Question

Seven years ago, Halle (currently age 41) contributed $4,000 to a Roth IRA account. The current value of the Roth IRA is $9,000. In the current year Halle withdraws $8,000 of the account balance to use as a down payment on her first home. Assuming Halle's marginal tax rate is 24 percent, how much of the $8,000 withdrawal will she retain after taxes to fund the down payment on her house

Answer 1

$7,040 is the amount to be retained after taxes to fund the house down payment

Step-by-step explanation:

In this question, we are asked to calculate the amount of withdrawal that will be retained after taxes to fund the house payment.

We proceed as follows;

Withdrawal amount = $8000

The Non taxable amount is $4000 (this is because the amount deposited is not taxed)

The amount subject to tax is $4000(contributed to the IRA)

Tax rate = 24%

Penalty rate is zero as the purpose is to buy a house

After tax withdrawal retained= 4000+ 4000*(1-24%) = $7,040