When do I pay the 10 percent penalty for an early 401(k) withdrawal?

by Paul K. Rudoy, CPA, PFS | May 25, 2018

I cashed out my 401(k) in a lump sum distribution. I’m curious about when the 10 percent early withdrawal penalty is paid. I received a check that had the state and federal income tax deducted, but not the 10 percent penalty. Is the 10 percent calculated from the pretax distribution amount, or the after-tax amount? Will this penalty be assessed when I pay my taxes at the end of the year? 

The 10 percent premature distribution tax is calculated when you file your annual individual income tax return. But if you wait until you file your return, you could be subject to a penalty for underpayment of estimated tax payments. Look at Form 2210 to determine if you will owe an underpayment penalty on top of the 10 percent premature distribution penalty.

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Answered by: Paul K. Rudoy, CPA, PFS, is managing partner of H2R CPA in Pittsburgh, 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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