Beethoven Lucielle began saving $2,000 per year in his Roth IRA at the age of 22

Question

Beethoven Lucielle began saving $2,000 per year in his Roth IRA at the age of 22. At the age of 35, he increased his savings rate to $3,500 per year. He invested the money in a variety of products including stocks, bonds, and CDS. When he was 50 years old, Beethoven made a $10,000 withdrawal to take a vacation. Now at the age of 75, Beethoven's IRA has a fair market value of $343,930 and his life expectancy factor is 22.9. If he fails to take his distribution this year, what will Beethoven's penalty be?

Explanation / Answer

Step 1: Calculate the Value of Required Minimum Distribution

The value of required minimum distribution can be calculated with the use of following formula:

Required Minimum Distribution = Fair Market Value of IRA/Life Expectancy Factor

Using the information provided in the question, we get,

Required Minimum Distribution = 343,930/22.9 = $15,018.78

___________

Step 2: Calculate the Value of Penalty

The penalty is calculated as 50% of the value of required minimum distribution. Therefore, if Beethoven's fails to take his distribution this year, the value of penalty will be $7,509.39 (50%*15,018.78).

Answer is $7509.39

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.