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Marshall suffered economic loss due to a qualified disaster. He took a distribution from his 401(k) and received the funds on January 5, 2020. Which statement is TRUE?
a) Marshall may not deposit any portion of the funds to his IRA, because hardship distributions are not eligible for rollover
b) Marshall will pay a 10% early distribution penalty on any portion of the funds that are subject to tax
c) The distribution will be taxed over a three-year period, unless Marshall chooses to include the full amount on his 2020
d) Marshall may recontribute any portion of the distribution into the original 401(k) before January 5, 2024 return
e) Mark for follow up

Sagot :

Anthougoidn

Answer:

The true statement is:

b) Marshall will pay a 10% early distribution penalty on any portion of the funds that are subject to tax.

Explanation:

Early withdrawal from the IRA funds is not allowed.  When it is allowed because of the economic loss Marshall suffered due to a qualified disaster, the 401(k) will be allowed a hardship withdrawal, which is a taxable event.   He will also incur a mandatory withholding tax on the withdrawn amount that may be up to 20%, depending on his adjusted gross income for the year.  Assuming that Marshall is under 55 years, he would incur 10% penalty.

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