Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2? The correct answer is “Ordinary income tax and a 10% tax penalty for early withdrawal”.

What does Did you receive any distributions from a retirement plan mean?

A qualified distribution is a tax- and penalty-free withdrawal from a qualified retirement plan such as a 401(k) or 403(b) plan. Qualified distributions come with conditions set by the IRS, so investors don’t avoid paying taxes.

Is there a 10% tax on early retirement distributions?

To discourage the use of retirement funds for purposes other than normal retirement, the law imposes an additional 10% tax on certain early distributions from certain retirement plans. The additional tax is equal to 10% of the portion of the distribution that’s includible in gross income.

Do you have to pay taxes on distributions from a retirement plan?

Distributions from a qualified retirement plan are subject to federal income tax withholding; however, if your distribution is subject to the additional 10% tax, your withholding may not be enough. You may have to make estimated tax payments.

When do you have to pay taxes on IRA distributions?

However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you’re under age 59 1/2. The additional tax is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years you participate in the SIMPLE IRA plan.

When do you pay additional tax on early distributions?

The additional tax is equal to 10% of the portion of the distribution that’s includible in gross income. Generally, early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59½.