Answer:
$466 is taxable and subject to penalty
Explanation:
The question is to determine the part of Leo's withdrawal that is taxable and then subject to penalty
Step 1:
What is Leo's contribution in 2015 = $3,000
What is his contribution in 2016 = $2,000
His total contribution = $3,000 + $2,000= $5,000
Step 2: We know that in 2018, Leo withdrew his entire balance which is = $5,466
This means, the excess on his contribution is interest
Leo's interest =$5,466 - $5,000= $466
Step 3:
The interest of $466, therefore, represents the interest on the $5,000 contributed and as such, since he withdrew the whole amount, the interest or the gain of $466 is taxable and the same $466 is subject to penalty
