SIE Exam Question 132: Answer and Explanation

Question: 132

What is the tax consequence to an individual over the age of 59 ½ who withdraws a lump sum from his 401(K)?

• A. The amount withdrawn is considered income and is subject to income taxes at the individual’s rate.
• B. The amount that is withdrawn is considered income and is subject to income taxes at the individual’s current rate. Plus, he may be subject to a 10 percent penalty.
• C. He must pay a 10 percent penalty. Otherwise, there are no tax consequences.
• D. None of the above. A lump sum withdrawal from a 401(K) is not a taxable event.

Correct Answer: A

Explanation:

The tax consequence to an individual over the age of 59 ½ who withdraws a lump sum from his 401(k) is that the amount withdrawn is considered income and is subject to income taxes at the individual's current rate.