Volunteer Income Tax Assistance (VITA) Certification Practice Test

To determine the additional tax on distributions from a 401(k), it is important to recognize that distributions taken before the age of 59½ typically incur an additional 10% early withdrawal penalty on top of regular income tax. If the distribution from Teresa's 401(k) was, for example, $1,300 and assumed to be taxable income, the calculation for the additional tax due to early withdrawal would be 10% of that amount. Therefore, calculating 10% of $1,300 results in an additional tax of $130. This approach aligns with IRS guidelines regarding early distributions from retirement accounts, and thus the amount of additional tax on Teresa's distribution is correctly identified as $130. Understanding this rule is crucial for accurately reporting tax liabilities on early withdrawals from retirement accounts.