Rachel (age 30) suffered severe termite damage to the foundation of her home. In 2022, the administrator of her Section 401 (k) plan allowed her to take a $20,000 hardship distribution to repair the damage. How is this distribution treated on her 2022 income tax return? The distribution is: Fully taxable and is subject to the 10% early distribution penalty. Fully taxable, but the early distribution penalty is waived. Not taxable and not subject to the early distribution penalty. Subject to the early distribution penalty in 2022 , but not subject to regular income tax as long as it is repaid within three years of the date of distribution