Salvador (age 45) withdraws $50,000 from his tax-sheltered retirement plan to invest in a new business.Assuming Salvador is in the 28 percent marginal tax bracket and the contributions to the plan have not been taxed previously,how much will he pay in taxes and penalties?

Question

Quizplus · Accepted Answer

Salvador will pay income taxes on the withdrawal at his marginal tax rate of 28%, which amounts to $14,000 (28% of $50,000). Additionally, since he is under the age of 59½, he will also incur a 10% early withdrawal penalty on the $50,000, which is $5,000. Therefore, the total amount paid in taxes and penalties is $19,000.

Salvador (Age 45) Withdraws $50,000 from His Tax-Sheltered Retirement Plan