What is the tax implication of Deborah's nonperiodic distribution before reaching age 59½?

Deborah faces an early distribution penalty for her nonperiodic distribution because she is under the age of 59½. In general, distributions taken from a qualified retirement plan before reaching this age are subject to a 10% penalty tax in addition to the regular income taxes owed on the distribution amount. This penalty applies to the early withdrawal of funds in order to discourage premature access to retirement savings, which are intended for use during retirement.

While there are certain exceptions to this penalty (such as disability or substantial medical expenses), unless Deborah qualifies for one of those exceptions, the IRS will impose the penalty on her distribution. The other options do not apply in this situation, as she is indeed under 59½, and therefore the implications of that early withdrawal are significant.

By recognizing the implications of an early distribution, Deborah can make informed decisions regarding her finances and retirement planning. Understanding the penalty can also highlight the importance of considering the timing of withdrawals from retirement accounts.