$*****$

Scenario $3$:

Statement: Michelle retired at age $53$ and took a $$40,000$ distribution from her Traditional IRA.

Wages: $$18,000($part$-$time work$)$

Interest and Dividend Income: $$1,000$

Itemized Deductions: $$12,500$

Allowable deduction for self$-$employment tax: None

Calculate:

The portion of the distribution subject to the $10\%$ early withdrawal penalty.

AGI, Taxable Income, and Total Tax Liability $($including the penalty$)$