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.) - Types of Plans

I received a lump-sum distribution when I retired. Is there any special tax averaging option on a lump-sum distribution?
If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?
Can I withdraw my elective deferrals to a 401(k) plan to build or purchase my first home without paying the 10% additional tax on early distributions?
I changed jobs and received a distribution (via check) of my entire vested account under my former employer's 401(k) plan. The plan withheld 20% of my account for Federal Income Taxes. Within 60 days of receiving the distribution, I rolled over the distribution to my current employer's 401(k) plan. Since taxes were withheld from the distribution made by my former employer's plan, do I have to include that money as income?
If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer's 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?
Where can I find additional information on various types of tax-favored retirement arrangements?

Rev. date: 9/16/2010

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. If you were born on or before January 1, 1936, or are the beneficiary of a participant born on or before January 1, 1936, you may be able to able to elect optional methods of figuring the tax on lump-sum distributions you received from an eligible retirement plan. These optional methods can be elected only once after 1986.

For other situations and further information, see Publication 575, Pension and Annuity Income.

Additional Information

Publication 575 Pension and Annuity Income Tax Topic 412 Lump-sum distributions

Rev. date: 3/15/2011

Generally, you need to include in income the total amount of the distribution, as reported on Form 1099-R (PDF), Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
If the distribution occurs before certain conditions are met (for example, before you are age 59 1/2), you may need to pay a 10% additional tax on early distributions unless you meet one of the exceptions.) See Publication 575, Pension and Annuity Income.
The federal income tax withheld from the distribution along with federal income tax withheld from other sources should be reported on the appropriate line of your federal tax return.

Additional Information

Tax Topic 558 Tax on Early Distributions from Retirement Plans Tax Topic 412 Lump-sum distributions Form 5329 (PDF) and instructions

Rev. date: 8/30/2010

Generally, the exception for using retirement funds in an individual retirement plan to build or purchase your first home does not apply to a distribution of your elective deferrals from a 401(k) plan.
Elective deferrals to a 401(k) plan are subject to certain distribution restrictions. See Publication 560 Retirement Plans for Small Business, Publication 575 Pension and Annuity Income and Tax Topic 424 401(k) plans.
If you are under the age of 59 1/2, a distribution (including a distribution of employer matching and profit sharing contributions) from your 401(k) plan is generally subject to a 10% additional tax on early distributions. There may be special rules, for example, if the distribution is from a designated Roth account or after you reach age 55 and separate from service. This 10% additional tax is in addition to other taxes that apply to the distribution.
Your plan administrator or employer should have written information about your particular plan (including the availability of loans or hardship distributions and applicable requirements) as well as other plan rules.

Additional Information

Publication 575 Pension and Annuity Income Tax Topic 424 401(k) plans Tax Topic 558 Tax on Early Distributions from Retirement Plans Publication 560 Retirement Plans for Small Business Retirement Topics - Loans Retirement Topics - Hardship Distributions Retirement Topics - Tax on Early Distributions

Rev. date: 8/30/2010

If the amount rolled over was the net amount (the amount of the distribution less the tax withheld):

Then you may be: (1) required to include the 20% that was withheld in gross taxable income for the year of the distribution; and (2) required to pay a 10% additional tax on early distributions for the 20% that was withheld.
Use Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRAs), and Other Tax-Favored Accounts, to report the 10% additional tax.

If the amount rolled over was the gross amount (the amount rolled over included the 20% that was withheld):

You would not include the amount rolled over in gross taxable income for the year.
In addition, you would not owe a 10% additional tax on early distributions.

Additional Information

Publication 590 Individual Retirement Arrangements (IRAs)Publication 575 Pension and Annuity Income Tax Topic 558 Tax on Early Distributions from Retirement Plans Form 5329 Instructions Tax Topic 412 Lump Sum Distributions Retirement Topics - Tax on Early Distributions

Rev. date: 3/22/2011

Generally, unless an exception applies, a distribution of your benefits from a 401(k) plan before age 59 ½ is subject to the 10% additional tax on early distributions from retirement plans. See Publication 575, Pension and Annuity Income.
However, there are special rules that apply to distributions that are made before you reach age 55. For example, a distribution of your entire benefit under from a 401(k) plan that is made after separation from service and age 55 is not subject to the 10% tax.
Tax Topic 412 and Tax Topic 558 are available for further guidance.

Additional Information

Publication 575 Pension and Annuity Income Tax Topic 558 Tax on Early Distributions from Retirement Plans Publication 560 Retirement Plans for Small Business Tax Topic 412 Lump Sum Distributions

Rev. date: 8/18/2010

Contributions (IRAs & Pension Plans)

Distributions, Minimum Required

Penalty, Early Distributions from IRAs and Plans

Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans)

SEP-IRA

SIMPLE IRA

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’s website.

Additional Information

Types of Retirement Plans

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Frequently Asked Tax Questions

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

I received a lump-sum distribution when I retired. Is there any special tax averaging option on a lump-sum distribution?

If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?

Can I withdraw my elective deferrals to a 401(k) plan to build or purchase my first home without paying the 10% additional tax on early distributions?

If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer's 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?

Where can I find additional information on various types of tax-favored retirement arrangements?