Which of the following is generally assessed when a participant receives retirement savings from an...

General rule for early IRA distributions.

Distributions taken before age 59½ are considered early withdrawals.

Tax consequences.

Early distributions are generally subject to:

Ordinary income tax, and

An additional 10% federal penalty tax, unless an exception applies.

Why capital gains tax does not apply.

IRA distributions are taxed as ordinary income, not capital gains.

Evaluate each option.

A. Income tax only

Incorrect. Penalty usually applies.

B. Penalty tax only

Incorrect. Income tax still applies.

C. Income tax and penalty tax

Correct.

D. Capital gains tax

Incorrect.

Maryland tax treatment.

Maryland generally follows federal tax rules and also taxes the income portion.

Conclusion.

Early IRA withdrawals are generally subject to income tax and a penalty tax.