How does Joan's withdrawal of $10,000 from her traditional retirement account affect her tax return?

Joan's withdrawal of $10,000 from her traditional retirement account must be reported because the entire amount is generally considered taxable income for the year in which it is withdrawn. Traditional IRAs are funded with pre-tax dollars, meaning that taxes have not yet been paid on the contributions or the earnings within the account. When funds are withdrawn, they are subject to ordinary income tax.

Even if Joan is over age 59½, which typically allows penalty-free withdrawals, it does not exempt her from paying income taxes on the distribution. Similarly, the type of account from which the withdrawals are made influences tax treatment; since a traditional retirement account does not incur penalties but still incurs taxes, it clarifies why Joan must report the full $10,000.

The option regarding the ten-year election pertains specifically to inherited accounts under certain circumstances and does not apply to Joan as she is making a withdrawal from her own account. Thus, reporting the entire distribution as income aligns with tax regulations governing traditional retirement accounts.