Over the past three years, Sherry has contributed a total of $14,400 to a Roth I

Question

Over the past three years, Sherry has contributed a total of $14,400 to a Roth IRA account ($4,800 a year). The current value of the Roth IRA is $20,900. In the current year, Sherry withdraws $18,600 of the account balance to purchase a car. Assuming Sherry is in a 25 percent marginal tax bracket, how much of the $18,600 withdrawal will she retain after taxes to fund her car purchase?

Over the past three years, Sherry has contributed a total of $14,400 to a Roth IRA account ($4,800 a year). The current value of the Roth IRA is $20,900. In the current year, Sherry withdraws $18,600 of the account balance to purchase a car. Assuming Sherry is in a 25 percent marginal tax bracket, how much of the $18,600 withdrawal will she retain after taxes to fund her car purchase?

Amount of withdrawl Non-taxable contributions Amount subject to tax Tax rate % Penalty rate % Tax Penalty After tax withdrawl retained Over the past three years, Sherry has contributed a total of $14,400 to a Roth IRA account ($4,800 a year). The current value of the Roth IRA is $20,900. In the current year, Sherry withdraws $18,600 of the account balance to purchase a car. Assuming Sher

Explanation / Answer

Because Sherry has made a withdrawal from her Roth IRA within five years of opening it, she has received a nonqualified distribution. Nonqualified distributions are non taxable to the extent they are attributable to contributions; the earnings made on such contributions are taxed as ordinary income and subject to a 10% penalty. In this instance, Sherry has withdrawn $2,000 of earnings (14,000 withdrawal

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