Pablo and his wife Bernita are both age 60. Their combined AGI is$100,000. Neither...

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Accounting

Pablo and his wife Bernita are both age 60. Their combined AGI is$100,000. Neither is a participant in an employer-sponsoredretirement plan. They have been contributing to a traditional IRAfor many years and have built up an IRA balance of $120,000. Theyare considering rolling the traditional IRA into a Roth IRA.

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 $2,500 per year for four years, at which pointthe balance in the Roth is $21,000 (contributions plus investmentearnings). At the end of four years, they withdraw $17,000 to payfor 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 theyinstead withdrew only $6,000. What is the amount of withdrawal thatis taxable?
D. What is the taxable amount of the $17,000 withdrawal isused to pay qualified education expenses for their daughter who isattending college?

Answer & Explanation Solved by verified expert

4.3 Ratings (778 Votes)

Yes Taxpayers can roll a traditional IRA to a Roth IRA at any time The amount rolled will be included in their gross income in the year converted In 2010 there is no AGI limitation See Answer

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In: AccountingPablo and his wife Bernita are both age 60. Their combined AGI is$100,000. Neither is...Pablo and his wife Bernita are both age 60. Their combined AGI is$100,000. Neither is a participant in an employer-sponsoredretirement plan. They have been contributing to a traditional IRAfor many years and have built up an IRA balance of $120,000. Theyare considering rolling the traditional IRA into a Roth IRA.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 $2,500 per year for four years, at which pointthe balance in the Roth is $21,000 (contributions plus investmentearnings). At the end of four years, they withdraw $17,000 to payfor 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 theyinstead withdrew only $6,000. What is the amount of withdrawal thatis taxable?D. What is the taxable amount of the $17,000 withdrawal isused to pay qualified education expenses for their daughter who isattending college?