Question

Larry terminated his employment and receives a cash distributions from his qualified retirement plan, In the amount of 100,000. He made a qualified rollover contribution of $60000 . He spent the other $40,000 to take his family on a 21 day vacation. If his marginal tax rate is %30 and he is 38 years old, what is the total amount of taxes he must pay on distributions

Answer 1

Generally speaking in this case Larry terminates his employment before he reaches as of 59.5 years. And any cash distributions made from his qualified retirement plan is subject to 10% of tax, but in this case he made a qualified rollover contribution of $60,000, which means he does not have the pay the taxes on 60,000 but the remaining 40,000 will be subject to the taxes. Accordingly he has to pay tax of $40000 x 30% = 12000 + additional tax of $4000 which is 10% of 40,000 on the distribution. So in total he has to pay tax of $16,000.