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, 2017. 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 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 in part (b)?