George (age 42 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and his IRA is now worth $25,000. He is planning on transferring (or rolling over) the entire balance into a Roth IRA account. George’s marginal tax rate is 24 percent.
a. What are the tax consequences to George if he takes $25,000 out of the traditional IRA and puts the entire amount into a Roth IRA?
b. What are the tax consequences to George if he takes $25,000 out of the traditional IRA, pays the taxes due from the IRA distribution, and contributes the remaining distribution to the Roth IRA?
c. What are the tax consequences to George if he takes $25,000 out of the traditional IRA, keeps $10,000 to pay taxes and to make a down payment on a new car, and contributes the remaining distribution to the Roth IRA?