How Do You File Taxes After an Early 401(k) Withdrawal?


Quick Answer

Early 401(k) withdrawals (those made before age 59 1/2) usually carry an additional 10 percent tax penalty, which is filed on either Form 5329 or Form 1040, notes About.com. As a rule, Form 5329 is used if a penalty exception applies, but that exception was not reported on Form 1099-R.

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Full Answer

If the appropriate exception was not mentioned on Form 1099-R, you need to mark the penalty with the correct IRS-supplied code on Form 5329, Line 2. The exact codes are available in the instructions for Form 5329, About.com states.

401(k) withdrawals are taxed as ordinary income and, if made before age 59 1/2, may be subject to an additional 10 percent tax penalty, explains About.com. The retirement withdrawal is always considered taxable income, but the penalty may be waived if certain conditions apply. These conditions include using the funds to pay for medical expenses that exceed 7.5% of the account owner’s adjusted gross income; receiving distributions as a result of the account owner’s death or disability; receiving a distribution that is part of "substantially equal payments" scheduled to be paid out over the account owner’s lifetime; receiving distributions at age 55 or older while not employed; and receiving distributions mandated as a result of separation or divorce.

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