What does Marion's nonperiodic distribution from her 401(k) plan imply?

The choice regarding Marion's nonperiodic distribution from her 401(k) plan being subject to the early distribution penalty is correct due to the tax regulations surrounding distributions from retirement plans. Generally, distributions from a 401(k) plan before the age of 59½ are considered early distributions and are typically subject to a 10% early withdrawal penalty in addition to regular income tax.

In Marion's case, since the distribution is categorized as nonperiodic, it implies that the funds were not withdrawn as part of a scheduled or systematic payout but rather as a lump sum or one-time distribution. This increases the likelihood of the distribution being treated as an early withdrawal, triggering the penalty if she is younger than 59½.

While there are exceptions, such as for individuals who are separated from service after age 55 or who qualify for certain hardship distributions, a nonperiodic distribution alone does not guarantee an exemption from the penalty unless specific conditions apply.

Understanding these rules is critical for tax planning, as an early distribution penalty can significantly affect the total taxes owed on a withdrawal from qualified plans.