At age 55, Ellen separated from service with her former employer. She rolled over $19,000, the entire balance of her 401(k), into an IRA. Then in December of the same year, Ellen had to take $2,150 out of this new IRA in order to pay her bills.

How much of her distributions are subject to the early distribution penalty?

$2,150

Explanation:

When taking money out, it is a compulsory requirement to pay an early withdrawal or distribution penalty, before the age of 59½ years.

In the case of Ellen, she's not up to 59½ years old, she's still 55.

The age 55 exception is an exception that allows people not to pay 10% early distribution penalty for retirement plan distributions before they get to 59½ years old.

Taking IRA from an account (401(k), in this case) into another account (an IRA) by someone like Ellen who is not up to 59½ years old is not considered a distribution, so she is totally free to change financial institutions at any time without worrying about a penalty tax.

So, $2,150 of her early distribution is subjected to early distribution penalty but she won't be penalised