Heidi retired from GE (her employer) at age 56. At the end of the year, when she was 56 years of age, Heidi received a distribution from her GE sponsored 401(k) account. Because Heidi was not at least 59½ years of age at the time of the distribution, she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution.

Question

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The penalty is assessed on employees who receive distributions before they reach 59½ years of age or 55 years of age if they haven't separated from service (let go or retired).

Heidi Retired from GE (Her Employer) at Age 56