Tyson (48 Years Old) Owns a Traditional IRA with a Current

Multiple Choice

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Tyson's marginal tax rate is 25%. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA. He retains $12,500 to pay tax on the distribution and he contributes $37,500 to a Roth IRA. What amount of income tax and penalty must Tyson pay on this series of transactions?

A) $0 income tax; $0 penalty.
B) $12,500 income tax; $1,250 penalty.
C) $12,500 income tax; $3,000 penalty.
D) $12,500 income tax; $5,000 penalty.