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(and premature withdrawal penalty, if applicable) of the withdrawal if Mr. Thano has a 37% marginal tax rate on ordinary income.

Question

Quizplus · Accepted Answer

The tax cost is computed by multiplying the amount of the withdrawal by the marginal tax rate: 
$22,000 x 37% = $8,140. In addition to the tax cost, there may also be a premature withdrawal penalty of 10% imposed by the IRS on individuals who withdraw from a qualified retirement plan before age 59 1/2. However, since Mr. Thano's age is not given in the problem, we cannot determine if this penalty applies in this case. Therefore, the correct answer is only C.

Mr Thano, Age 47, Withdrew $22,000 from His Employer-Sponsored Qualified