What is the tax consequence of withdrawing funds from a Qualified Profit-Sharing Plan at age 45?

Withdrawing funds from a Qualified Profit-Sharing Plan before reaching the age of 59½ generally triggers specific tax consequences, including both income tax and an additional penalty. When an individual withdraws money from such a plan at age 45, the amount withdrawn is considered taxable income, which means it will be subject to regular income tax.

Additionally, because this withdrawal occurs before the age threshold set by the Internal Revenue Service (IRS), a 10% early withdrawal penalty is also applicable. This penalty is designed to discourage early access to retirement funds and to ensure that the funds are used for retirement purposes.

Therefore, the correct response accurately reflects that the individual would owe both income tax on the withdrawn amount and a 10% penalty due to the premature distribution from the retirement plan.