401 K FAQ’s

Since money was withheld from my 401(k) distribution, do I have to include that money as income and do I pay the 10% early withdrawal fee as well?
Yes, you need to include in income the total amount of your 401(k) distribution. In addition, if you took the distribution before reaching age 59 1/2, you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans unless you meet the exceptions in Publication 590 (PDF) , Individual Retirement Arrangements (IRAs).References:

 

Can I withdraw funds penalty free from my 401(k) plan to purchase my first home?If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan topurchase your first home without being subject to a 10 percentadditional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k), youmay be able to borrow money from your 401(k) topurchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) as well as other plan rules.References:

 

I changed jobs and my old employer sent me a check for my 401(k) money withholding 20% for Federal Income Tax. I rolled over the distribution to my 401(k) plan at my current employer within 60 days. Since money was withheld from the 401(k) distribution, do I have to include that money as income?If the amount rolled over was the net amount, that is, the amount of the distribution less the tax withheld, then the 20% withholding amount not rolled over is included in gross income and subject to a 10 percent additional tax on early distributions from qualified retirement plans. Use Form 5329 (PDF), Additional Taxes on Other Qualified Plans (including IRA’s), and other tax-favored accounts, to report the penalty.If the amount rolled over was the gross amount, that is, you added an amount equal to the withholding to the amount thatwas rolled over, you would not add any of that amount to gross income this year or owe a 10 percentadditional tax on early distributions from qualified retirement plans.References:

  • Publication 590 (PDF), Individual Retirement Arrangements (IRAs)
  • Form 5329 (PDF), Additional Taxes on Other Qualified Plan (including IRA’s), and other tax-favored accounts
  • Instructions for Form 5329, Additional Taxes on Other Qualified Plan (including IRA’s), and other tax-favored accounts
  • Tax Topic 558, Tax on early distributions from retirement plans
  • Tax Topic 412, Lump-sum distributions

 

If I retire or am laid off before I am 59 1/2, can I withdraw the funds accumulated in a qualified employee profit sharing plan, 401(k), without having to pay a 10% penalty?Email us for a health insurance quote or proposalIn most cases, if you withdraw funds from your 401(k) before you are 59 1/2, you must pay the 10 percent additional tax on early distributions from qualified retirement plans on any amounts that are not rolled into an IRA. However, there are some exceptions listed in Publication 560 (PDF), Retirement Plans for Small Business and Publication 575 (PDF), Pension and Annuity Income.References:

 

Can the 10% penalty for an early withdrawal from a retirement plan be deducted in the Adjusted Gross Income section of Form 1040 as a penalty on early withdrawal of savings?No, the 10 percentadditional tax on early distributions from qualified retirement plans you pay for a premature withdrawal does not qualify as a penalty for withdrawal of a savings account.References:

 

After I was terminated by my employer I received a lump sum distribution from the Pension Plan. The entire distribution was identified on Form 1099-R as taxable and 20% tax was withheld. I’ve been told I need to pay an additional 10% tax. Why am I being taxed twice if 100% of the distribution was taxable to begin with?If you takea distribution from certain pension plans before you have reached 55 years of age, youmay be subject to anadditional 10 percent tax on early distribution. This 10 percent is in addition to the income tax you pay on the distribution. The total income tax you owe on yourindividual income tax returnis reduced by any withholding or estimated tax payments, including the 20% withholding identified on your Form 1099-R.References:

 

I withdrew money from my 401(k) plan. What tax forms will I need to fill out?You will need to file a Form 1040 and show the amount of distribution from your 401(k) plan on lines 16a and/or 16b. If you took a distribution prior to reaching age 59 1/2, you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans that is reported on line 58 of Form 1040 unless you qualify for one of the exceptions discussed in Publication 575 (PDF), Pension and Annuity Income. Depending upon how the distribution on your Form 1099-R is coded (refer to box 7 of the form), you may also need to complete Form 5329 (PDF), Additional Taxes on Other Qualified Plan (including IRA’s), and other tax-favored accounts. Refer to the Instructions for Form 5329 , Additional Taxes on Other Qualified Plan (including IRA’s), and other tax-favored accounts todetermine if you need to file Form 5329.References:

Leave a Reply

Your email address will not be published.