What is the consequence of Marion taking a nonperiodic distribution from her 401(k) plan?

What is the consequence of Marion taking a nonperiodic distribution from her 401(k) plan?

• A. It cannot be rolled over into another qualified plan.
• B. It is subject to the early distribution penalty.
• C. It is not subject to the early distribution penalty due to separation from service.
• D. It counts as a normal distribution.

Answer: (B)

Taking a nonperiodic distribution from a 401(k) plan typically triggers tax implications, particularly if the individual is under the age of 59½. In Marion's case, since she is making a nonperiodic withdrawal, this distribution is classified as an early distribution unless she meets specific criteria for an exception. Consequently, such distributions are generally subject to a 10% early withdrawal penalty in addition to any applicable income taxes. Understanding the broader context helps clarify this. Nonperiodic distributions are withdrawals that do not conform to the general rules for periodic distributions, which are often more tax-favored. Therefore, unless Marion qualifies for an exception (such as being over 59½, facing severe financial hardship, or others defined by the IRS), she would face this penalty when taking funds that were previously tax-deferred. In summary, option B correctly identifies that Marion's nonperiodic distribution is subject to the early distribution penalty, reflecting the general IRS rules surrounding such withdrawals from retirement plans.

Taking a nonperiodic distribution from a 401(k) plan typically triggers tax implications, particularly if the individual is under the age of 59½. In Marion's case, since she is making a nonperiodic withdrawal, this distribution is classified as an early distribution unless she meets specific criteria for an exception. Consequently, such distributions are generally subject to a 10% early withdrawal penalty in addition to any applicable income taxes.

Understanding the broader context helps clarify this. Nonperiodic distributions are withdrawals that do not conform to the general rules for periodic distributions, which are often more tax-favored. Therefore, unless Marion qualifies for an exception (such as being over 59½, facing severe financial hardship, or others defined by the IRS), she would face this penalty when taking funds that were previously tax-deferred.

In summary, option B correctly identifies that Marion's nonperiodic distribution is subject to the early distribution penalty, reflecting the general IRS rules surrounding such withdrawals from retirement plans.