Kathleen, age 56, works for MH, Inc., in Dallas, Texas. Kathleen contributes to
ID: 2512007 • Letter: K
Question
Kathleen, age 56, works for MH, Inc., in Dallas, Texas. Kathleen contributes to a Roth 401(k) and MH contributes to a traditional 401(k) on her behalf. Kathleen has contributed $30,000 to her Roth 401(k) over the past six years. The current balance in her Roth 401(k) account is $50,000 and the balance in her traditional 401(k) is $40,000. Kathleen needs cash because she is taking a month of vacation to travel the world. Answer the following questions relating to distributions from Kathleen’s retirement accounts assuming her marginal tax rate for ordinary income is 28 percent.
If Kathleen retires from MH and then she receives a $10,000 distribution from her Roth 401(k), how much will she be able to keep after paying taxes and penalties, if any, on the distribution?
Net Distribution:
Explanation / Answer
Compute net distribution as follows:
Note: the taxpayer is not liable to pay penalty on the above distribution as she is 56 years of age (should be at least 55 years of age) when retired.
Particulars Amount Nondeductible contributions (a) $30,000 Balance in the 401(K) account (b) $50,000 Non-taxable distribution percentage (a) ÷ (b) 60.00% Non-qualified distribution $10,000 Amount of non-taxable distribution ($10,000 × 60%) $6,000 Taxable portion of distribution $4,000 × Marginal tax rate 28% Income tax on distribution $1,120 Net distribution ($10,000 ? $1,120) $8,880Related Questions
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