Problem 11-62 (LO 11-5)Pablo and his wife Bernita are both age 58. Their combined AGI is $83,000. Neither is a participant in an employer-sponsoredretirement plan. They have been contributing to a traditional IRA for many years and have built up an IRA balance of $100,000. Theyare considering rolling the traditional IRA into a Roth IRA.Required:a. Is the couple eligible to make the conversion?b. Assume that the couple does not make the conversion but, instead, establishes a separate Roth IRA in the current year andproperly contributes $3,000 per year for four years, at which point the balance in the Roth is $21,000 (contributions plus investmentearnings). At the end of four years, they withdraw $22,000 to pay for an addition to their house. What is the amount of withdrawalthat is taxable, if any?c. Assume same facts as in requirement b, except that they instead withdrew only $6,000. What is the amount of withdrawal that istaxable?d. What if the $22,000 withdrawal is used to pay qualified education expenses for their daughter who is attending college?a. Is the couple eligible to make the conversion?b. Taxable amount of withdrawalc. Taxable amount of withdrawald. Taxable amount of withdrawalYes

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Chapter19: Deferred Compensation

Section: Chapter Questions

Problem 42P

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Question

Problem 11-62 (LO 11-5)
Pablo and his wife Bernita are both age 58. Their combined AGI is $83,000. Neither is a participant in an employer-sponsored
retirement plan. They have been contributing to a traditional IRA for many years and have built up an IRA balance of $100,000. They
are considering rolling the traditional IRA into a Roth IRA.
Required:
a. Is the couple eligible to make the conversion?
b. Assume that the couple does not make the conversion but, instead, establishes a separate Roth IRA in the current year and
properly contributes $3,000 per year for four years, at which point the balance in the Roth is $21,000 (contributions plus investment
earnings). At the end of four years, they withdraw $22,000 to pay for an addition to their house. What is the amount of withdrawal
that is taxable, if any?
c. Assume same facts as in requirement b, except that they instead withdrew only $6,000. What is the amount of withdrawal that is
taxable?
d. What if the $22,000 withdrawal is used to pay qualified education expenses for their daughter who is attending college?
a. Is the couple eligible to make the conversion?
b. Taxable amount of withdrawal
c. Taxable amount of withdrawal
d. Taxable amount of withdrawal
Yes

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Step 1: IRA Accounts: Introduction

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Step 2: Answer to Requirement A

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Step 3: Rule for Roth IRA distributions

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Step 4: Answer to Requirement B

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Step 5: Answer to Requirement C

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Step 6: Answer to Requirement D

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