Series 7 practice questionmediumRetirement Plans 380
Taking a distribution from a retirement account before age 59½ usually results in:
- Acapital gains treatment only
- Bordinary income tax and potentially a 10% penalty unless an exception applies✓ Correct answer
- Cno tax if reinvested in common stock
- Dautomatic AMT exemption
Explanation
Why B — ordinary income tax and potentially a 10% penalty unless an exception applies
Early retirement distributions are generally taxable as ordinary income and may be subject to a 10% additional tax. Various exceptions exist, but the default rule is tax plus penalty.
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