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Practice CPA®CPA TCP Practice Exam 5Question 60

Medium1 markMultiple Choice

Area I: Individual Compliance and PlanningTCPIndividual TaxRetirement Planning

CPA · Question 60 · Area I: Individual Compliance and Planning

A taxpayer has $100,000 in a Traditional IRA (all pre-tax). They convert it to a Roth IRA in Year 1. The value is $100,000. The taxpayer pays the tax from outside funds. What is the impact?

Answer options:

A.

$0 Taxable Income

B.

$100,000 Ordinary Income

C.

$100,000 Capital Gain

D.

$100,000 Income + 10% Penalty

How to approach this question

Roth Conversion: Taxed as ordinary income. No 10% penalty if converted (penalty applies if withdrawn from Roth within 5 years).

Full Answer

B.$100,000 Ordinary Income✓ Correct

IRC §408A. The conversion amount is included in gross income. The 10% penalty does not apply to conversions.

Common mistakes

Applying the 10% penalty.

Question 59 All questions Question 61

Practice the full CPA TCP Practice Exam 5

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