Question

Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years. The account is now worth $376,000. How much of these funds can Frank withdraw tax-free?

a. $0
b. $131,244
c. $244,756
d. $376,000
e. None of the above

Answer 1

Frank can withdraw the entire amount of $376,000 tax-free from his Roth IRA, as all contributions and earnings in a Roth IRA can be taken out tax-free, assuming the account meets the necessary conditions for a qualified distribution. Option d is correct.

Step-by-step explanation:

The question involves calculating the amount Frank can withdraw tax-free from his Roth IRA. Since Roth IRA contributions are made after-tax, the withdrawals of the contributions are tax-free. The earnings on the investments within the Roth IRA are also tax-free as long as the account meets certain conditions like being aged 59½ and having the account for over 5 years.

Frank contributed a total of $131,244 over 38 years to his Roth IRA. Therefore, Frank can withdraw his contributions of $131,244 tax-free. Additionally, due to the nature of Roth IRAs, the earnings of $244,756 ($376,000 - $131,244) are also tax-free provided the conditions are met.

In summary, Frank can withdraw the entire amount of $376,000 tax-free, assuming all conditions for a qualified distribution have been met. This corresponds to option d. $376,000.