How much penalty tax will Emily owe after withdrawing $8,000 from her SIMPLE plan to buy a car?

When an individual withdraws funds from a SIMPLE (Savings Incentive Match Plan for Employees) IRA before reaching the age of 59½, a penalty tax of 25% is applied to the amount withdrawn. This penalty is higher than the standard 10% early withdrawal penalty that applies to other retirement accounts like traditional IRAs or 401(k)s.

In this case, Emily is planning to withdraw $8,000 from her SIMPLE plan. To calculate the penalty tax, one must compute 25% of the $8,000 withdrawal.

25% of $8,000 is $2,000. However, the information might indicate the need to reconsider the options presented because the correct calculation doesn't align with the initial answer provided.

Ensuring the use of the SIMPLE plan specifics, if a misunderstanding of option C, which states $800, was taken instead of considering the 25% penalty which calculates correctly to $2,000.

It's crucial to remember the unique penalty rate for SIMPLE IRAs when determining the financial implications of an early withdrawal. This knowledge empowers individuals to make informed financial decisions and understand the consequences of accessing retirement funds prematurely.