Roth IRA. Chatham Mae is single, age 35, and wants to make a
contribution to an IRA for the year ended December 31, 2019. She is an active
participant in a qualified retire – ment plan sponsored by her employer. Her
AGI for 2019 is $128,000 before considering any IRA contribution.
a. What type of IRA, if any, is Chatham Mae eligible to make
a contribution to for 2019? If she is eligible to contribute to an IRA, what is
the maximum amount that she can contribute to the IRA?
b. Assume Chatham Mae contributes a total of $12,000 over
six years to a Roth IRA. In 2025, she withdraws $15,000 to pay off her car
loan. Her financial advisor suggested she withdraw the money from the IRA for
two major reasons: (1) to eliminate her debt and (2) no tax would be due on
distributions from a Roth IRA after five years. Chatham Mae wants to verify the
accuracy of her advisor’s advice. What would be the tax consequences of this
withdrawal? Alternatively, what if Chatham Mae withdrew the $15,000 to purchase
a house (she is a first-time homebu yer)?
c. Alternatively to Part b above, assume Chatham Mae has a
traditional deductible IRA that has a balance of $50,000. She has been able to
deduct all of her contributions to the IRA in prior years. Her financial
advisor has recommended that she rollover the funds from her traditional IRA to
a Roth IRA in 2019. What are the tax consequences of this rollover in 2019?
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