Samantha, who is 54 years old, has been a participant in the LDR 401(k) plan for many years. She wants to take a distribution to pay for her niece to go to college, which is permitted by the plan. The plan permits pre-tax contributions and after-tax contributions. The plan has not been amended to offer a Roth account. Samantha contributed $100,000 in pre-tax salary deferrals and $50,000 in after-tax contributions. The total value of her 401(k) plan is $250,000. If she takes a distribution of $20,000, then which of the following is correct?  

 The entire distribution is ordinary income, but not subject to the early withdrawal penalty.

 $4,000 will be treated as a return of basis and she will have an early withdrawal penalty of $1,600.

 $13,333 of the distribution is treated as ordinary income and she will have a penalty of $2,000.

 $13,333 of the distribution is treated as ordinary income and she will have a penalty of $1,333.

Answer rating: 100% (QA)

It is important to note that any distribution taken from a 401k plan before the age of 595 is usuall... View the full answer