Question

Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The current balance of his IRA account is $165,851. Over the years, Rashaun has contributed to the IRA. Of his contributions, $40,100 was nondeductible and $11,300 was deductible.

If Rashaun currently withdraws $29,800 from the IRA, how much of the distribution is nontaxable?

Please explain how you got each number in your solution and/or where the number comes from.

Answer 1

Step 1: Calculate non deductible portion

Non Deductible Portion= Non Deductible Contributions/Current balance of IRA

=40100/165851= 0.24(appx)

Step 2: Calculate taxable portion of Traditional IRA

Taxable Portion= 1- Non Deductible Portion

=1-0.24=0.76

Step 3: Calculation of Portion of Non Taxable Distribution

Non Taxable Distribution=Total Withdrawal from IRA Account- Taxable Portion* Withdrawal Amount

=29800-(0.76*29800)=$7152

Hence $7152 is the non taxable portion.