Question

What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?

a. No consequences
b. Penalty-free withdrawal
c. Early withdrawal penalty and income tax
d. Tax-free withdrawal

Answer 1

Withdrawing funds from a traditional IRA prior to the age of 59 1/2 incurs an early withdrawal penalty and income tax.

Step-by-step explanation:

Withdrawing funds from a traditional IRA prior to the age of 59 1/2 can have consequences.

The correct answer is c. Early withdrawal penalty and income tax.

When funds are withdrawn from a traditional IRA before reaching the age of 59 1/2, the IRS imposes an early withdrawal penalty of 10% on the amount withdrawn. In addition to the penalty, the amount withdrawn is also subject to income tax.