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Shauna received a $100,000 distribution from her 401(k) account this year. Assuming Shauna's marginal tax rate is 25 percent, what is the total amount of tax and penalty Shauna will be required to pay if she receives the distribution on her 59th birthday and she has not yet retired

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abiolataiwo2015

The total amount of tax and penalty that Shauna will be required to pay if she receives the distribution on her 59th birthday is $35,000.

Shauna will pay income tax on the distribution of the amount of $25,000 including $10,000 which  is 10 percent penalty for early distribution due to the following reasons:

  • Shauna has not yet retired.
  • Shauna  is not yet  59 ½  years old as of the date of the distribution.

Now let calculate the total amount of tax and penalty she will receive:

Tax and penalty=(Distribution× Marginal tax rate)+(Distribution× Early distribution penalty rate)

Tax and penalty=($100,000×25%)+($100,000×10%)

Tax and penalty=$25,000+$10,000

Tax and penalty=$35,000

Inconclusion the total amount of tax and penalty that Shauna will be required to pay if she receives the distribution on her 59th birthday is $35,000.

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