Customer AccountsQuestion 79 of 110
A 44-year-old takes $15,000 from a Traditional IRA to remodel a kitchen. The federal tax consequence is:
a.No tax and no penalty, because IRA owners may withdraw principal at any time
b.Tax only, because home improvements are a qualified expense
c.Ordinary income tax on the taxable amount plus a 10% early distribution penalty
d.A 10% penalty only, with no income tax until age 59 1/2
Explanation
Distributions before age 59 1/2 are included in ordinary income and carry an additional 10% penalty unless an exception applies, and home remodeling is not an exception. The narrow exceptions include death, disability, qualified higher education expenses, up to $10,000 for a first-time home purchase, substantially equal periodic payments, and certain medical costs. Tax and penalty apply together, not one or the other.
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