Question $2$

$2$ Points

Barry, age $43,$ recently received a terminal illness diagnosis in which his doctor certified that Barry is expected to live $60$ months or less. As a result, Barry decided to quit his job and spend his time over the next few years fulfilling his bucket list while he is still healthy enough to do so$.$ To fund this, Barry would like to take a substantial distribution from his $401($k$)$ plan at his former employer. Which of the following is true regarding the distribution, assuming all contributions to the plan were pretax?

The distribution will be subject to tax and a $10\%$ penalty since Barry is under age $\frac{591}{2}$ and does not meet a penalty exception.

The distribution will be subject to tax but will not be subject to a $10\%$ early distribution penalty.

The distribution will be subject to tax and a $10\%$ penalty on any amount in excess of $$10,000.$

The distribution will not be subject to tax or a $10\%$ early distribution penalty due to special rules for terminal illness.