Rollover tax treatment

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Reference no: EM132281041

Rollover Tax Treatment

Kyle took early retirement in 2014, at age 54. He requested the entire $60,000 account balance in his profit sharing plan be paid out to him.

Kyle participated in the plan since 1992. Identify the tax treatment for each of the following circumstances:

1. Kyle deposits the distribution check into a regular investment account.

2. Kyle deposits the distribution check into a new rollover IRA account within the 60-day time.

3. John arranges with the plan administrator to transfer his qualified plan account directly to an IRA he has just established.

Answer :

Tax Treatment regarding he circumstances specified:

1) In case of a regular investment account, tax is to be calculated on ordinary income tax rates.

2) According to the sources, The 60-day rollover rule applies to indirect rollovers of all or a portion of the assets in a qualified retirement account, such as an IRA or 401(k). Essentially, once you take a distribution from your account, you'll owe no interest or penalties if it is redeposited into a qualified retirement account within 60 days. Therefore tax deductible.

3) How deductible your traditional IRA contributions are can depend on whether your employer offers a retirement plan. As of 2018, if you’re a single person or file as head of household with a retirement plan available through work and a modified adjusted gross income (MAGI) of $63,000 or less, your IRA contributions are fully deductible. The total amount of $60000 is deductible.

Reference no: EM132281041

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