Question

On April 30, Janet, age 42, received a distribution from her qualified plan of $150,000. She had an adjusted basis in the plan of $500,000 and the fair market value of the account as of April 30 was $625,000. Calculate the taxable amount of the distribution and any applicable penalty.

Answer 1

Answer:

The taxable amount of the distribution is $120000  and The applicable penalty is $3,000.

Explanation:

The distribution to Janet does not qualify for the exception to the 10% penalty.

Distribution return of adjusted Tax Basis

= (Adjusted Basis/FMV)*Gross Distribution

= (500000/625000)*150000

= $120000

amount subject to income tax  = $150,000 - $120,000

                                                  = $30,000

Appicable tax penalty = $30,000*10%

                                     = $3,000

Therefore, The taxable amount of the distribution is $120000  and The applicable penalty is $3,000.