Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the

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Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2016. She is an active participant in a qualified retirement plan sponsored by her employer. Her AGI for 2016 is $123,000 before considering any IRA contribution.
a. What type of IRA, if any, is Chatham Mae eligible to make a contribution to for 2016? If she is eligible to contribute to an IRA, what is the maximum amount that she can contribute to the IRA?
b. Assume Chatham Mae contributes a total of $12,000 over six years to a Roth IRA. In 2022, she withdraws $15,000 to pay off her car loan. Her financial advisor suggested she withdraw the money from the IRA for two major reasons: (1) to eliminate her debt and (2) no tax would be due on distributions from a Roth IRA after five years. Chatham Mae wants to verify the accuracy of her advisor’s advice. What would be the tax consequences of this withdrawal? Alternatively, what if Chatham Mae withdrew the $15,000 to purchase a house (she is a first-time homebuyer)?

c. Alternatively to Part b above, assume Chatham Mae has a traditional deductible IRA that has a balance of $50,000. She has been able to deduct all of her contributions to the IRA in prior years. Her financial advisor has recommended that she rollover the funds from her traditional IRA to a Roth IRA in 2016. What are the tax consequences of this rollover in 2016?

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Federal Taxation 2017 Individuals

ISBN: 9780134420868

30th Edition

Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson

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