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Pablo and his wife Bernita are both age 54. Their combined AGI is $79,000. Neither is a participant in an employer-sponsored retirement plan. They have
Pablo and his wife Bernita are both age 54. Their combined AGI is $79,000. 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.
- Is the couple eligible to make the conversion?
- Assume that the couple does not make the conversion but, instead, establishes a separate Roth IRA in the current year and properly contributes $2,800 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 $20,000 to pay for an addition to their house. What is the amount of withdrawal that is taxable, if any?
- Assume same facts as in requirement b, except that they instead withdrew only $6,000. What is the amount of withdrawal that is taxable?
- What is the taxable amount if the $20,000 withdrawal is used to pay qualified education expenses for their daughter who is attending college?
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