Question

Tim has worked for one employer his entire career. While he was working, he participated in the employer’s defined contribution plan [traditional 401(k)]. At the end of 2020, Tim retires. The balance in his defined contribution plan is $2,000,000 at the end of 2019. (Use Exhibit 13-3.) (Leave no answer blank. Enter zero if applicable.)

d. Assuming that Tim is 76 years old at the end of 2020 and his marginal tax rate is 32 percent, what amount of his distribution will he have remaining after taxes if he receives only a distribution of $50,000 for 2020?

Answer 1

It is given TIM has worked for his entire career and at the end of 2020

At the end of 2019 his contribution = $2000000

it is assume tim is 76 year old at the end of 2020 and tax rate is 32% Distribution for 2020 is $50000

Now calculate the amount will he have remaining after tax

Distribution period = 22.0
percentage applicable = 4.54% ( from exibit 13.3)

he implies that = $2000000 x 4.54% = $90800
less amount received = $50000

Balance amount = $40800 (90800-50000)

Tax @32% $50000 x 32% =$16000
add panelty 40800 x 50% =$20400
Total amount of tax and panelty =$36400

After tax amount received by TIM = $13600