I received a lump-sum distribution when I retired. Is there any
special tax treatment on a lump-sum distribution?
You may be able to elect optional methods of figuring the tax on lump-sum
distributions you received from a qualified retirement plan.
A lump-sum distribution is the distribution or payment, within a single
tax year, of an employee's entire balance from all of the employer's qualified
pension, profit-sharing, or stock bonus plans. The distribution must have
been made under specific conditions. For details, refer to Tax Topic 412 which
discusses Lump-Sum Distributions or Publication 575, Pension
and Annuity Income.
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
reported on Form 1099-R (PDF) ,Distributions
From Pensions, Annuities, Retirement on Profit-Sharing Plans, IRAs Insurance
Contracts, etc.. In addition, if you took the distribution before age
59 1/2, you may need to pay a 10 percent additional tax on early distributions
from qualified retirement plans unless you meet one of the exceptions in Publication 575, Pension and Annuity Income. You will include
the federal income tax withheld on the appropriate line of your federal tax
return along with any other federal income tax.
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 to purchase your first home without being subject to a 10 percent
additional tax on early distributions from qualified retirement plans. However,
depending on the rules for your 401(k) plan, you may be able to borrow money
from your 401(k) plan to purchase 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) plan as well as other plan rules.
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 taxable income and may be 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 that was rolled over, you would not
add any of that amount to gross taxable income this year or owe a 10 percent
additional tax on early distributions from qualified retirement plans.
If I retire or am laid off before I am 59 1/2, can I withdraw the
funds accumulated in a 401(k) plan, without having to pay a 10% penalty?
In most cases, if you withdraw funds from your 401(k) plan 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, Retirement
Plans for Small Business and Publication 575, Pension and Annuity
Income.
