How can I find out if I'll receive a penalty for withdrawing my 401(k) funds?

by Paul S. Carpenter, CPA | Aug 03, 2017

I am considering withdrawing the funds in my 401(k). Prudential Retirement has informed me that I may be subject to a 10 percent early withdrawal penalty. How can I find out for sure?

Early distributions (before the age of 59 1/2) from 401(k) plans that are not rolled into another IRA or 401(k) plan are subject to current federal and state income tax, as well as an additional federal 10 percent penalty. Form 5329 instructions outline several exceptions to the penalty, but in all cases the withdrawal is subject to income taxes.

See page 4 in the Form 5329 instructions for a description of each exception to the additional 10 percent penalty.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Paul S. Carpenter, CPA, is a sole practitioner in Johnstown, Pa. 
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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