Question

Tim has worked for one employer his entire career. while he was working, he participated in the employer's defined contribution plan (traditional 401(k)]. at the end of 2021, tim retires. the balance in his defined contribution plan is $2,000,000 at the end of 2020. a) what is tim's required minimum distribution for 2021 that must be distributed in 2022 if he is 68 years old at the end of 2021? b) what is tim's required minimum required for 2021 if he turns 72 during 2021? when must he receive this distribution? c) what is tim's required minimum distribution for 2021 that must be distributed in 2022 if he turns 75 years old in 2021? d) assuming that tim is 76 years old at the end of 2021 and his marginal tax rate is 32 percent, what amount of his distribution will he have remaining after taxes if he receives only a distribution of $50,000 for 2021? e) complete form 5329, page 2, to report the minimum distribution penalty in part (d). use the most recent form available.

Answer 1

The required minimum distribution for Tim's traditional 401(k) can be calculated based on his age and the IRS tables. At age 68, his required minimum distribution for 2021 that must be distributed in 2022 is $96,153.85. If he turns 72 or 75 during 2021, the required minimum distribution would be $78,125 and $87,237.92, respectively. If he is 76 years old with a marginal tax rate of 32% and receives a distribution of $50,000 for 2021, he will have $34,000 remaining after taxes.

Step-by-step explanation:

1. a) Tim's required minimum distribution for 2021 that must be distributed in 2022 can be calculated using the IRS Uniform Lifetime Table. At age 68, the distribution period for Tim is 20.8 years. To calculate the required minimum distribution, divide the account balance by the distribution period: $2,000,000 / 20.8 = $96,153.85.
2. b) When Tim turns 72, the distribution period becomes 25.6 years. Using the same formula, his required minimum distribution for 2021 would be $2,000,000 / 25.6 = $78,125.
3. c) If Tim turns 75 in 2021, the distribution period becomes 22.9 years. His required minimum distribution for 2021 would be $2,000,000 / 22.9 = $87,237.92.
4. d) As Tim is 76 years old at the end of 2021, he must calculate his required minimum distribution using his age and the IRS Single Life Expectancy Table. Assuming his marginal tax rate is 32%, he will have a remaining distribution after taxes of $50,000 * (1 - 0.32) = $34,000.