Question

Mrs. Kwan withdrew the entire $8,000 balance from her Roth IRA this year. Her total contributions to the account were $6,070, and her marginal tax rate is 12 percent. Determine the tax cost of the withdrawal if: Mrs. Kwan is age 63 and opened the Roth IRA three years ago. Mrs. Kwan is age 63 and opened the Roth IRA seven years ago. Mrs. Kwan is age 48 and opened the Roth IRA seven years ago.

Answer 1

Answer:

$425

Explanation:

The computation of the tax cost of the withdrawal is shown below:-

The withdrawal will not be considered a qualifying withdrawal as Ms. Kwan is not 59 1/2 years old. Therefore, the taxable withdrawal would be subject to an additional 10 percent penalty.

Tax cost of the withdrawal = (Tax rate × (Balance amount - Total contribution) + (Penalty × (Balance amount - Total contribution)

= (12% × ($8,000 - $6,070)) + (10% × ($8,000 - $6,070))

= $231.6 + $193

= $424.6

or

= $425