10 Nov Pablo and his wife Bernita are both age 45. Pablo
Pablo and his wife Bernita are both age 45. Pablo works full-time, and Bernita works part-time. Their AGI is $90,000. 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 $120,000. They are considering rolling the traditional IRA into a Roth IRA. a. Is the couple eligible to make the conversion? Why or why not? b. Assume that the couple does not make the conversion but, instead, establishes a separate Roth IRA in the current year and properly contributes $2,000 per year for four years at which point the balance in the Roth is $21,000. At the end of four years, they withdraw $12,000 to pay for an addition to their house. What is the tax effect, if anything, of the withdrawal? c. Does your answer to (b) change if they instead withdraw only $6,000? Why or why not? d. What if the $12,000 withdrawal is used to pay qualified education expenses for their daughter who is attending college? View Solution: Pablo and his wife Bernita are both age 45 Pablo
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