Question 48)Franklin Thomas, age 51, is not married. He files head of household.

Question

Question 48)Franklin Thomas, age 51, is not married. He files head of household. His daughter, Finesse, age 19, attends State University and is in her second year. In 2014, Franklin withdrew $5,000 from his Roth IRA to pay for some of his daughter's qualified education expenses. Franklin established the Roth IRA in 2010 with $10,000. What is the tax consequence for taking this distribution?

A)$0 included in gross income; $0 penalty.

B)$0 included in gross income; $500 penalty.

C)$5,000 included in gross income; $500 penalty.

D)$5,000 included in gross income; $500 penalty excepted on Form 5329 with code 08

Explanation / Answer

If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties. You may be able to avoid penalties (but not taxes) in the following situations:

In the question, the account is less than 5 years old and also the age of Franklin thomas is less than 59½. Hence, the distribution is penalty free. But the amount shall be added to the gross income. The exception from penalty has to be claimed by filing form 5329.

Hence, answer is D) $5,000 included in gross income; $500 penalty excepted on Form 5329 with code 08

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