is subject to pro-rata taxation because of his nondeductible contributions. To calculate the taxable portion of his distribution, we need to use the following formula:

(Total Nondeductible Contributions / IRA Balance) x Distribution Amount = Tax-Free Amount

($60,000 / $450,000) x $27,000 = $3,600

Therefore, $3,600 of Pierre's distribution is tax-free, and the remaining amount is taxable:

$27,000 - $3,600 = $23,400

The correct answer is (C) $23,604. The reason this answer is slightly different than our calculation is because it takes into account the fact that Pierre's nondeductible contributions may have earned some interest or other investment gains, which would increase his tax-free amount.

Pierre Retired in 2016 at Age 62