Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

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Frequently Asked Tax Questions

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) - Plan Operations

Rev. date: 1/2009

My understanding is that the 10% additional tax on early distributions is forgiven if I am over age 55 and default on a loan through my 401(k) plan when I have a separation from service with my employer. Can you confirm that for me?

1099-R
Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts
Additional tax on other early distributions.
Lump-Sum Distribution
Penalty, Early Distributions from IRAs and Plans
Pension and Annuity Income
Profit Sharing Plan
Qualified Plan
Qualified Withdrawals
Retirement Plan

If you default on a loan from your 401(k) plan:

You are considered to have received a distribution from your 401(k) plan.
You may have to pay the 10% additional tax on early distributions unless you are eligible for an exception to this tax.

For example, the 10% additional tax on early distributions does not apply if all the following apply to you:

You received the distribution after you left your employer; and
Your departure from the employer occurs during or after the calendar year in which you reached age 55; and
Your departure from the employer qualifies as a separation from service.

There are number of exceptions to the 10% tax on early distributions. You may wish to refer to Publication 575, Pension and Annuity Income, and Publication 560, Retirement Plans for Small Business, for additional information.

Rev. date: 1/2009

The following IRS publications include additional information on retirement plans:

Publication 560, Retirement Plans for Small Business
Publication 575, Pension and Annuity Income

You may find additional information on the IRS website.


Previous Page: Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) > Plan Design Next Page: Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) > Rollovers - Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) Use to find additional instances of index items.

Frequently Asked Tax Questions

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.) - Plan Operations

My understanding is that the 10% additional tax on early distributions is forgiven if I am over age 55 and default on a loan through my 401(k) plan when I have a separation from service with my employer. Can you confirm that for me?

Where can I find additional information on tax-favored retirement plans?