Insurance Licensing Maryland Life Producer Exam - Topic 1 Question 9 Discussion

General rule for early IRA distributions.

Distributions taken before age 59 are considered early withdrawals.

Tax consequences.

Early distributions are generally subject to:

Ordinary income tax, and

An additional 10% federal penalty tax, unless an exception applies.

Why capital gains tax does not apply.

IRA distributions are taxed as ordinary income, not capital gains.

Evaluate each option.

A . Income tax only

Incorrect. Penalty usually applies.

B . Penalty tax only

Incorrect. Income tax still applies.

C . Income tax and penalty tax

Correct.

D . Capital gains tax

Incorrect.

Maryland tax treatment.

Maryland generally follows federal tax rules and also taxes the income portion.

Conclusion.

Early IRA withdrawals are generally subject to income tax and a penalty tax.