Study Question of the Week: February 12, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 65, and Series 66. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 65, and Series 66): 

Carlos, age 58, is in the 25 percent marginal income tax bracket. If he takes a $10,000 distribution from his IRA to pay off credit card debt, Carlos will be subject to a total payment of:

Answers:

A. $0

B. $3,250

C. $2,500

D. $3,500

Correct Answer: D. $3,500

Rationale: Carlos will have to pay ordinary income tax of 25% on his distribution, plus a 10% penalty for early withdrawal because he is under age 59 1/2. $10,000 (distribution amount) x 35% (tax + penalty) = $3,500 total payment for both tax-and-penalty. Perhaps Carlos should look at the $1,000 he will be paying in penalty and compare that to the total anticipated interest payments he will be making on his credit card over the next year and a half.

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