Ryan, age 48, received an $8,000 distribution from his traditional IRA to pay for medical expenses. Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent. What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?
What will be an ideal response?
$2,240 tax; $0 penalty.
The full distribution is subject to income tax at 28 percent ($8,000 × 28% = $2,240). However, because the distribution was used to pay qualified medical expenses, it is not subject to the 10-percent early distribution penalty.
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