omework Check my work Required information The following information applies to
ID: 2510450 • Letter: O
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omework Check my work Required information The following information applies to the questions displayed below) Kim has worked for one employer her entire career. While she was working, she participated in the employer's defined contribution plan [traditional 401(k)]. At the end of 2017, Kim retires. The balance in her defined contribution plan is $2,000,000 at the end of 2016.(Use Exhibit 13:3) (Leave no answer blank. Enter zero if opplicable.) d. Assuming that Kim is 75 years old at the end of 2017 and her marginal tax rate is 33 percent, what amount of her distribution will she have remaining after taxes if she receives only a distribution of $50,000 for 2017?Explanation / Answer
Answer: $ 14800
Explanation:
The minimum distribution requirements for defined contribution plans require
employees to begin receiving distributions from the plan by the later of (1) April 1 of the year
after the year in which the employee reaches 70 ½ years of age or (2) April 1 of the year after
the year in which the employee retires. In this situation, (2) applies to Kim. The amount of the
distribution is calculated using the IRS Uniform Lifetime Table. Because Kim is 75 at the end of
2017, the table indicates that she must receive a distribution of 4.37% of her account
balance at the end of 2017. Her account balance at the end of 2017 was $2,000,000. Thus
Kim’s minimum distribution is $87,400 ($2,000,000 x 4.37%). However, her actual
distribution was only $50,000. Consequently, she must pay a 50% penalty tax on
$37,400 ($87,400 - $50,000); the amount she was required to receive and did not. So, Kim must
pay income tax of $16,500 on the $50,000 distribution she did receive ($50,000 x 33%) and an
$18,700 penalty tax on the amount she did not receive ($37,400 x 50%). In total, Kim must pay
$35,200 in taxes ($16,500 + $18,700) on a $50,000 distribution. This leaves her with $14,800
after taxes ($50,000 - $35,200). Thus, this distribution would be effectively taxed at a marginal
tax rate of 70.4% or 70% ($35,200/50,000). This is a strong incentive to receive the required
minimum distributions.
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