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

May 25, 2018, 12:14 PM by Paul K. Rudoy, CPA, PFS
Answer from the free Ask a CPA service on when the 10 percent penalty for an early 401(k) withdrawal is paid.

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.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

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