FINRA Series 7 quiz
A 39 year old investor in the 24% tax bracket takes a $20,000 distribution from a traditional IRA. What is the total tax consequence?
- (a)
$2,000 capital gains taxes
- (b)
$4,800 ordinary income taxes plus $2,000 penalty
- (c)
$4,800 capital gains taxes plus $2,000 penalty
- (d)
$4,800 ordinary income taxes plus $3,000 penalty
Distributions from a traditional IRA are taxable as ordinary income (never capital gains taxation). This type of income is taxed at the investor’s marginal income tax bracket. Therefore, the investor will owe $4,800 in ordinary income taxes (24% x $20,000).
Distributions taken from retirement plans prior to age 59 1/2 are subject to an additional 10% penalty. The investor faces a $2,000 early withdrawal penalty ($20,000 x 10%).
A 39 year old investor in the 24% tax bracket takes a $20,000 distribution from a traditional IRA. What is the total tax consequence?
$2,000 capital gains taxes
$4,800 ordinary income taxes plus $2,000 penalty
$4,800 capital gains taxes plus $2,000 penalty
$4,800 ordinary income taxes plus $3,000 penalty