Question

Beverly inherited a traditional ira from her father. there was $100,000 in the account when she inherited the ira. her father had made $20,000 in nondeductible contributions. what is beverly's basis in the inherited ira?

A. $0
B. $20,000
C. $80,000
D. $100,000

Answer 1

Beverly's basis in the inherited Traditional IRA is $20,000, which is the total of her father's nondeductible contributions to the account.

Step-by-step explanation:

Inherited IRA Basis

The student's question pertains to the inheritance of a Traditional IRA and the determination of the tax basis in such an account. When Beverly inherits the IRA, her basis is the sum of all nondeductible contributions that were made to the IRA by her father. In this case, Beverly's father made $20,000 in nondeductible contributions. Therefore, Beverly's basis in the inherited IRA is $20,000. The remaining balance of the IRA, which amounts to $80,000, would be the taxable portion upon withdrawal, assuming no other factors affect the taxability.

The basis in an inherited IRA is the amount of previously taxed contributions made by the original owner. In this case, Beverly's father made $20,000 in nondeductible contributions, so Beverly's basis in the inherited IRA is $20,000. Even though the total value of the IRA is $100,000, her basis is only the amount of the nondeductible contributions.