Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination, he received a distribution of the balance in his § 401(k) account of $20,000 ($25,000 − $5,000 Federal income tax withholding) on May 1, 2020. Samuel’s marginal tax rate is 24%. 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 part (a) except that Samuel invests the $20,000 received in a traditional IRA within 60 days of the distribution. c. Same as part (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?
Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination, he received a distribution of the balance in his § 401(k) account of $20,000 ($25,000 − $5,000 Federal income tax withholding) on May 1, 2020. Samuel’s marginal tax rate is 24%.
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 part (a) except that Samuel invests the $20,000 received in a traditional IRA within 60 days of the distribution.
c. Same as part (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?
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