Ace the Senior Tax Specialist Exam 2025 – Conquer the Code and Master Your Tax Mojo!

In this scenario, determining how much of Ellen's distribution from her IRA is subject to the early distribution penalty hinges on understanding the rules regarding early distributions from retirement accounts.

Typically, an IRA distribution is subject to a 10% early withdrawal penalty if the account holder is under the age of 59½ unless an exception applies. If Ellen is younger than this age, any distribution would generally fall under this penalty.

For the answer of $2,150 to be correct, it suggests that this amount was taken as a distribution from her IRA while she was under the age threshold, and it does not qualify for any exceptions. Hence, this amount represents the portion of the distribution that is fully subject to the early withdrawal penalty.

If Ellen were over the age limit or if her distribution qualified for certain exceptions (such as a first-time home purchase, education expenses, or disability), a portion or all of the distribution might not be subject to the penalty, leading to lower figures indicating a $0 penalty or a lower penalty amount. However, since the correct answer indicates a specific amount, it infers that Ellen does not meet any of the exceptions, resulting in this penalty being applicable to the amount of $2,150.