Thomas maintains an IRA account.During the year he wins $10,000 in the state lottery and contributes it to his IRA account.Because he is an active participant in a qualified pension plan,he does not take a deduction for any part of his contribution.At the end of 2016 the total assets in the account are $30,000.Thomas is subject to a penalty on his contribution of
A)$-0-
B)$180
C)$270
D)$1,000
E)$1,800

Question

Quizplus · Accepted Answer

Thomas is subject to a penalty of 6% on excess contributions to his IRA account if he does not withdraw them by the tax-filing deadline of the following year. In this case, his contribution of $10,000 exceeds the maximum allowable amount for 2016, which is $5,500 (or $6,500 if he is over 50 years old). The excess contribution is $4,500 ($10,000 - $5,500), and 6% of that is $270. Therefore, choice C is the correct answer.

Thomas Maintains an IRA Account