Jacque Solis (age 38)is leaving her current job and would like to take a long vacation before starting new employment.She has $58,000 in a qualified plan that she would like to live on during this period.If she is in a 25 percent marginal tax bracket,how much will she have left after paying taxes and penalties?

Question

Quizplus · Accepted Answer

Since Jacque is under 59 1/2 years old and withdrawing from a qualified plan, she will need to pay a 10% early withdrawal penalty in addition to income tax on the distribution. Therefore, her total tax rate will be 35% (25% income tax + 10% penalty).  So, she would have to pay $20,300 ($58,000 x 0.35) in taxes and penalties, leaving her with $37,700 ($58,000 - $20,300) for her long vacation.

Jacque Solis (Age 38)is Leaving Her Current Job and Would