Question

Max retired in 2017 at age 62. During the year he received distributions of $9,000 from his IRA. He made nondeductible contributions of $20,000 to the IRA in prior years and has never received a nontaxable distribution. As of December 31, 2017, the value of his IRA was $150,000. Calculate the taxable portion of Max's distribution. Show Work

Answer #1

When there are non-deductible contributions in the traditional IRA, distributions from the account are not taxable as a percentage. Percentage applicable is non-deductible contributions made divided by IRA balance before distribution.

Non taxable Percentage applicable = 20,000/ 150,000 * 100 = 13.3333%

Taxable percentage = 1- 13.3333% = 86.66667%

Taxable distribution = 9,000 * 86.66667% = 7,800

Non taxable distribution = 9,000 * 13.3333% = 1,200

After the distribution balance non-taxable contributions in the IRA reduces to = 20,000 - 1,200 = 18,800

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