SIE Exam Question 206: Answer and Explanation

Question: 206

What is the tax consequence to an individual who rolls over his 401(K) directly to a traditional IRA?

• A. The amount that is rolled over is considered income and is subject to income taxes at the individual’s rate.
• B. The amount that is rolled over is considered income and is subject to income taxes at the individual’s current rate. Plus, if the individual is under age 59 ?, he may be subject to a 10 percent penalty.
• C. If the individual is under age 59 ½, he must pay a 10 percent penalty. Otherwise, there are no tax consequences.
• D. None of the above. A direct rollover from a 401(K) to a traditional IRA is not a taxable event.

Correct Answer: D

Explanation:

The tax consequence to an individual who rolls over his 401(K) directly to a traditional IRA is nothing. A direct rollover from a 401(K) to a traditional IRA is not a taxable event.