Question

Toni decides to take a special vacation on her 40th birthday and withdraws $4,000 from her IRA. What penalty will she be subject to on the amount withdrawn?

a) 10%
b) 15%
c) 20%
d) 25%

Answer 1

Toni will be subject to a 10% penalty on the $4,000 withdrawn from her IRA for a non-qualified expense such as a vacation, resulting in a $400 penalty.

Step-by-step explanation:

Toni will be subject to a 10% early withdrawal penalty if she takes money out of her Individual Retirement Account (IRA) before reaching the age of 59.5, unless she qualifies for an exception. The Internal Revenue Service (IRS) imposes this penalty to discourage individuals from using these funds for purposes other than retirement. So, if Toni withdraws $4,000 for her vacation, she would owe a penalty of $400 (10% of $4,000) in addition to any regular income taxes that may be due on the withdrawal.