LO.6 Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination,
Question:
LO.6 Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination, he receives a distribution of the balance in his § 401(k) account of $20,000
($25,000 − $5,000 withholding) on May 1, 2012. Samuel’s marginal tax rate is 28%.
a. What effect will the distribution have on Samuel’s gross income and tax liability if he invests the $20,000 received in a mutual fund?
b. Same as
(a) except that Samuel invests the $20,000 received in a traditional IRA within 60 days of the distribution.
c. Same as
(a) except that Samuel invests the $20,000 received in a Roth IRA within 60 days of the distribution.
d. How could Samuel have received better tax consequences in (b)?
Step by Step Answer:
South Western Federal Taxation 2013 Individual Income Taxes
ISBN: 9781133189558
36th Edition
Authors: William Hoffman, James E. Smith