Question

Mr. Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost of the withdrawal if Mr. Thano has a 24% marginal tax rate on ordinary income. Tax Cost is_____

Answer 1

$7,480

Step-by-step explanation:

Mr Thano withdrew $22,000 at the age of 47

Marginal Tax rate= 24%

At the age of 47 means that the withdraw was made prematurely. Immature withdrawal of retirement plans means withdrawal made before the age of 60-65 years depending on the Country Policy

Hence, Tax Cost = 24% * 22,000

Tax cost = 5,280.

In addition, Mr Thano will be charge premature withdrawal cost of 10% as well

10% * 22000 = 2,200.

In total, the tax cost on the withdrawal of $22,000 is = $5,280 + $2,200 = $7,480