Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your client, Charley Long, age 40, has requested your advice with respect to his IRA. He has a traditional IRA with a balance of $250,000

Your client, Charley Long, age 40, has requested your advice with respect to his IRA. He has a traditional IRA with a balance of $250,000 and his current AGI is $150,000. He expects his income to increase slightly when he retires at age 65. Charley has been reading about Roth IRAs and wants your advice as to whether he should rollover the $250,000 from his traditional IRA into a Roth IRA. He has sufficient outside money to pay any taxes due on the rollover. What advice would you give Charley?

A.

If Charley rolls his traditional IRA into a Roth IRA, he must include the rollover in his gross income and pay income taxes on such amount, but when Charley withdraws amounts from his Roth IRA at retirement, no further taxes will be due. Since Charley's marginal tax rate at retirement will be no higher than his present rate and he has funds outside of his IRA to pay the tax, he should be advised to roll over his traditional IRA into a Roth IRA and pay the tax now. The principal economic benefit is that the rollover funds in the Roth IRA are able to grow tax-free and be ultimately withdrawn tax-free.

B.

If Charley rolls his traditional IRA into a Roth IRA, he must include the rollover in his gross income and pay income taxes on such amount, and when Charley withdraws amounts from his Roth IRA at retirement, more taxes will be due. Thus, he should not be advised to rollover his traditional IRA into a Roth IRA.

C.

If Charley rolls his traditional IRA into a Roth IRA, he must include the rollover in his gross income and pay income taxes on such amount. Since his tax rate is much higher now than it will be at retirement, he should not be advised to roll over his traditional IRA into a Roth IRA.

D.

Since there are no tax implications when rolling a traditional IRA into a Roth IRA, Charley should be advised to roll over his traditional IRA into a Roth IRA. The principal economic benefit is that the rollover funds in the Roth IRA are able to grow tax-free and be ultimately withdrawn tax-free.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Industrial Organizational Psychology An Applied Approach

Authors: Michael Aamodt

7th Edition

1111839972, 9781111839970

More Books

Students also viewed these Accounting questions

Question

Simplify each of the following. (x 5 ) 6 /x 9

Answered: 1 week ago

Question

What is the competition?

Answered: 1 week ago

Question

What is the relative priority among the viable goals?

Answered: 1 week ago