Final answer:
a. Yes, the couple is eligible to make the conversion. b. No taxable amount upon withdrawal. c. No taxable amount upon withdrawal. d. $9,400 of the withdrawal would be taxable.
Step-by-step explanation:
a. In order to convert a traditional IRA to a Roth IRA, there are certain income limits that need to be considered. For 2021, married couples filing jointly with a modified adjusted gross income (MAGI) of over $208,000 are not eligible to make a direct Roth IRA conversion. Since the couple's combined AGI is $81,000, they are eligible to make the conversion.
b. Since the Roth IRA contributions are made after-tax, the contributions themselves are not taxable upon withdrawal. However, any earnings on those contributions would be subject to tax if withdrawn before age 59 1/2 and without meeting certain exceptions. In this case, the couple contributed a total of $11,600 ($2,900 per year for 4 years), so there is no taxable amount upon withdrawal since the entire $21,000 withdrawal consists of contributions.
c. Similar to the previous scenario, there is no taxable amount upon withdrawal since the entire $6,000 withdrawal consists of contributions.
d. If the $21,000 withdrawal is used to pay for qualified education expenses for their daughter, the earnings portion of the withdrawal would be subject to tax. Since the total contributions were $11,600, the remaining $9,400 would be considered earnings and taxable.