Hi there,
Thank you for the response. It was very insightful and I understood what you said.
After looking at your example, I am left with a small question about the earnings. I may be misunderstanding, but it seems like the basis is not taxable which is why earnings are calculated. If that is correct, $2150 would be calculated as earnings and put into box 2. Box 3 would be distribution - earnings (box 1 - box 2), I believe. Please correct me if I’m wrong.
So, I am left with a question regarding earnings — is the 10% penalty applied to the $2150 of earnings? If not, does that mean that the $2150 is what is penalized and taken away from the distribution of $5000?
Thank you,
taug
