Final answer:
Jennifer is liable for a penalty tax of $5,000 for not taking the full required minimum distribution of $30,000 from her traditional IRA, instead taking only $20,000, resulting in a $10,000 shortfall which incurs a 50% penalty. The correct option is d. $5,000
Step-by-step explanation:
Jennifer is confronted with a common issue related to Individual Retirement Accounts (IRAs). The Internal Revenue Service (IRS) requires that individuals of a certain age take a minimum distribution from their traditional IRAs, commonly known as the Required Minimum Distribution (RMD). Failing to take the RMD can result in a substantial penalty tax.
In Jennifer's case, she is required to take a $30,000 minimum distribution but has only taken $20,000. According to the IRS, the penalty for not taking the full RMD is 50% of the amount not distributed.
Therefore, since Jennifer has a shortfall of $10,000 ($30,000 - $20,000), her penalty tax would be 50% of $10,000, which amounts to $5,000.
It's essential for Jennifer to be aware that she should take the full required distribution in order to avoid such penalties.
The IRS imposes this rule to ensure that the tax benefits of these retirement accounts do not extend indefinitely and that the deferred taxes are eventually collected. The correct option is d. $5,000