Question

Darlene, age 35, broke her leg in a skiing accident and was not able to work. she took a distribution of $35,000 from her 401(k) plan to pay her bills while she was out of work. she paid no medical expenses out of pocket. will she be subject to penalty for early withdrawal?

Answer 1

Darlene's $35,000 distribution from her 401(k) for expenses while unable to work after an accident will likely be subject to a 10% early withdrawal penalty as she paid no medical expenses out of pocket.

Step-by-step explanation:

• Darlene, age 35, took a distribution of $35,000 from her 401(k) plan to cover her bills while she couldn't work due to a skiing accident. Typically, 401(k) withdrawals before age 59½ are subject to an additional 10% early withdrawal penalty unless exceptions apply.
• However, one of the exceptions includes distributions for unpaid medical expenses that exceed a certain percentage of adjusted gross income. It's important to note that the distribution will still be subject to regular income taxation.
• Since Darlene did not pay any medical expenses out of pocket, she would not qualify for this specific exception. Therefore, unless she qualifies for another exception, she will be subject to the early withdrawal penalty.