Cheryl took early retirement at age 55 last year and received a $10,000 taxable distribution from her HSA during the year. What, if any, tax penalty will be imposed on her HSA distribution if no exception to the penalty applies?

The tax penalty that will be imposed on her HSA distribution will be $2000.

From the information given, the retirement age is 55 and the taxable distribution from HSA received is $10,000.

Since the tax penalty on HSA distribution is 20%, the tax penalty will be:

= $10,000 × 20%

= $2,000

In conclusion, the correct option will be $2000.

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Cheryl's tax penalty on her HSA distribution is:

$2,000.

Explanation:

a) Data and Calculations:

Retirement age = 55

Taxable distribution from HSA received = $10,000

Tax penalty on HSA distribution = 20%

= $10,000 * 20% = $2,000

b) A tax penalty on HSA distribution of 20% is imposed if the distribution is not a qualified medical expense.  This penalty applies since Cheryl is under 65 years of age.  Note that if Cheryl's withdrawals are for qualified medical expenses, they are tax-free.

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