Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were above the 7.5% of AGI threshold and claimed as itemized deductions on his tax return), he received a $20,000 non coronavirus-related distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15 percent, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Question

Quizplus · Accepted Answer

Bryan will owe income tax on the $20,000 distribution at his marginal rate of 15%, which equals $3,000. However, he will not owe the 10% early distribution penalty because he meets one of the exceptions for penalty-free IRA withdrawals, which is using the funds to pay for unreimbursed medical expenses that exceed the 7.5% of AGI threshold. Therefore, the total amount of taxes and penalty Bryan will owe is $3,000 in income tax and $0 in early distribution penalty.

Bryan, Who Is 45 Years Old, Had Some Surprise Medical