Society For Human Resource Management (SHRM) Certified Professional Practice Exam

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What consequence will Tim face for making an early withdrawal from his IRA?

The money he withdraws will be taxed
He will experience a 10% penalty
He will receive a 15% penalty
He will be penalized based on whether he is over or under 59.5 years of age

The correct answer is: He will be penalized based on whether he is over or under 59.5 years of age

The correct answer indicates that the consequence of making an early withdrawal from an IRA is influenced by Tim's age in relation to the 59.5 years threshold established by the IRS. Generally, if an individual withdraws money from an IRA before reaching 59.5 years old, they face both income tax on the withdrawal and an additional penalty for early distribution. For individuals over 59.5 years, early withdrawals do not incur the same penalties. This means that the penalty is indeed dependent on age, which affects whether Tim will incur the 10% early withdrawal penalty and which may also affect the tax implications of his withdrawal. Therefore, understanding this age-related factor is crucial for assessing the specific implications of the withdrawal Tim is considering.