Question

Stephanie made a fully deductible contribution to a traditional IRA account several years ago. In 2019, she withdrew $4,000 and contributed (rolled over) $3,000 to a Roth IRA. What amount of taxes and penalty is she required to pay on the rollover? Assume her marginal tax rate is 25%.

Answer 1

In the given case

It is assumed that Stephanie has not attained the age of 59.50 years also assumed that the amount withdrawn from traditional IRA of which some amount is rolled over to Roth IRA is done within a period of 60 days.

In case of pre- withdrawal i.e before attaining the age of 59.50 years from traditional IRA then penalty of 10% on the amount withdrawal plus Tax on such withdrawn amount is applicable. However if the amount withdrawn is contributed back to same or any another IRA through indirect means within 60 days then no penalty is applicable.

In the given case Stephanie withdrawn the amount from traditional IRA is $4000 however she rolled over $3000 to Roth IRA.

So Penalty and Tax will be applicable on the amount $1000 (4000-3000) which was not rolled over.

Tax = 1000*25%=$250

Penalty=1000*10%=$100

Please leave your feedback.

Thanks