Heidi, age 45, has contributed $20,000 in total to her Roth 401(k)account over a six-year period. When her account was worth $50,000 and Heidi was in desperate need of cash, Heidi received a $30,000 nonqualified distribution from the account (not a coronavirus-related distribution). How much of the distribution will be subject to income tax and 10 percent penalty?
A)$0.
B)$10,000.
C)$12,000.
D)$18,000.
E)$30,000.

Question

Quizplus · Accepted Answer

Since Heidi is over age 59 ½, she will not owe the 10% early withdrawal penalty. However, only the portion of the distribution attributable to earnings will be subject to income tax. If we assume that Heidi made no after-tax contributions to her Roth 401(k), then $30,000 - $20,000 = $10,000 of the distribution represents earnings. Therefore, $10,000 will be subject to income tax.

Heidi, Age 45, Has Contributed $20,000 in Total to Her