Gerry is 70½ on April 1 of the current year and must receive a minimum distribution from his qualified plan. The account balance had a value of $423,598 at the end of last year. The distribution period for a 70 year old is 27.4, and for a 71 year old it is 26.5. If Gerry takes a $15,000 distribution next April 1st, what is the amount of the minimum distribution tax penalty associated with his first year's distribution?
A) $0.
B) $230.
C) $492.
D) $985.
C) $492.
The required minimum distribution for Gerry is $15,985 ($423,598 divided by 26.5) because he is 71 years old as of December 31 of the current year. Gerry only took a distribution of $15,000, therefore, the minimum distribution penalty (50%) would apply to the $985 balance. Therefore, the minimum distribution penalty is $492 (50% of the $985).
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What will be an ideal response?
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