Hello, I am a new tax preparer and have a client who in 2008 took money out of her 401K plan at work to use for downpayment to buy a home. Since this is my first time dealing with this issue, I'm not sure what forms are used to report the withdrawal or distribution of $8700. She also didn't get a 1099-R statement. I've been told that this gets reported on form 1099-R and form 8606. Is this correct? Also, I believe she will pay the 10% penalty because she is is younger than 59-1/2 years old. Appreciate any advise on this issue.

Yes she will pay the penalty. And if she didn't get a 1099-R she needs to contact the Plan admin to get one.

And if you have been trained as a tax preparer, then you should know where to find out what forms to use when.

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Originally Posted by ScottGem

Yes she will pay the penalty. And if she didn't get a 1099-R she needs to contact the Plan admin to get one.

And if you have been trained as a tax preparer, then you should know where to find out what forms to use when.

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Thanks Scott, appreciate your response. Yes, I went through a 10 week, 2 nights a week crash course of Basic Tax Preparation, but there is so much ground to cover that 10 weeks is not enough to learn everything you need to know with every tax scenario. Being so new at this, I'm sure there will be other things where I might need friendly advise on. Don't get me wrong, I've already done a fair amount of returns that dealt with the most common forms: 1040EZ, 1040A and 1040 returns, including 1099-INT, 1099-Div, 1098-E, 1098-T, Schedule A, Schedule C, 2106. Unfortuantely, I had not worked with a 401K widthdrawal and needed a little guidance. I tried calling the IRS for help, but I was on hold for at least 20 minutes beforeI decided to hang up.

Try Form 5329 for the penalty calculation.

No need for Form 5329; it's a straight 10% of the distribution amount if the code on the Form 1099-R is "1", plus whatever the income tax will be.

Do NOT forget that state taxes are also due.