Part 1 Retirement Income and Social Security question: distribution subject

Part 1Retirement Income and Social Security

Ron, 56, left his employer in 2025 and took $40,000 directly from his 401(k). He did not roll it over. Is the distribution subject to the 10% additional tax?

A Yes, because he is under age 59½ when the money is paid out
B Yes, unless he rolls it into an IRA first and then withdraws it
C No, but only if the money is used for medical bills
D No, because he separated from service in or after the year he turned 55

Show the answer and explanation

Answer: D. No, because he separated from service in or after the year he turned 55

Distributions from a qualified employer plan to an employee who separates from service in or after the year he reaches age 55 are excepted from the 10% additional tax. The exception does not apply to IRAs, so rolling the money into an IRA and then withdrawing it before 59½ would make the 10% tax apply. The $40,000 is still taxable income. Source: IRC 72(t)(2)(A)(v); Pub. 575 (2025), Separation from service. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Applying the age-55 separation exception to IRA distributions.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.