Penalty on early withdrawal of savings

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Penalty on early withdrawal of savings

On February 1, 2016, Ricardo and Marie deposited $10,000 into a one-year CD earning 2% interest at State Bank and Trust. If the couple withdrew their money prior to the end of the term, they would forfeit one month’s interest as a penalty. On October 1, 2016, they withdrew their money. Ricardo and Marie would report $133 interest income.

i. Do they have to pay a penalty on early withdrawal? If so,

ii. How much penalty they will adjust from their gross income?

Reference no: EM131457695

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