On June 13, 2020, Melba, who is self-employed, was diagnosed with COVID-19. On July 1, she...

 

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On June 13, 2020, Melba, who is self-employed, was diagnosed with COVID-19. On July 1, she chose to withdraw $20,000 from her 401(k) plan to cover her living expenses while she was too ill to work. Which of the following correctly describes the tax treatment of this distribution? Melba will: Be subject to a 10% early distribution penalty of $2,000. Have the option of paying the income taxes on the distribution either all at once, with her 2020 return, or ratably over three years. Avoid liability for both income tax and the early distribution penalty on the distribution if she files Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. O Deduct any federal income taxes paid on the distribution as a business expense on Schedule C. On June 13, 2020, Melba, who is self-employed, was diagnosed with COVID-19. On July 1, she chose to withdraw $20,000 from her 401(k) plan to cover her living expenses while she was too ill to work. Which of the following correctly describes the tax treatment of this distribution? Melba will: Be subject to a 10% early distribution penalty of $2,000. Have the option of paying the income taxes on the distribution either all at once, with her 2020 return, or ratably over three years. Avoid liability for both income tax and the early distribution penalty on the distribution if she files Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. O Deduct any federal income taxes paid on the distribution as a business expense on Schedule C.

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Option B Have the option of paying the income taxes on the ... View the full answer